1992 (4) TMI 3 - SC - Income Tax

Ruling upholds roads and drains inside factory as part of building under section 32; depreciation allowed; Rules 1983 prospective

Commissioner of Income-Tax Versus Gwalior Rayon Silk Manufacturing Co. Limited

The SC upheld that roads and drains within factory premises are integral parts of the factory building under section 32 and that capital expenditure on ... Claim for depreciation on the written down value of roads constructed by it as forming part of the cost of the factory building and also claimed development rebate on industrial transport used for transporting raw materials and finished goods within the factory premises - Classification of roads as part of the factory building or plant - HELD THAT:- While enacting the Income-tax (Fourth Amendment) Rules, 1983, the rule-making authority accepted this interpretation consistently laid down by various High Courts that building includes roads and also elongated bridges, culverts, wells and tubewells as building but prescribed fixed rates of depreciation setting at rest the variable rates claimed by the assessee. Rules validly made have the same force as the sections in the Act. The contention of the respondents that unless the Act itself is amended, the rules would not cut down the meaning of the word 'building' is without substance. The inclusive definition of 'building' to include roads, etc., enlarges the scope of section 32 and does not whittle down its effect. It is true, as contended for the Revenue, that the Income-tax (Fourth Amendment) Rules, 1983, were given effect to from April 2, 1983, thereby manifesting that the rates enumerated in the rules would be applicable prospectively from the later assessment years. It could by no means be construed that the Legislature expressed its intention that, for the earlier period, building does not include roads. If it were to be so, it was open to Parliament to have expressly brought out an amendment to the Act to that effect. On the other hand, we are of the view that the subordinate Legislature accepted the interpretation given by the High Courts and included roads as an integral part of the building. In Bangalore Turf Club Ltd.'s case [1983 (7) TMI 18 - KARNATAKA HIGH COURT], the Karnataka High Court held that the amendment was by way of a clarification in conformity with the law laid down by High Courts. It is also equally settled law that an interpretation consistently given over years and accepted and acted upon by the, Department may not normally be upset even though, a different view of law may reasonably be possible unless the new perceptions and circumstances warrant a fresh look. The ratio in Saharanpur Electric Supply Co. Ltd. v. CIT [1992 (1) TMI 2 - SUPREME COURT] is not in conflict with the above view. It is also settled law that, unless it is expressly stated or by necessary implication arises, a statute should always be read as prospective. The ratio therein is also in consonance with the view we are taking. Accordingly, we have no hesitation to hold that the roads laid within the factory premises as links or providing approach to the buildings are necessary adjuncts to the factory buildings to carry on the business activity of the assessee and would be building within the meaning of section 32 of the Act. The capital expenditure incurred thereon is admissible to depreciation on written down value. It has to be worked out for the purpose of depreciation as per the provisions of the Act read with, the Rules in the Appendix. Equally, the drains also would be an integral part of building for the convenient enjoyment of the factory. The expenditure incurred in laying the drains or the written down value of the cost of its construction would equally be entitled to depreciation. It is to be worked out in terms of section 32 of the Act read with the Rules in the Appendix. In view of the settled position, the reference sought for in C. A. No. 2916 of 1980 and C. A. No. 1194 of 1977 is unnecessary, The appeals are, accordingly, dismissed. Issues Involved:1. Depreciation on roads constructed within factory premises.2. Classification of roads as part of the factory building or plant.3. Applicability of the Income-tax (Fourth Amendment) Rules, 1983.4. Entitlement to development rebate on industrial transport.Issue-wise Detailed Analysis:1. Depreciation on Roads Constructed within Factory Premises:The primary issue in these appeals was whether roads constructed within the factory premises qualify for depreciation under Section 32 of the Income-tax Act, 1961. The assessee claimed depreciation on the written down value of roads, arguing that they form part of the factory building. The Income-tax Officer disallowed this claim, but the Tribunal allowed it, following an earlier order. The High Court declined to call for a reference, leading to the Revenue's special leave petition.The court held that roads within factory premises, used for business activities like transporting raw materials and finished products, are integral to the factory building. The court emphasized that the term 'building' should not be confined to its dictionary meaning but should include roads as necessary adjuncts for the business.2. Classification of Roads as Part of the Factory Building or Plant:The Tribunal and various High Courts had differing views on whether roads should be classified as part of the building or as plant. The Bombay High Court in CIT v. Colour-Chem Ltd. [1977] 106 ITR 323 held that roads within factory premises are part of the building. The court in this judgment agreed with this interpretation, stating that roads are necessary for the business and should be considered part of the factory building for depreciation purposes.3. Applicability of the Income-tax (Fourth Amendment) Rules, 1983:The Revenue argued that the inclusion of roads in the definition of 'building' in the Income-tax (Fourth Amendment) Rules, 1983, effective from April 2, 1983, indicated that roads were not considered part of the building before this date. The court rejected this argument, stating that the amendment was a clarification and not a change in the law. The consistent interpretation by various High Courts that roads are part of the building was accepted by the rule-making authority.4. Entitlement to Development Rebate on Industrial Transport:The assessee also claimed a development rebate on industrial transport used within the factory premises. This claim was initially disallowed by the Income-tax Officer but later allowed by the Tribunal. The court did not specifically address this issue in detail, focusing primarily on the depreciation of roads.Conclusion:The court concluded that roads within factory premises are integral to the factory building and eligible for depreciation under Section 32 of the Income-tax Act. The appeals were dismissed, except for Civil Appeal No. 1404 of 1991, which was partly allowed, directing the Income-tax Officer to compute roads as buildings and grant depreciation accordingly. The court emphasized that the interpretation of 'building' should be broad and inclusive, aligning with the purpose of the Act to compute net taxable income fairly.