Building for Manager's Residence Not Solely Used, Higher Depreciation Denied

The court ruled against the respondent-assessee, determining that the building provided for the manager's residence was not used solely for that purpose due to the occupancy of his minor sons who were admitted to the benefits of partnership. As a result, the respondent was denied the higher depreciation rate of 20% under section 32(1)(iv) of the Income-tax Act, 1961. The decision favored the Revenue, with each party bearing its own costs.

---

---

Issues Involved:
1. Entitlement to initial depreciation under section 32(1)(iv) of the Income-tax Act, 1961.
2. Interpretation of "used solely for the purpose of residence" under section 32(1)(iv).
3. Consideration of minor sons admitted to the benefits of partnership.
4. Allegation of tax avoidance through a colorable device.

Detailed Analysis:

1. Entitlement to Initial Depreciation under Section 32(1)(iv) of the Income-tax Act, 1961:
The primary issue revolves around whether the respondent-assessee is entitled to claim initial depreciation on the cost of a building provided to its manager, Shri O. N. Mahendra, for his residence. According to section 32(1)(iv) of the Act, a higher depreciation rate of 20% is permissible if the building is used solely for the residence of employees earning less than Rs. 7,500 annually. The respondent-assessee claimed this benefit, arguing that the building was used solely by the manager, whose annual salary was Rs. 7,200.

2. Interpretation of "Used Solely for the Purpose of Residence" under Section 32(1)(iv):
The court examined whether the building was used solely for the residence of Shri O. N. Mahendra. The Income-tax Officer (ITO) found that the building was also occupied by Mahendra's minor sons, who were admitted to the benefits of the partnership, and another partner, Shri P. N. Mahendra, in the subsequent year. The Commissioner of Income-tax (Appeals) partially allowed the claim, granting depreciation on 3/4ths of the building's cost. The Tribunal upheld this decision, noting that the manager's family staying with him did not disqualify the building from being used solely for his residence.

3. Consideration of Minor Sons Admitted to the Benefits of Partnership:
The Revenue argued that since the minor sons of Shri O. N. Mahendra were admitted to the benefits of the partnership, they had a right to a share in the property, thus disqualifying the building from being used solely for the manager's residence. The court emphasized that under section 30(2) of the Indian Partnership Act, the minors had a right to the property and profits of the firm, and their occupancy meant the building was not used solely for the manager's residence.

4. Allegation of Tax Avoidance through a Colorable Device:
The Revenue contended that the respondent-assessee employed a colorable device to avoid tax, citing the Supreme Court's decision in McDowell and Co. Ltd. v. CTO. The court, however, found no evidence of tax avoidance through dubious methods in this case. The respondent-assessee's counsel argued that the court should rely on the Tribunal's findings of fact and not reappraise the evidence, citing several Supreme Court decisions supporting this view.

Conclusion:
The court concluded that the building was not used solely for the manager's residence, as his minor sons, who had a right to the property, also occupied it. Therefore, the respondent-assessee was not entitled to the higher depreciation rate of 20% under section 32(1)(iv) of the Act. The question referred was answered in the negative, in favor of the Revenue and against the assessee, with each party bearing its own costs.

---