Seasonal factory depreciation formula and pre-production interest inclusion shape the computation of double shift allowance and development rebate.

For seasonal factories, double shift allowance under rule 8 of the Indian Income-tax Rules, 1922 was held to be governed by the specific multiple-shift formula in the remarks column, which treats 300 days as the normal working year for machinery and plant; the broader second proviso to rule 8 did not displace that specific computation. The issue was answered in favour of the Revenue. Interest paid on borrowings raised to purchase and install machinery before commencement of production was held to form part of the actual cost of the asset, so it was includible in the base for development rebate as well as depreciation. The issue was answered in favour of the assessee.

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Issues: (i) Whether, for a seasonal factory, double shift allowance under rule 8 of the Indian Income-tax Rules, 1922 was to be computed by treating the normal working year as 300 days and applying the special formula in the remarks column, or by applying the second proviso to rule 8; (ii) Whether interest paid on borrowings made for purchase of machinery formed part of the actual cost for computing development rebate.

Issue (i): Whether, for a seasonal factory, double shift allowance under rule 8 of the Indian Income-tax Rules, 1922 was to be computed by treating the normal working year as 300 days and applying the special formula in the remarks column, or by applying the second proviso to rule 8.

Analysis: The second proviso to rule 8 was held to govern depreciation for seasonal factories generally and to operate across buildings, machinery, plant and furniture. The remarks column dealing with multiple-shift allowance, by contrast, was treated as a specific provision for machinery and plant only. The formula in the remarks column expressly prescribed 300 days as the normal working year for computing extra allowance for double shift, and seasonal factories were not excluded from that general language. The reasoning was supported by the view that the later, more specific multiple-shift provision could not be displaced by the general seasonal-factory proviso.

Conclusion: The issue was answered in the negative and in favour of the Revenue.

Issue (ii): Whether interest paid on borrowings made for purchase of machinery formed part of the actual cost for computing development rebate.

Analysis: The question was governed by the principle that interest incurred before commencement of production on borrowings used to acquire and install plant and machinery is part of the actual cost of the asset. On that basis, such interest is includible not only for depreciation but also for development rebate calculation.

Conclusion: The issue was answered in the affirmative and in favour of the assessee.

Final Conclusion: The reference was answered by upholding the Revenue's contention on the double shift allowance question, while accepting the assessee's contention on inclusion of interest in actual cost for development rebate.

Ratio Decidendi: Where a statute or rule contains a specific formula for multiple-shift depreciation, that special formula must be applied as written even in the case of seasonal factories, unless expressly excluded; and interest incurred before commencement of production on borrowings for acquiring and installing plant and machinery forms part of the actual cost of the asset.

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