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TMI Blog1975 (8) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... td. v. Commissioner of Income-tax. There the Supreme Court has laid down that interest paid before the commencement of production on amounts borrowed by the assessee for the acquisition and installation of plant and machinery forms part of the " actual cost " of the assets to the assessee within the meaning of the expression in section 10(5) of the Indian Income-tax Act, 1922, and the assessee will be entitled to depreciation allowances and development rebate with reference to such interest also. It was further held by the Supreme Court that, as the expression " actual cost " has not been defined, it should be construed in the sense which no commercial man would misunderstand. For this purpose it would be necessary to ascertain the connotation of the expression in accordance with the normal rule 4 of accountancy prevailing in commerce and industry. The accepted accountancy rule for determining the cost of fixed assets is to include all expenditure necessary to bring such assets into existence and to put them in working condition. In case money is borrowed by a newly started company which is in the process of constructing and erecting its plant, the interest incurred before the comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he written down value or original cost, as the case may be, equal to one-twelfth the number shown in the corresponding entry in the second column of the following statement : Provided that if the buildings, machinery, plant or furniture have been used by the assessee in his business for not less than two months during the previous year, the percentage shall be increased proportionately according to the number of complete months of use by the assessee : Provided further that in the case of a seasonal factory worked by the assessee during all the working seasons of the previous year the percentage shall be increased as if the buildings, machinery, plant or furniture had been in use throughout the period the assessee was the owner thereof during the previous year. In a tabular statement, in rule 8, the provision for depreciation, the rate at which depreciation was to be allowed on different types of assets was laid down, and we are concerned with the provision for depreciation for machinery and plant under clause (1) General rate. The rate is 7 per cent. and in the remarks column, the following provision was made by notification dated August 27, 1949 : " An extra allowance up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out the normal depreciation for seasonal factories and that is the meaning which has to be attributed to the words " normal allowance " as shown by the Explanation under the remarks column against the General rate in " Machinery and plant ". The second proviso does not contemplate any allowance for double shift or triple shift. Rule 8 along with the second proviso was introduced in that particular form with effect from May 15, 1948, and applied to assessments for the year ending 31st day of March, 1949, and subsequent years whereas the passage in the remarks column providing for double shift and triple shift allowance was inserted by a notification dated August 27, 1949. Under the opening words of the passage in the remarks column a specific provision for extra allowance for double shift working and triple shift working has been made. The allowance on the footing of double shift cannot exceed 50 per cent. of the normal allowance permissible for machinery and plant. Moreover, the mode for calculating the extra allowance for double shift is provided under the remarks column by laying down that for the purpose of granting the extra allowance for double shift, the normal number of wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The answer to both these objections is simple. Inasmuch as seasonal factories are not specifically excluded from the mode of calculation in the remarks column, it is obvious that they were meant to be included in the phraseology " all concerns " occurring in the remarks column. If the rule-making authority had meant to exclude the seasonal factories, it would have specifically provided for such exclusion. Moreover, though the seasonal factories are not supposed to work for a total number of 300 days in a year, yet it is only a notional working. If the entire number of days may be 300, it is in the whole year of working and it is with reference to that figure of 300 days that the proportion for the purpose of calculating the double shift allowance has to be calculated. In our opinion, the words " this applies to all concerns whether the general rate or any special rate applies to them " occurring in the remarks column clearly indicate that at the time when the rule-making authority made this provision for double shift allowance by putting down the appropriate remarks in the remarks column in the statement under rule 8, it clearly indicated that all factories, including seasonal fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion for the first shift and the extra 50% for the second shift." After quoting the provisions of the rule and the remarks column, the Allahabad High Court observed : " The rule read along with what is stated in the remarks column in the statement leads to the conclusion that for the purposes of granting the extra allowance for the double shift, the normal number of working days throughout the year will be taken as 300 days. As, for example, if a concern has worked only double shift for 100 days, the extra allowance for double shift will be 1/3rd of 50 per cent. of the normal allowance for the whole year. The rule and the statement do not support the claim of the assessee that it is entitled to just 50 per cent. of the normal depreciation for the second shift." Thus the view taken by us regarding the effect of the second proviso to rule 8 and what has been stated in the remarks column regarding plant and machinery finds support from these two decisions, one of the Calcutta High Court and the other of the Allahabad High Court. Mr. Patel drew our attention to the provisions contained in the Income-tax Rules, 1962, and so far as extra-shift depreciation allowance is concer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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