Mysore Dasaprakash vs Commissioner of Income Tax

Ratnam, J.—The assessee is a registered firm carrying on a hotel business. For the assessment year 1975-76 relevant for the accounting

year ending on March 31, 1975, the assessee filed a return admitting an income of Rs. 15,820. The Income Tax Officer disallowed depreciation

claimed by the assessee under the proviso to section 32(1)(ii) of the Income Tax Act, 1961 (hereinafter referred to as ""the Act"") at the rate of

100% on electrical switch boards, distribution boards, etc., and sanitary pipeline installations in respect of thirteen new rooms constructed in the

existing building on the ground that such installations should be considered as an integrated unit and depreciation allowed at 10% and that it was

not correct to work out separately the cost of individual items of materials used and then to ascertain whether the cost did not exceed Rs. 750. On

appeal by the assessee before the Appellate Assistant Commissioner, it was held that though switch boards, distribution boards, verandah lights,

etc., could be regarded as items of plant or machinery yet the expenditure incurred on the electoral system has to be treated to one integrated unit

and cannot be split up into thirteen individual units and likewise, the sanitary pipelines and fittings should also be regarded as constituting an

integrated part of the basic water supply system. In that view, the Appellate Assistant Commissioner declined to allow 100% depreciation as

claimed by the assessee in relation to the switch boards, distribution boards, sanitary pipelines and other fittings. On further appeal to the Tribunal,

the claim of the assessee for relief under the proviso to section 32(1)(ii) of the Act was rejected with reference to the cost of main switch board,

distribution board, verandah lights, etc., and sanitary pipelines and fittings on the view that there was no scope whatever for breaking up the

aggregate expenditure incurred on an integral plant to provide electricity and water supply to the rooms.

At the instance of the assessee, u/s 256(1) of the Act, the Tribunal has referred the following questions of law for the opinion of this court:

Whether, on the facts and circumstances of the case, the Tribunal was right in its view that the items like switch boards, verandah lights,

distribution board etc., making up the electricity system and the sanitary pipelines and fittings have to be considered as one integrated whole and

not as an individual plant ?

Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the depreciation on electrical system and pipe fitting

be restricted to 10% and not entitled to 100% depreciation on the ground that the aggregate value of the installation was to be taken ?

Learned counsel for the assessee submitted that the question of depreciation on the electrical installations as well as sanitary pipelines and fittings

provided for the rooms, constituting plant or machinery, has to be viewed separately with reference to each of the rooms put up and there was no

justification for considering the switch boards, distribution boards etc., making up the electrical system and the sanitary pipelines and fittings, etc.,

as an integral whole to deny the assessee the benefit of the proviso to section 32(1)(ii) of the Act, on the other hand, learned counsel for the

Revenue drew our attention to the method worked out by the assessee in claiming depreciation on the basis of the total cost of the electrification

and the sanitary pipelines etc., and divided by the number of points and connections, as the case may be, and submitted that that established that

the assessee considered the electoral and sanitary installations as an integrated whole, so that the claim fell outside the proviso to section 32(1)(ii)

of the Act. Attention was also drawn to section 43(1) of the Act and emphasis was laid on ""capital cost"" in relation to individual assets therein and

it was submitted that there is no question of actual cost of an individual asset at all arising in this case.

We have carefully considered these rival contentions. In so far as the electrical switch boards, distribution, boards, etc., and fittings are

concerned, they form constituent parts of the entire electricity supply system as a whole and there is no scope for cutting up the aggregate

expenditure into several parts roomwise, as claimed by the assessee. The benefit arising out of the installation of electricity switch boards,

distribution boards, verandah lights is not confined to any particular room. Such installations are intended to regulate, distribute and make available

electricity to all the rooms as a whole. The verandah lights are also intended to illuminate the entire verandah and not only that part of it along or

opposite to a particular room. To break up the expenditure in relation to the electrical system roomwise as claimed by the assessee, would, in our

view, be too unreal and a wholly artificial approach as well, thus, considering the electrical system as an integrated whole, the expenditure incurred

on that has also to be treated as such and there is no scope for dissecting the electrical system into different component parts with reference to

each one of the rooms and working out the depreciation in accordance with the proviso to section 32(1)(ii) of the Act. Similarly, the sanitary

pipelines and fittings with the exception of commodes, seat covers, flush tanks etc., in each individual room, for which depreciation at 100% has

been allowed are intended to also to be regarded as one integrated unit and there is thus no possibility of apportioning the expenditure relating to

that with reference to each room for purposes of the proviso to section 32(1)(ii) of the Act and to allow depreciation in terms of the said proviso

as claimed by the assessee. We, therefore, hold that as the electrical system and the sanitary pipelines and fittings, excepting those mentioned

already. Have to be considered as an integrated whole pertaining to the electricity and water supply to all the rooms and not individually, the

Tribunal was quite right in holding that the allowance of depreciation thereon has to be restricted to 10% . We answer the questions referred to us

in the affirmative and against the assessee, the Revenue will be entitled to the costs of this reference. Counsel''s fee Rs. 500.