1996 (11) TMI 1 - SC - Income Tax

Machinery installed in Hotel - Tribunal was correct in law in holding that the assessee was entitled to extra depreciation allowance and also extra shift depreciation allowance on the reasoning that there was no prohibition for granting both the allowance either in the Income-tax Rules or in the Act

Summary

Issues:
Interpretation of Income-tax Act - Section 256(2), Extra depreciation allowance for approved hotels, Extra shift depreciation allowance, Applicability of depreciation rates, Conflict between High Court judgments

Analysis:
The case involved two questions referred to the High Court under section 256(2) of the Income-tax Act for the assessment year 1977-78. The first question was regarding the cancellation of the Commissioner of Income-tax's order under section 263, and the second question was about the entitlement of the assessee to extra depreciation and extra shift depreciation allowance. The High Court answered both questions against the assessee, following a previous judgment. The assessment initially allowed extra depreciation and shift allowance, but the Commissioner revised the order, leading to an appeal by the assessee before the Tribunal, which ruled in favor of the assessee based on a previous decision related to approved hotels.

The dispute primarily revolved around the interpretation of the rates of depreciation provided in the Income-tax Rules, specifically for machinery and plant. The contention of the Revenue was that an approved hotel was entitled only to the depreciation allowance under a specific sub-item and not to the extra shift depreciation allowance. However, the Supreme Court disagreed with this interpretation, emphasizing that depreciation is allowed based on machinery and plant, not the nature of the activity. The Court highlighted that there was no provision excluding hotels from claiming extra shift depreciation allowance and that the concept of shift was applicable even in a hotel setting.

The Court analyzed the definitions of "shift" and concluded that the concept was relevant to workers' schedules, not the establishment itself. Therefore, a hotel operating round the clock would have multiple worker shifts, making it eligible for extra shift depreciation allowance. The Court clarified that an approved hotel could claim both extra depreciation allowance and extra shift depreciation allowance, rejecting the Revenue's argument that an approved hotel should be deprived of the latter. Ultimately, the Court ruled in favor of the assessee, allowing both allowances for plant and machinery in a hotel setting. The judgment favored the assessee on both questions, overturning the High Court's decision and allowing the civil appeal with no costs.