2015 (6) TMI 682 - HC - Income Tax

Entitlement to extra shift allowance in terms of circular dated 26 May 1985 of the CBDT - whether reduction plant is an integral part of the factory of the assessee ? - Held that - Both the CIT (Appeals) as well as the Tribunal have reached a concurrent finding of fact that the reduction plant is an integral part of the factory of the respondent. This concurrent finding of fact by Commissioner of Income Tax (Appeals) and the Tribunal is not shown to be in any manner perverse. This issue stands concluded in favour of the assessee by the decision of the Supreme Court in South India Viscose Ltd. Vs. CIT reported in 1997 (7) TMI 9 - SUPREME Court wherein the Supreme Court had occasion to consider the effect of the circular dated 28 September 1970 which is in fact reiterated in the subsequent circular dated 26 May 1985. The Apex Court has observed that extra shift allowance has to be calculated on the basis of number of days which the factory had actually worked on extra shift and the extra shift allowance has not to be calculated qua a machinery or plant in the factory. Thus as held by the Supreme Court the extra shift allowance has to be calculated on the basis of number of days in which the factory had worked for extra shift and not on the basis of individual plant/machinery working an extra shift. - Decided in favour of assessee.

Summary

Issues:
1. Whether the reduction plant is an integral part of the factory of the respondent-assessee?
2. Whether the respondent is entitled to extra shift allowance in terms of circular dated 26 May 1985 of the CBDT?

Analysis:

Issue 1:
The respondent-assessee claimed extra shift allowance for its reduction plant, which was denied by the Assessing Officer on the grounds that the reduction plant is independent. The Commissioner of Income Tax (Appeals) and the Tribunal both found that the reduction plant is an integral part of the factory. The Tribunal upheld the decision, relying on the circulars by the CBDT which stated that extra shift allowance is extended to the factory as a whole, not to individual machinery/plants. The Supreme Court in South India Viscose Ltd. Vs. CIT held that extra shift allowance should be calculated based on the number of days the factory worked on extra shifts, not on individual machinery/plants. Thus, the issue of the reduction plant being a part of the factory was conclusively decided in favor of the respondent-assessee.

Issue 2:
The second aspect of the issue was the applicability of the circular dated 26 May 1985 of the CBDT to the respondent's reduction plant. The Supreme Court's decision in South India Viscose Ltd. Vs. CIT clarified that extra shift allowance should be calculated based on the total number of days the factory worked on extra shifts, not on individual machinery/plants. As the reduction plant was deemed an integral part of the factory, the respondent-assessee was entitled to extra shift allowance as per the circular. The High Court answered both aspects of the question in the affirmative, in favor of the respondent-assessee, and disposed of the reference application without costs.