1989 (3) TMI 166 - AT - Income Tax

Summary

Issues Involved:
1. Entitlement to Depreciation at 40% under Section 34(2)(a)
2. Alternative Claim for Normal Depreciation
3. Interest Charged under Section 216

Issue-wise Detailed Analysis:

1. Entitlement to Depreciation at 40% under Section 34(2)(a):
The primary dispute revolves around whether the building constructed by the assessee, M/s Taxmann Allied Services (P) Ltd., qualifies for a 40% depreciation rate as per Section 34(2)(a) of the IT Act. The assessee contends that the building is used by employees drawing salaries below Rs. 10,000 per annum, thus meeting the criteria for higher depreciation. The building, constructed at a cost of Rs. 9,42,118, was allegedly occupied by employees, including close relatives of the company's Chairman, Shri U.K. Bhargava, who were drawing salaries between Rs. 400 to Rs. 750 per month. The Revenue, suspecting a device to dodge taxes, denied the higher depreciation rate, citing the Supreme Court's decision in Workmen of Associated Rubber Industry Ltd. vs. Associated Rubber Industry Ltd. & Anr., which addressed the misuse of corporate structures to reduce tax liabilities. The Tribunal, after inspecting the building and considering the facts, concluded that despite the luxurious nature of the building and the apparent device to claim higher depreciation, the salaries paid to the employees had been accepted as genuine deductions by the Revenue. Therefore, the Tribunal reversed the CIT(A)'s finding and allowed the 40% depreciation claim.

2. Alternative Claim for Normal Depreciation:
The assessee had raised an alternative ground that, at the very least, normal depreciation should be allowed on the building as it was used for business purposes. However, this alternative plea was not raised at the assessment stage or explicitly dealt with by the CIT(A). The Tribunal noted that the alternative plea becomes academic once the primary contention for higher depreciation is accepted.

3. Interest Charged under Section 216:
The third issue pertains to the interest charged under Section 216. The CIT(A) did not provide a specific finding on this matter, stating that no objections were raised by the assessee either orally or in writing. However, the grounds of appeal did include a specific ground regarding the charge of interest under Section 216. Consequently, the Tribunal restored this matter to the file of the CIT(A), directing a re-evaluation after giving the assessee an opportunity to be heard.

Conclusion:
The Tribunal allowed the appeal partly for statistical purposes, granting the 40% depreciation claim while remanding the issue of interest under Section 216 back to the CIT(A) for further consideration.