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TMI Blog1997 (7) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance in respect of the machinery and spares which were added during the relevant previous year, on the basis of double and triple shifts worked by the entire concern ? " The assessee is a public limited company carrying on business in the manufacture and sale of rayon yarn and wood pulp. The assessee claimed multiple shift allowance during the relevant assessment year on the basis of the number of days on which the concern as a whole worked extra shift and not with reference to the number of days on which each machine had worked. The Income-tax Officer restricted the allowance to the number of days on which each machinery had worked. On appeal, the Appellate Assistant Commissioner accepted the claim of the assessee and allowed extra shift allowance on the basis of the number of days for which the concern as a whole worked double and triple shifts. The Tribunal agreed with the said view of the Appellate Assistant Commissioner. By the impugned judgment the High Court has, however, held that in view of the provisions contained in rule 5 of the Rules read with Appendix I to the Rules, the Income-tax Officer is required to apply his mind to examine which machinery owned by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decisions of the High Court referred to in the impugned judgment and has submitted that the circulars of the Board are only clarificatory in nature and are not binding on the High Court or on this court and that the matter has to be examined on the basis of the relevant statutory provisions. Section 32 of the Act makes provision for deductions that can be allowed in respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession. In clause (ii) of sub-section (1) of section 32, as it stood at the relevant time, it was provided that in the case of buildings, machinery, plant or furniture depreciation was allowable at such percentage on the written down value thereof as may, in any case or class of cases, be prescribed. The mode of computation of the depreciation that is allowable is prescribed in the Rules. Rule 5(1) of the Rules, as it stood at the relevant time, provided as under : " Depreciation.--(1) Subject to the provisions of sub-rules (2) and (3), the allowance under clause (i) or clause (ii) of sub-section (1) of section 32 in respect of depreciation of buildings, machinery, plant or furn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be-- (a) in the case of a seasonal factory or concern, the number of days on which the factory or concern actually worked during the previous year or 180 days, whichever is greater ; (b) in any other case, the number of days on which the factory or concern actually worked during the previous year or 240 days, whichever is greater, Illustration For example, where a non-seasonal concern worked 270 days during the previous year out of which it worked triple shift on 135 days and double shift on another 90 days, the extra depreciation allowance for triple shift working will be 135/270, i.e., one-half of the normal allowance, and that for double shift working 90/270, i.e., one-third of one-half, of the normal allowance. The extra shift allowance shall not be allowed in respect of any item of machinery or plant which has been specifically-excepted by inscription of the letters 'N.E.S.A.' (meaning 'No extra shift allowance') against it in sub-item (ii) above and also in respect of the following items of machinery and plant to which the general rate of depreciation of 10 per cent. applies :-- (Omitted)." The value of capital assets employed in production, namely, plant and machine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... days, whichever was greater. The extra shift allowance was not allowable in respect of any item of machinery or plant which had been specifically excepted by inscription of the letters "N.E.S.A." against it in sub-item (ii) of the said Appendix. The said allowance was also not allowable on certain specified items of machinery and plant to which the general rate of depreciation of 10 per cent. was applicable. It would thus appear that for the purpose of calculating extra shift allowance allowable under Part I of Appendix I to the Rules what was required to be determined was the actual number of days on which the concern had worked double shift or triple shift, as the case may be. For the purpose of calculating the extra shift depreciation allowance under Part I of Appendix I to the Rules it was not necessary to determine the actual number of days on which the particular item of machinery or plant, on which such allowance was claimed, had been used in double shift or triple shift during the relevant previous year. It is no doubt true that under section 32(1) of the Act depreciation is allowable on buildings, machinery, plant or furniture owned by the assessee and used for the purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ft working as well as the words "the number of days on which the factory or concern actually worked during the previous year" in clauses (a) and (b) in the said paragraph which clearly indicate that for the purpose of calculating the extra shift depreciation allowance allowable under Part I of Appendix I to the Rules the number of days on which the concern as a whole actually worked double shift and triple shift has to be determined and it is not necessary to see whether any particular item of machinery or plant had actually been used in double shift or triple shift on the days on which the concern had worked in double shift or triple shift. All that was excluded from extra shift depreciation allowance were the items of machinery or plant against which the letters N.E.S.A. were inscribed in sub-item (ii) of the Table in Part I of Appendix I to the Rules and certain specified items of machinery or plant to which the general rate of depreciation of 10 per cent. was applicable. The High Court has observed that if the assessee's contention was accepted, then even if a small item of machinery in a corner of a huge factory has worked extra shift, the entire factory would be eligible for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance could only be granted in accordance with the said provision. Similarly, in Raza Sugar Co. v. CIT [1970] 76 ITR 541, the Allahabad High Court was dealing with the claim for 50 per cent. over the normal depreciation as extra shift allowance in respect of a seasonal sugar factory under rule 8 of the 1922 Rules. Rejecting the said claim it was held that such allowance was to be restricted to the extent laid down in the said rule as regards seasonal factories. In Kundan Sugar Mills v. CIT [1977] 106 ITR 704 (All) also the Allahabad High Court was dealing with a seasonal sugar factory and the High Court has followed its earlier decision in Raza Sugar Co. v. CIT [1970] 76 ITR 541 (All). These decisions relating to seasonal factories have, in our opinion, no bearing on the question falling for consideration in the present case. Anantapur Textiles Ltd. v. CIT [1979] 116 ITR 851 (Cal) was a case governed by rule 5 of the Rules read with Appendix I to the Rules as they stood prior to amendment of rule 5 and Appendix I in 1971. The assessee had claimed extra shift allowance on the ground that the factory had worked triple shift for 330 days during the previous year. The Income-tax Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for a period of 30 days or less during the previous year also indicates that in computing the extra allowance for triple shift working of the concern the item of machinery and the number of days on which the same had worked are to be taken into consideration. " The High Court has also emphasised that under rule 5 in the case of computation of normal depreciation allowance the actual working of each plant and machinery was material and depreciation allowance was to be computed on the basis of the number of days each plant and machinery worked during the previous year provided that the plant or machinery was otherwise qualified to claim the depreciation allowance. The provisions of rule 5 relating to depreciation as well as the provisions relating to extra shift depreciation allowance contained in Appendix I of the rules on which the said decision is based, were amended and the present case is governed by the amended provisions. Under rule 5, as amended, normal depreciation allowance was allowable "on the actual cost or, as the case may be, the written down value of such of the assets aforesaid as are used for the purposes of the business or profession of the assessee at any time d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the subject of calculation of depreciation, extra shift a allowance in respect of plant and machinery, it was stated : " I am directed to refer to your letter No. A/21233/CT/6A/102/6970, dated November 1, 1969, on the above subject and to say that the Board have decided, that where a concern has worked double shift or triple shift, extra shift allowance will be allowed in respect of the entire plant and machinery used by a concern which has worked extra shift without making any attempt to determine the number of days on which each machinery or plant actually worked extra shift during the relevant previous year. " Subsequently, the Board issued Instruction No. 1605, dated February 26, 1985, wherein, after referring to the decisions of the Allahabad High Court in Kundan Sugar Mills v. CIT [1977] 106 ITR 704, and the Calcutta High Court in Anantapur Textiles Ltd. v. CIT [1979] 116 ITR 851, as well as the impugned judgment it has been stated : The instructions issued earlier have been considered again by the Board. In exercise of the powers conferred by section 119(1) of the Income-tax Act, 1961, the Central Board of Direct Taxes, being of the opinion, that it is expedient for t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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