1980 (11) TMI 35 - HC - Income Tax

Summary

Issues involved: The judgment concerns the allowability of depreciation on roads within the factory compound and the compound of the residential quarters of factory employees, and whether such depreciation should be computed at the same rate as applicable to first class buildings.

Allowability of Depreciation on Roads within Factory Compound:
The High Court considered whether roads within the factory compound are entitled to depreciation under section 32 of the Income Tax Act, 1961. It was noted that if first class building materials were used for the construction of these roads, depreciation should be computed at the same rate as applicable to first class buildings. The court referred to previous decisions, including one by the Bombay High Court, which held that roads laid out by an assessee for business purposes can be considered as buildings and are entitled to depreciation. The court concluded that roads within the factory compound form part of the building used for business purposes and are eligible for depreciation.

Allowability of Depreciation on Compound of Residential Quarters:
Regarding the compound of the residential quarters of factory employees, the court observed that it is often obligatory for factory management to provide such quarters. While these quarters may not be directly used for business, they are considered to be used for business purposes as they are necessary for the functioning of the business. The court emphasized that in the current industrial climate, providing residential quarters for employees is incidental to carrying on the business. Therefore, the court held that roads within the compound of residential quarters should also be allowed depreciation at the rate applicable to first class buildings.

Comparison with Foreign Judgement:
The judgment also referenced a case from the Chancery Division in the High Court of England, where the court deliberated on whether a canopy erected at a garage premises was part of the plant used in the business. The court in that case determined that the canopy did not serve a functional purpose for the business activities and was merely part of the setting. In contrast, the High Court in the present case found that the factory compound and the roads within it are integral to the business operations and thus eligible for depreciation.

Conclusion:
The High Court answered the question regarding the allowability of depreciation on the roads within the factory compound and the compound of the residential quarters of factory employees in the affirmative and in favor of the assessee. The court held that both the roads within the factory compound and the roads within the compound of residential quarters are entitled to depreciation at the rate applicable to first class buildings.