2012 (8) TMI 8 - HC - Income Tax

Whether road constructed within factory premises should be treated as part of building for depreciation purposes Held that - Roads constructed inside and within boundary wall of premises, be it a building or factory, are meant to augment utilization thereof, such roads are eventually intended to augment utilization of building/factory by providing access thereto - Building includes roads laid in the proximity of factory for the purpose of providing access to factory and other buildings within compound and they are entitled to depreciation

Summary

Issues:
Whether expenditure on the construction of approach roads within the factory premises should be treated as revenue expenditure or depreciation allowed thereon.

Analysis:
The case involved a reference from the Income Tax Appellate Tribunal (ITAT) to the High Court regarding the treatment of expenditure on the construction of approach roads within the factory premises. The primary question was whether such expenditure should be considered as revenue expenditure or if depreciation should be allowed on it. The Income Tax Officer initially held that the expenditure was not revenue expenditure, and the Commissioner of Income Tax (Appeals) concurred with this decision, denying depreciation on the approach road. However, before the ITAT, the assessee pressed for depreciation on the grounds that the approach road should be treated as part of the building for depreciation purposes. The ITAT allowed the claim based on judicial pronouncements and directed that the construction costs of the roads should be considered part of the building for depreciation purposes.

In the arguments presented before the High Court, the counsel for the revenue contended that the approach road could not be considered part of the building or factory, and therefore, no depreciation should be allowed on it. The counsel relied on a judgment of the Bombay High Court to support this argument. Despite the absence of representation from the assessee, the High Court noted that in an earlier order of the ITAT, the assessee had argued that the approach road should be treated as part of the building for depreciation purposes.

The High Court referred to various judgments, including those of the Andhra Pradesh High Court, Bombay High Court, and Madras High Court, which held that roads constructed within factory premises should be considered part of the building and entitled to depreciation. The High Court agreed with this view, stating that roads constructed inside the premises are meant to enhance the utilization of the building or factory by providing access. Therefore, the High Court answered the reference in favor of allowing depreciation on the approach roads within the factory premises.