1994 (2) TMI 33 - HC - Income Tax

Court ruling on depreciation rates and tax classification favors Revenue, assessee on industrial status, extra shift depreciation.

The court ruled in favor of the Revenue regarding the rate of depreciation, holding that the higher rates did not apply for the assessment year 1983-84. ... Assessment Year, Concessional Rate, Hotel Building, Industrial Company, Investment Allowance, Law Applicable To Assessment, Manufacture Or Production, Rate Of Depreciation, Taxing Statutes Issues Involved:1. Rate of depreciation applicable for the assessment year 1983-84.2. Classification of the company as an industrial company.3. Applicable rate of income-tax for the company.4. Entitlement to extra shift depreciation.5. Classification of food preparation in a hotel as manufacturing or production.6. Classification of a hotel building as a plant for depreciation purposes.Detailed Analysis:Issue 1: Rate of Depreciation Applicable for the Assessment Year 1983-84The question was whether the assessee-company could claim depreciation at higher rates as per the Income-tax (Fourth Amendment) Rules, 1983, effective from April 2, 1983. The Tribunal, following the decision in Burrakur Coal Co. Ltd. v. CIT [1982] 135 ITR 804, held that since the new rates were effective from April 2, 1983, they did not apply to the assessment year 1983-84. The Court agreed, stating that the rates of depreciation are substantive law and should apply from the first day of the assessment year. Thus, the higher rates were applicable only from the assessment year 1984-85. The court answered this question in the affirmative and in favor of the Revenue.Issue 2: Classification of the Company as an Industrial CompanyThe issue was whether the assessee-company, running a five-star hotel, could be classified as an industrial company entitled to a concessional rate of income-tax. The Court referred to its earlier judgment in S. P. Jaiswal Estates Pvt. Ltd. v. CIT (No. 1) [1994] 209 ITR 298, where it was held that the company was engaged in the processing of goods and thus qualified as an industrial company. The earnings from the restaurant were more than 51% of the assessed total income, reinforcing this classification. The court answered this question in the negative and in favor of the assessee.Issue 3: Applicable Rate of Income-Tax for the CompanyThis issue was linked to the classification as an industrial company. Since the company was classified as an industrial company, it was entitled to a concessional rate of income-tax of 60% as per the Finance Act, 1983. The court answered this question in the negative and in favor of the assessee.Issue 4: Entitlement to Extra Shift DepreciationThe question was whether the company was entitled to extra shift depreciation. This issue was covered by the court's earlier decision in S. P. Jaiswal Estates Pvt. Ltd. v. CIT [1991] 188 ITR 603, which held against the assessee. The court answered this question in the affirmative and in favor of the Revenue.Issue 5: Classification of Food Preparation in a Hotel as Manufacturing or ProductionThe question was whether the preparation of food in a hotel constituted manufacturing or production as envisaged in section 32A of the Income-tax Act, 1961. This issue was covered by the court's decision in CIT v. S. P. Jaiswal Estates Pvt. Ltd. [1992] 196 ITR 179, which held against the assessee. The court answered this question in the negative and in favor of the Revenue.Issue 6: Classification of a Hotel Building as a Plant for Depreciation PurposesThe issue was whether the hotel building could be classified as a plant for the purpose of allowing depreciation. The Court considered various precedents, including CIT v. Taj Mahal Hotel [1971] 82 ITR 44 and R. C. Chemical Industries v. CIT [1982] 134 ITR 330. It concluded that a building used for business purposes, such as a hotel, does not qualify as a plant. The court emphasized that buildings, irrespective of their use and function, should qualify for depreciation as buildings and not as plant. The court answered this question in the negative and in favor of the Revenue.ConclusionThe court provided a detailed analysis of each issue, referencing relevant case law and statutory provisions. The key determinations were that the higher rates of depreciation were not applicable for the assessment year 1983-84, the company qualified as an industrial company entitled to a concessional rate of income-tax, and the hotel building could not be classified as a plant for depreciation purposes. The judgments were delivered comprehensively, considering all relevant legal principles and precedents.