TMI Blog1976 (11) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... ormed part of the capital asset for the eligibility of depreciation allowance and in relation to the cost of machinery was eligible for development rebate also ? 3. Whether it has been rightly held that the expenditure incurred on the construction of roads was entitled to depreciation as part of the building under section 32 of the Income-tax Act, 1961 ?" In the latter reference the second and the third questions in the former reference have been referred to this court. The assessee-company acquired land at Padi near Madras and erected buildings, plant and machinery, etc., on the said land. It also entered into lease with the Integral Coach Factory with respect to the adjoining piece of land for its use. After completing the work of erecting the factory to certain stage, the production commenced on December 1, 1962. The accounts of the company were closed for the first time on November 30, 1962, during the course of which the assessee had incurred a total expenditure of Rs. 5,86,509 in all relating to salaries, rent, lighting, etc. This expenditure was capitalised by the company during the year ended November 30, 1962, and the company allocated the same to capital assets in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee was entitled to depreciation on the roads as claimed by it. It is the correctness of this conclusion of the Tribunal with reference to the three assessment years 1964-65 to 1966-67 that is challenged in the form of the two questions extracted already in T.C. No. 315 of 1972. The first questions in T.C. No. 312 of 1972 arises out of the following facts. The assessee admittedly was a priority industry coming within the scope of section 80E read with the Fifth Schedule to the Income-tax Act, 1961, and the entire income for the assessment year 1968-69 of Rs. 71,43,105 was referable to that priority industry. The assessee claimed that it was entitled to a deduction of 8 per cent. of the said profits as provided for in section 80E of the Act. However, the Income-tax Officer held that out of this profit of Rs. 71,43,105 a deduction of Rs. 31,81,202 should be made and only on the balance of Rs. 39,61,903 the assessee was entitled to a deduction of 8 per cent. The contention of the Income-tax Officer was that there wag an unabsorbed depreciation of the earlier years to the extent of Rs. 10,83,225. Similarly, there was unabsorbed development rebate of Rs. 12,32,940. There was also other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ands and, therefore, depreciation was not admissible in the cost thereof. The Tribunal overruled the said contention. Mr. J. Jayaraman, the learned counsel for the department, contends that the word, "building" in the Income-tax Act has got a very restricted meaning, and does not include land and, therefore, the roads laid on such lands will not be eligible for allowance of depreciation. In support of the contention, the learned counsel drew our attention to the decision of the Supreme Court in Commissioner of Income-tax v. Alps Theatre [1967] 65 ITR 377 (SC). In that case, what was the subject-matter of the controversy was whether in calculating the depreciation allowable for a building, the cost of the land on which the building is constructed can be taken into account or not. The Supreme Court, after examining the provisions contained in section 10(2) of the Indian Income-tax Act, 1922, held that the language employed in that section clearly showed that the word "building" did not include the site or the land on which the building was constructed. That conclusion was reached by the Supreme Court primarily on the basic principle that, unlike superstructure, the site or land as su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was that from the sum of Rs. 71,43,105, a total sum of Rs. 31,81,202 comprising of Rs. 10,83,225 representing unabsorbed depreciation, Rs. 12,32,940 representing unabsorbed development rebate and a sum of Rs. 8,65,037 representing earlier business loss, should be deducted before the deduction of 8 per cent. of the profit as provided for in section 80E is granted. Section 80E of the Income-tax Act, 1961, as it stood at the relevant time, was as follows : "80E. Deduction its respect of profits and gains from specified industries in the case of certain companies.--(1) In the case of a company to which this section applies, where the total income (as computed in accordance with the other provisions of this Act) includes any profits and gains attributable to the business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule, there shall be allowed a deduction from such profits and gains of an amount equal to eight per cent. thereof, in computing the total income of the company. (2) This section applies to-- (a) an Indian company ; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strongly distinguished the case of unabsorbed depreciation from the case of the other two amounts. According to the learned counsel, section 32, sub-section (2), made it clear that the unabsorbed depreciation of the earlier years will be treated as the depreciation to be allowed in the succeeding year and consequently it will stand on the same footing as the depreciation to be allowed for the current year and so long as the depreciation from the current year is allowed for calculating the profits and gains, the unabsorbed depreciation of the earlier years also should be similarly adjusted. We are unable to accept this argument. Section 32(1) deals with the allowance for depreciation. Section 32(2) says : "Where, in the assessment of the assessee (or, if the assessee is a registered firm or an unregistered firm assessed as a registered firm, in the assessment of its partners), full effect cannot be given to any allowance under clause (i) or clause (ii) or clause (iv) or clause (v) of sub-section (1) in any previous year owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subje ..... X X X X Extracts X X X X X X X X Extracts X X X X
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