1982 (3) TMI 27 - HC - Income Tax

Issues Involved:
1. Depreciation rate for administrative buildings.
2. Jurisdiction of the ITO to reopen assessments under section 147(a) of the Income Tax Act.
3. Depreciation rate for general purpose machinery.
4. Validity of reassessment proceedings initiated under section 147(a) for items falling under section 147(b).
5. Depreciation rate for canteen, new stores, and co-operative stores buildings.

Issue-wise Detailed Analysis:

1. Depreciation Rate for Administrative Buildings:
The court examined whether the 'Administrative Buildings' at Vandalur should be considered part of 'factory buildings' and thus eligible for a depreciation rate of 5%. The Tribunal had classified these buildings as factory buildings, allowing a 5% depreciation rate. The court upheld this classification, noting that buildings like the administrative block, canteen, fire service station, pump house, overhead tanks, and wells are essential adjuncts to the factory premises. The court emphasized that these structures are integral to the factory's operations, thus qualifying for the higher depreciation rate.

2. Jurisdiction of the ITO to Reopen Assessments Under Section 147(a):
The court addressed whether the ITO acted within his jurisdiction in reopening the assessments under section 147(a) of the Income Tax Act. The Tribunal had found that the reopening of assessments for the years 1961-62 to 1963-64 was valid. The court agreed, stating that once valid proceedings are initiated under section 147(a), the entire assessment is laid open. The ITO is not confined to reassessing only the items thought to have escaped assessment but must reassess the entire income that had escaped assessment during that year.

3. Depreciation Rate for General Purpose Machinery:
The court considered whether the depreciation allowance for general purpose machinery should be restricted to 7% instead of the originally granted 10%. The Tribunal had found that the assessee was entitled to a 7% depreciation rate for general purpose machinery from the assessment years 1965-66 onwards. The court upheld this finding, noting that the reassessment proceedings initiated under section 147(a) could not be used to revise the depreciation allowance for general purpose machinery for the years 1961-62 to 1963-64, as it was barred by the rule of four years prescribed under section 147(b).

4. Validity of Reassessment Proceedings Initiated Under Section 147(a) for Items Falling Under Section 147(b):
The court examined whether the ITO could reassess items falling under section 147(b) during reassessment proceedings initiated under section 147(a). The court held that once reassessment proceedings are validly initiated under section 147(a), the ITO has jurisdiction to assess the entire income, including items falling under section 147(b), even if the period for issuing a notice under section 147(b) has expired. The court emphasized that the effect of reopening the assessment is to vacate the initial order of assessment, allowing the ITO to reassess the entire income.

5. Depreciation Rate for Canteen, New Stores, and Co-operative Stores Buildings:
The court considered whether depreciation at the rate of 5% was admissible for the canteen, new stores, and co-operative stores buildings. The Tribunal had held that these buildings should be treated as part of the factory building, allowing a 5% depreciation rate. The court agreed, noting that these structures are essential for the factory's operations and should be considered part of the factory building. The court emphasized the functional approach in determining whether a particular structure falls within the category of factory buildings.

Conclusion:
The court upheld the Tribunal's findings on all issues, affirming the depreciation rates for administrative buildings and general purpose machinery, and validating the ITO's jurisdiction to reassess the entire income during reassessment proceedings initiated under section 147(a). The court emphasized the functional approach in determining the classification of factory buildings and the comprehensive nature of reassessment proceedings.

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