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Issues involved: Interpretation of depreciation allowance u/s 256(1) of the Income-tax Act, 1961 for a canteen building within factory premises.
Summary: The High Court of Karnataka, in a judgment delivered by Judge K. Jagannatha Shetty, considered a reference made u/s 256(1) of the Income-tax Act, 1961 regarding the entitlement to higher depreciation on a canteen building within a factory premises for the assessment year 1974-75. The assessee, a company, claimed depreciation on the canteen building as part of the factory, which was initially allowed but later disallowed in reassessment by the Income-tax Officer. The Commissioner of Income-tax (Appeals) upheld this decision, leading the assessee to appeal to the Tribunal. The Tribunal, following a precedent from the Madras High Court, allowed the appeal of the assessee. The central question was whether a canteen within factory premises should be considered part of the factory building for depreciation purposes. The court noted that the canteen building in question was situated within the factory premises, similar to a case previously considered by the Madras High Court. The Madras High Court had opined that a canteen building, due to its operational activities and potential damage, should be treated as a factory building for depreciation allowance purposes. The High Court of Karnataka concurred with this view, emphasizing the integral role of canteens in factories for the welfare of workers and their susceptibility to damage compared to regular factory buildings. Ultimately, the court answered the question in the affirmative, ruling in favor of the assessee and against the Revenue. The decision aligned with the understanding that canteens, being essential for worker welfare and subject to wear and tear, should be considered part of the factory for depreciation calculations.
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