Factory creche depreciation and statutory price-control liability upheld as deductible business claims for the assessee

A creche building within the factory compound, used for employee welfare in aid of manufacturing activity, was treated as a business asset connected with the assessee's operations, and higher depreciation was allowed. Excess amounts collected above notified drug prices, which had to be deposited under the Drugs (Price Control) Order, 1979, were held to create a statutory liability; the fact that the assessee disputed the demand did not alter that character, and the deduction was allowed. The referred questions were answered in favour of the assessee and the Revenue's challenge failed.

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Issues: (i) Whether the creche building situated within the factory was entitled to higher rate of depreciation as a factory building or business asset; (ii) Whether the amount deposited towards excess prices recovered under the Drugs (Price Control) Order, 1979 was a statutory liability allowable as deduction.

Issue (i): Whether the creche building situated within the factory was entitled to higher rate of depreciation as a factory building or business asset.

Analysis: The expression "factory building" was treated in its ordinary sense, having regard to the use of the building for the purposes of the business. A building used for employee welfare and connected with the manufacturing activity was regarded as part of the business apparatus. Since the creche was within the factory compound and served the welfare of women employees engaged in production, it was held to be a business asset connected with the assessee's manufacturing operations.

Conclusion: The higher rate of depreciation on the creche building was held to be allowable in favour of the assessee.

Issue (ii): Whether the amount deposited towards excess prices recovered under the Drugs (Price Control) Order, 1979 was a statutory liability allowable as deduction.

Analysis: The excess amounts collected above the notified prices carried a corresponding obligation to deposit them in the drugs price equalization account. The control order imposed the liability by force of law, and the assessee had no option to retain the excess collections. The liability was not displaced merely because the assessee disputed it or challenged the demand. The reasoning accorded with the principle that a liability imposed by a statutory control order is allowable notwithstanding later dispute over its enforcement.

Conclusion: The liability was held to be statutory and the deduction was allowed in favour of the assessee.

Final Conclusion: The referred questions were answered for the assessee, and the Revenue's challenge failed.

Ratio Decidendi: A building within the factory compound used for employee welfare in aid of manufacturing activity can qualify as a business asset for higher depreciation, and a liability imposed by a statutory price control order is deductible as a statutory liability even if its quantum is disputed.

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