Commissioner of Income Tax, Madras vs A. V. Meyyappa Chettiar

Ramachandra Iyer, C.J.—This reference concerns a claim relating to depreciation allowance. The assessee derives income from a studio,

where motion pictures are produced. Under rule 8 of the Rules framed under the Indian Income Tax Act, depreciation at certain rates is allowed

on the assets utilised for business. For the assessment year 1950-51, the assessee claimed that he was entitled to double depreciation under the

terms of the rule in respect of certain buildings which he claimed to be factory buildings. It is conceded that the buildings in question come under

the third class specified in rule 8. That rule states :

Third class buildings of construction inferior to that of second class buildings, but not including purely temporary erections,"" would be normally

entitled to 7.5 per cent depreciation.

The remarks column to the rule states :

Double these numbers will be taken for factory buildings excluding offices, godowns, officers and employees quarters.

The Income Tax Officer did not accept the claim of the assessee that he is entitled to 15 per cent prescribed under the rule as, according to him,

the studio buildings cannot be regarded as factory buildings. The Appellate Assistant Commissioner however accepted the assessees claim; but, on

further appeal by the department, the Tribunal called for a report from the Income Tax Officer as to whether the buildings could be said to be

factory buildings. In pursuance of the direction of the Appellate Tribunal, the Income Tax Officer submitted a report, setting out in detail the nature

of the building, the works that were being conducted there, etc.

There were studio sheds, painting and make-up work. There was a laboratory for editing films, synchronizing sound, etc. There was also a

carpentry section, where there were lathes, sawing machines, etc., which were operated by electric motors. The remand report disclosed that a

considerable part of the building was used for factory purposes. On receipt of the report, the Tribunal held that the building was a factory for the

purpose of grant of double depreciation provided for in rule 8, and sustained the decision of the Appellate Assistant Commissioner. The

department obtained a reference u/s 66(1) on this decision of the Appellate Tribunal. The following question has been referred to us for our

opinion :

Whether, on the facts and in the circumstances of the case, the Tribunal is correct in holding that the assessees studio buildings are factory buildings

entitled to double the depreciation provided for in rule 8 of the Income Tax Rules ?

Prima facie, the question referred to us depends upon a question of fact. The remand report shows beyond doubt that manufacturing process was

actually going on in the building and that it was a factory. It is not disputed that the building will satisfy the requirements of the definition of the term

factory"" under the Factories Act. But what is contended before us is that studio buildings cannot have the advantage of full depreciation allowance

as factually they do not suffer as much depreciation as other factories do. As the Tribunal has rightly pointed out, we are not concerned whether in

a particular case, the studio buildings suffer a higher or equal depreciation than other factories; what we have to see is whether the building in

question comes within the term ""factory"" building as employed in rule 8 of the Income Tax Rules. Once it comes within that definition, the assessee

will be entitled to depreciation allowed under that rule, whether the nature of the buildings or the character of the work that is carried on is of such

a character that will entail only a comparatively small depreciation in relation to regular factory buildings. We, therefore, answer the question

referred to us in the affirmative and in favour of the assessee. The department will pay the costs of the assessee. Counsels fee Rs. 250.