C.I.T., BOMBAY vs. GWALIOR RAYON SILK MANUFACTURING CO. LTD.

CIVIL APPEAL No. 2916/1980Supreme Court[1992] 2 S.C.R. 101729 April 1992Bench: 2 JudgesAuthor: N.M. KASLIWAL, K. RAMASWAMY BOMBAY14 pages
AI SummaryDismissed

What did the Supreme Court hold?

The Supreme Court held that roads laid within factory premises, serving as links or providing approach to buildings and being necessary adjuncts for carrying on business activity, would be considered 'building' within the meaning of Section 32 of the Income-tax Act, 1961. Capital expenditure incurred on such roads is admissible for depreciation on their written-down value, to be worked out as per the Act and Rules. Similarly, drains are an integral part of the building for convenient enjoyment of the factory and their expenditure is also entitled to depreciation. The Court reasoned that taxing statutes should be interpreted reasonably and in favour of the assessee, and that the dictionary meaning of 'building' is not confined to structures with walls and roofs. The 1983 amendment to the Rules, which included roads, was seen as an acceptance of the interpretation consistently laid down by various High Courts and an enlargement of the scope of Section 32, not a whittling down of its effect. The Court dismissed the appeals, finding the interpretation of roads as buildings to be correct, and that the amendment was by way of clarification. The Court also noted that an interpretation consistently given over years and acted upon by the department should not normally be upset. The appeals were dismissed.

What were the facts?

The assessee claimed depreciation on roads within factory premises as part of the factory building's cost and development rebate on industrial transport used within the premises. The Income-tax Officer disallowed these claims, and the Appellate Assistant Commissioner upheld the disallowance. The Tribunal allowed both claims. The Revenue applied for a reference to the High Court under Section 256(1) of the Income-tax Act, 1961. The Tribunal dismissed this application regarding depreciation on roads but accepted it for development rebate. The Revenue filed a Special Leave Petition to the Supreme Court, contending that 'building' in Section 32, without a specific definition, should be interpreted by its dictionary meaning, and that a subsequent amendment to the Income-tax Rules, 1983, including roads, indicated a prospective change.

What were the issues?

1. Whether 'building' under Section 32 of the Income-tax Act, 1961, includes roads and drains within factory premises for the purpose of depreciation allowance. Assessee's contentions: - The purpose of depreciation is to compute net taxable income. - Roads are essential for the convenient carrying on of business activity and form part of the capital asset admissible for depreciation under Section 32. - The Income-tax Rules regulate depreciation rates and pre-1983 rates were variable, with the assessee entitled to claim as plant or building. - The 1983 amendment was to clarify and set at rest controversies regarding rates. Revenue's contentions: - The word 'building' connotes a structure or superstructure with walls and a roof. - In the absence of a specific definition in the Act, the dictionary meaning should be adopted. - The Income-tax (Fourth Amendment) Rules, 1983, which came into force from April 2, 1983, explicitly included roads, indicating this was a prospective change and not applicable to earlier periods. - Relied on the dictionary meaning of 'building' and the prospective nature of the 1983 amendment.

Which sections of the Income-tax Act were involved?

Section 32

AI-generated summary — verify with the full judgment below

- - C.l.T., BOMBAY v. GWALIOR RAYON SILK MANUFACTURING CO. LTD. APRIL 29, 1992 [N.M. KASLIWAL AND K. RAMASWAMY, JJ.] Income Tax Act 1961 : Section 32. Income Tax (Founh Amendment) Rules 1983. Depreciation allowance-Nature and object of.

Roads and drains-Land within factory premises-Necessary adjuncts to factory buildings-Treated as 'building' for purposes of depreciation.

Statutory Interpretation : Taxing statutes-Provision for deduction, exemption or relief-To be construed reasonable and in favour of assessee.

Administrative Law : Subordinate legislation-Rules validly made have same force as sec- tions of Act.

Practice and Procedure A B c D E Interpretation consistent~y given over years-Accepted and acted upon F by department-Nonnally not to be upset-Even though different view of law reasonably possible unless perceptions and circumstances wa"ant fresh look . .

Words and Phrases-Meaning of 'building'-Section 32 Income-tax Act 1961. The assessee-respondent in the appeal Civil Appeal No. 2916(NT) of 1980 claimed depreciation on the written down value of roads constructed by it as forming part of the cost of the factory building and also claimed develop

The order continues below.

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