TMI Blog1980 (4) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... see in both these references is Sarvaraya Sugars Ltd., which runs a seasonal factory for manufacturing sugar. Section 32 of the I.T. Act, 1961, provides for allowing deductions, among others, in respect of depreciation on machinery and plant at such percentage of the written down value thereof as may be prescribed. Under r. 5 of the I.T. Rules, 1962, read with s. 32 of the I.T. Act, 1961, where the plant or machinery has been used by an assessee in his business or profession during the previous year for a period of 180 days or more, the assessee would be entitled to deduction of depreciation at 100 per cent. of the number shown in the corresponding entry in the second column of the statement in Pt. 1, App. I, of the Rules (hereinafter referred to as the " full normal allowance "). Under the proviso to the said rule, in the case of a seasonal factory worked by the assessee during all the working seasons of the previous year, depreciation shall be allowed as if the machinery or plant had been in use throughout the period, the assessee was the owner thereof during the previous year. Apart from the normal depreciation allowance, extra depreciation for double shift working and for tripl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tten down value thereof as prescribed. That provision, in so far as it is relevant for our present purpose, reads as follows : " 32. (1) In respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, the following deductions shall, subject to the provisions of section 34, be allowed . ...... (ii) in the case of buildings, machinery, plant or furniture, other than ships covered by clause (i), such percentage on the written down value thereof as may in any case or class of cases be prescribed: Provided that where the actual cost of any machinery or plant does not exceed seven hundred and fifty rupees, the actual cost thereof shall be allowed as a deduction in respect of the previous year in which such machinery or plant is first put to use by the assessee for the purposes of his business or profession ...... .." " Prescribed " means " Prescribed by rules made under the Act" Rule 5 of the I.T. Rules, 1962, prescribes as follows: " 5. Depreciation.-(1) Subject to the provisions of sub-rules (2) and (3), the allowance under clause (i) or clause (ii) of sub-section (1) of section 32 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orking shall be made separately in the proportion which the number of days for which the concern worked double shift or triple shift, as the case may be, bears to the normal number of working days throughout the previous year. For this purpose, the normal number of working days throughout the pre- vious year shall be taken as 300, and if, for example, a concern has worked only double shift for 100 days and triple shift for another 100 days, the extra allowance for double shift shall be one-third of 50% of the normal allowance and that for triple shift shall be one-third of 100 per cent. of the normal allowance. This applies to all concerns whether the general rate or any special rate of depreciation applies to them, but does not apply to an item of machi- nery or plant which has been specifi- cally excepted by the inscription of the letters " N. E. S. A. " against it. Explanation 1.-For this pur- pose, the normal allowance means the amount of depreciation allowance (other than the extra depreciation allowance for multiple shift working) that would have been allowed under rule 5 if the machi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ; this is the normal allowance. Proviso to r. 5, however, makes an exception in favour of the seasonal factories. That proviso lays down that an assessee working a seasonal factory would be entitled to full normal allowance of depreciation if the seasonal factory worked " during all the working seasons of the previous year " as if the buildings, machinery and plant or furniture had been in use throughout the period, the assessee was the owner thereof during the previous year. In other words, in order that an assessee may claim full normal depreciation allowance of 7% in respect of buildings, machinery or furniture of a seasonal factory, the machinery and plant need not have been used by the assessee during the previous year for a period of at least 180 days; it is enough if the seasonal factory had worked during all the working seasons of the previous year and the assessee was the owner thereof during that period. Thus, the percentage of normal depreciation allowance deductible in respect of machinery and plant of a seasonal factory does not vary with the number of days it has been used during the previous year. If the seasonal factory worked during all the working seasons of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ift working shall be 1/3rd of 50% of the normal allowance and the extra allowance for triple shift working shall be 1/3rd of 100% of the normal allowance. The argument of the learned counsel for the assessee, however, runs thus: For allowing full normal allowance on machinery and plant in a non-seasonal factory, it is enough it if has been used during the previous year for a period of 180 days or more and the seasonal factory is allowed full normal depreciation allowance of 7% even though it has worked for less than. 180 days provided it has worked during all the working seasons of the previous year. When that is the basis for admitting full normal allowance, it could never have been the intention of the rule making authority for the purpose of admitting extra allowance for double shift and triple shift, that the normal number of working days throughout the previous years should be taken as 300. According to him, once it is established that the seasonal factory has worked during all the working seasons of the, previous year and that is taken as entitling it to full normal allowance, the primary submission is that extra allowance should be allowed for all the days the seasonal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factory full normal depreciation allowance is allowed if the seasonal factory was worked by the assessee during all the working seasons of the previous year and not necessarily for 180 days or more, then there is no reason why for the purpose of allowing extra allowance for double shift and triple shift, the proportion which the number of days for which the concern worked double shift or triple shift bears to the normal number of working days calculated at 300 days during the previous year should be taken as the basis. This contention of the assessee ignores that depreciation allowance is deductible only in accordance with the prescribed rules and the normal allowance and the extra allowance is admissible only in accordance with what is contained in the Rules read with Pt. I of App. 1. The rate of normal allowance for buildings, furniture and fittings is different from the rate of normal allowance admissible for machinery and plant. In the case of buildings, furniture and fittings, no extra allowance is admissible while for machinery and plant, apart from normal allowance of depreciation, extra allowance is deductible for double shift and triple shift working. While for machiner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uble shift or triple shift bears to the normal number of working days. For the specific purpose of calculating the extra allowance admissible for double shift working and triple shift working, the normal number of working days throughout the previous year is expressly stipulated to be 300. Thus, after fixing the normal number of working days at 300, an example as to how the extra allowance has to be calculated is mentioned as follows: "...... and if, for example, a concern has worked only double shift for 100 days and triple shift for another 100 days, the extra allowance for double shift shall be one-third of 50% of the normal allowance and that for triple shift shall be one-third of 100 per cent of the normal allowance." If as prescribed therein 300 days is to be taken as the number of working days then, if for example a concern has worked double shift for 100 days and triple shift for another 100 days, the extra allowance for double shift shall be 1/3rd of the 50%. i.e., 100 days for which it has actually worked double shift divided by 300 days, which is stated to be the " normal number of working days " . In the case of triple shift, it is stated to be 1/3rd of 100% , i.e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of admitting extra depreciation allowance for double shift or triple shift working of a concern. It is next argued that by the proviso to r 5 of the Rules and Expln. occurring in col. (3), item III of Pt. I of App. I in respect of seasonal factories, which may not have worked for a period of 180 days or more but have worked during all the working seasons of the previous year, fiction is created that the factory has worked throughout the year and the plant and machinery had been in use throughout the period the assessee was the owner thereof during the previous year. It must be pointed out at the outset that the assumption that such a fiction has been created is not correct. So far as the proviso to r. 5 goes, it merely lays down that if a seasonal factory was worked by the assessee during all the working seasons of the previous year, depreciation would be allowed " as if the plant and machinery had been in use throughout the period, the assessee was the owner thereof during the previous year ". No fiction is created that the machinery and plant have been in use throughout the previous year. If at all any fiction is created, it is that the plant and machinery had been in use th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o giving effect to the consequence of the legal fiction and relied upon the decisions of the Supreme Court in, CIT v. S. Teja Singh [1959] 35 ITR 408 and Gurupad Khandappa Magdum v. Hirabai Khandappa Magdum [1981] 129 ITR 440; AIR 1978 SC 1239 and East End Dwellings Co. Ltd. v. Finsbury Borough Council [1952] AC 109 at 132 (HL). For the principle laid down in these decisions, suffice to refer to what is stated in CIT v. S. Teja Singh [1959] 35 ITR 408, 413 (SC), which runs thus: "It is a rule of interpretation well settled that in construing the scope of a legal fiction it would be proper and even necessary to assume all those facts on which alone the fiction can operate." In that context the following statement of Lord Asquith in East End Dwellings Co. Ltd. v. Finsbury Borough Council [1952] AC 109 at 132 was referred in the above decision as apposite and was strongly relied upon by Sri Parvatha Rao, learned counsel for the assessee: "If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revious year, the rule-making authority has tried to give a quietus to any argument as to what is meant by " normal number of working days " in a year. Any scope for extending the fiction supposedly created in favour of seasonal factories for the purpose of admitting normal depreciation allowance, even for purposes of calculating extra allowance is wholly eliminated by specifying the normal number of working days to be 300. Whatever fiction is created for admitting normal depreciation allowance in the case of seasonal factories does not, as a corollary, compel deduction of extra depreciation allowance for double shift and triple shift on that basis. Further, evidently to remove all doubts whether the normal number of working days in a year fixed as 300 applies to all factories including seasonal factories, it is clearly stated in the remarks column that this applies to all concerns. The Calcutta High Court in Ganesh Sugar Mills Ltd. v. CIT [1970] 73 ITR 395, dealing with r. 8 of the Indian I.T. Rules, 1922, and the corresponding entry in the second column thereof, which is in pari materia on the aspect with which we are now concerned, held (headnote): "Under the note to clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shift bear to 300 days, held (p. 211): " On a pure interpretation of the remarks column, it is obvious that this special allowance is meant for machinery and plant only whereas the second proviso (rule 5 of the Income-tax Rules, 1962), applies to depreciation of all types of assets including buildings, machinery and plant or furniture. Therefore, the second proviso deals with the calculation of depreciation allowance for seasonal factories in respect of all the assets and not merely for the particular asset, namely, plant and machinery, for which only the double shift allowance or triple shift allowance has to be calculated. This is a clear indication that what is stipulated in the remarks column for allowing double shift or triple shift allowance is a special provision regarding machinery and plant only and that has to be worked out or calculated in the manner provided in the remarks column. " The court also repelled the contention that since the seasonal factories are not specially mentioned in the remarks column, the normal number of working days which is stated to be 300 days cannot apply to seasonal factories by pointing out that it referred " to all concerns " which incl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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