2015 (2) TMI 804 - HC - Income Tax

Higher rate of depreciation of 10 per cent. on 'creche building' - business assets or not - Held that - It is not in dispute that the creche building is situated within the same compound of the factory where the assessee carries on manufacturing activity. For the purpose of increasing efficiency, productivity of the women employees were engaged in the factory, creche is created by the assessee in a separate building. In other words, the creche building is being utilized in the process of manufacturing of the products. Considering the importance of the creche building, the creche building is included as one of the business assets which is allowable for granting of depreciation. In this context, it may also be noted that the assessee is being assessed under the head of Income from business . Thus the order of the Tribunal in allowing the depreciation at 10 per cent. treating the creche building as a business asset cannot be found fault. - Decided in favour of assessee. Excess prices recovered and deposited with the DPEA - ITAT allowing the assessee's claim of liability for the assessment years 1984-85 and 1985-86 under the Drugs (Price Control) Order, 1979 - Held that - The relevant provisions of the DPCO does not leave any option to the assessee to retain the excess amounts collected. Liability under the provisions of the DPCO is fastened on the assessee the moment the sales are made at a price exceeding the price prevailing on the date of introduction of the DPCO. Merely because the assessee though challenged the liability by filing a writ petition in the High Court of Mumbai, the liability itself does not get obliterated as the liability is in fact on account of a statutory control order issued in exercise of the powers vested in the Government under the Essential Commodities Act. In fact, the Tribunal had taken the same view and had come to a conclusion after detailed analysis of the provisions of the DPCO that the liability imposed on the assessee with respect to excess amounts collected over and above the prices notified in the DPCO are of the statutory nature. See Kedarnath Jute Manufacturing Co. Ltd. v. CIT 1971 (8) TMI 10 - SUPREME Court - Decided in favour of the assessee

Summary

Issues:
1. Higher rate of depreciation on 'creche building' for assessment years 1983-84 to 1985-86
2. Allowance of liability under the Drugs (Price Control) Order, 1979 for assessment years 1984-85 and 1985-86

Analysis:

Issue 1: Higher rate of depreciation on 'creche building'
The appellant claimed depreciation at 10% on the creche building for the assessment years 1983-84 to 1985-86, which was initially allowed at 2.5% by the Assessing Officer. The Commissioner of Income-tax (Appeals) upheld this decision. The Tribunal, following its decision for the assessment year 1982-83, allowed the higher rate of depreciation. The creche building was considered part of the factory building, and the Tribunal justified the higher rate of depreciation based on the ordinary dictionary meaning of "factory" and the extended scope of assets entitled to a high rate of depreciation. As the creche was within the factory compound and contributed to the manufacturing process by enhancing the efficiency of women employees, it was classified as a business asset eligible for higher depreciation. The Tribunal's decision to allow depreciation at 10% on the creche building was upheld.

Issue 2: Allowance of liability under the Drugs (Price Control) Order, 1979
For the assessment years 1984-85 and 1985-86, the appellant claimed deductions for deposits made towards the Drugs Price Equalization Account (DPEA) under the Drugs Price Control Order, 1979. The deposits were made due to overcharged prices of medicine manufactured by the appellant, exceeding the prices fixed by the government. Despite disputes and legal challenges, the appellant eventually deposited a substantial amount with the government. The Tribunal analyzed the provisions of the DPCO and concluded that the liability to deposit excess amounts collected in violation of the DPCO was of a statutory nature. This decision was supported by precedent, including a Supreme Court case and a judgment of the High Court. The Tribunal ruled in favor of the appellant, allowing the deductions under the mercantile system. Consequently, all questions were answered in favor of the appellant against the Revenue, and the case was disposed of with no costs awarded.

This judgment clarifies the eligibility for higher depreciation rates on specific assets like the creche building within a factory compound and addresses the treatment of liabilities arising from statutory control orders like the Drugs Price Control Order, 1979.