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Judgment
BY THE BENCH :
This appeal by the assessee is directed against the order in revision passed by the CIT, Tamil Nadu III, Madras, on 15th Jan., 1987 in relation to
the asst. yr. 1983-84. Two issues arise for consideration in this appeal; and they are : (a) Whether the assessee-hotel is entitled to extra
depreciation under Appendix-I, Part I, item III(iii) of the IT Rules, 1962, and (b) Whether the assessee is entitled to extra-shift allowance in
respect of plant and machinery.
When this appeal earlier came up for hearing before a Division Bench, the learned Members of that Bench were of the opinion that the appeal is
fit and proper appeal which should be heard by a Special Bench consisting of three Members of the Tribunal, in view of the fact that the decision
of the Tribunal, Madras Bench C in the case of M/s. Covelong Beach Hotel (India) Ltd., Madras (vide order dt. 17th July, 1986 in ITA No.
1871/Mad/85; Asst. yr. 1982-83) to the effect that the assessee-hotel therein was not entitled to extra depreciation, required reconsideration.
They, therefore, placed this appeal before the President of the Tribunal with a request to constitute a larger Bench. It is in these circumstances that
this appeal has come up before this Bench of three Members.
The assessee, a company in which public are substantially interested, runs a hotel called ""Hotel Taj Coromandel"" at Madras. The assessment
year is 1983-84, the year of account ending on 30th June, 1982 being the relevant previous year.
For the said assessment year, the assessee originally filed a return of income on 28th June, 1983, declaring an income of Rs. 73,70,688 ""subject
to carry forward of unabsorbed losses, depreciation and development rebate and investment allowance"". Sometime in September, 1983 the
assessee filed a revised return of income, disclosing this time an income of Rs. 64,18,931, subject to set off of past losses, depreciation, etc.
In the said revised return, the assessee had claimed depreciation allowance in an aggregate sum of Rs. 34,04,032, as detailed below :
Rs.
Normal depreciation allowance 26,61,025
Extra depreciation allowance for hotels 3,81,781
Triple shift allowance 2,83,545
Additional depreciation allowance under S. 32(1)(iia) 77,681
In the assessment order passed by him on 20th Jan., 1986, it is a matter of record, the assessees claim for both extra depreciation and extra
shift allowance was allowed by the Assessing Officer.
Subsequently, invoking the powers vested in him by and under S. 263 of the IT Act, 1961, the CIT called for and examined the assessment
records of the assessee. On such an examination, he considered that the impugned assessment order was erroneous in that it was prejudicial to the
interests of the Revenue, inasmuch as the Assessing Officer had allowed the assessees claim for (i) extra depreciation, and (ii) extra-shift
allowance. He, therefore, put the assessee on notice of his intention to pass a suitable order under revision under S. 263. This was on 5th Aug.,
1986.
Responding to the said notice, the assessee, through its letter dt. 25th Aug., 1986, made the following points in support of its contention that
both extra depreciation and extra shift allowance had been rightly allowed by the Assessing Officer.
Extra Depreciation :
(i) Grant of depreciation is governed by S. 32 of the Act.
(ii) Extra depreciation is available to approved hotels under Appendix-I, Part I, item III(iii) of the IT Rules. And the assessee had long back been
approved by the Govt. of India in the Department of Tourism for purposes of S. 32(1)(v) and S. 33(1)(b)(B)(ii) of the IT Act.
(iii) Reference to S. 33 in the said sub-item of Appendix-I of the IT Rules is for the limited purpose of identifying the hotels which are eligible to
extra depreciation.
(iv) Development rebate under S. 33 and extra depreciation under S. 32 are two different allowances. Hence, they should not be linked together
so as to deny the assessee extra depreciation available to it under the said sub-item of Appendix-I to the IT Rules 1962.
(v) On 22nd Nov., 1985, the Minister of Parliamentary Affairs and Tourism, while answering the Lok Sabha question No. 87 (which elicited the
details of the incentives offered by Govt. to the private sector to attract private sector investment in tourism infrastructure) had listed extra
depreciation as one of the incentives offered.
(vi) The CBDT has not issue any Circular authorising the withdrawal of extra depreciation allowance to authorised hotels on the ground that
development rebate was withdraw.
Extra Shift Allowance :
The plant and machinery was put to use round the clock and, therefore, under Appendix-I, Part I, item III(iv), the assessee was entitled to triple
shift allowance.
In the short order in revision passed by him, the CIT rejected both the claims of the assessee in the following words :
.......................
It is well established in law that merely because a hotel has been approved by the Department of tourism, it should be entitled (sic) to extra
depreciation. The approval is not for allowance of extra depreciation under S. 33 since the allowance of development rebate itself has been
abolished w.e.f. 1st June, 1974 and the approval given in that connection cannot be projected to extra depreciation.
The very same point has been held by the Tribunal is favour of Department in a number of cases.
I am, therefore, satisfied that the IACs action in allowing the expenses (sic) detailed above is prejudicial to the interests of Revenue and the
allowance should, therefore, be withdrawn by modifying the assessment already made.
Under the powers vested in me under S. 263 of the Act, I am, therefore, directing the IAC to withdraw the extra depreciation and the extra shift
allowance granted to the assessee by modifying the assessment already made.
It is in these circumstances that the assessee is now before us.
Sri Ramamani, the learned counsel for the assessee took us through the facts and circumstances of the case and reiterated the arguments that
had earlier been advanced, unsuccessfully, before the CIT. In this regard, he drew our pointed attention first to the fact that Hotel Taj Coromandel
run by the assessee-company has been approved by the Department of Tourism - vide Govt. of India, Department of Tourism, letter No. 7-TH-
I(22)/80-3 of 19th Aug., 1983 (see page 15 of the paper book filed on behalf of the assessee). Further, in their letter No. 7-TH-I(22) 80-Vol. 3
of 3rd April, 1984 (see page 16 of the paper book filed on behalf of the assessee), the said Department had clarified that what was contemplated
was a one time approval. It was not necessary to get approval year after year.
Secondly, Appendix-I, Part I, item III(iii) of the IT Rules, 1962 gives the benefit of extra depreciation allowance to approved hotels. Since the
hotel run by the assessee is an approved hotel, the assessee is entitled to extra depreciation.
Thirdly, the reference to S. 33 of the Act in the said item of Appendix-I, Part I to the IT Rules, 1962 is designed to identify the cases in which
extra depreciation is admissible. According to Shri Ramamani, we have before us a case of referential legislation. Therefore, the phrase ""for
purposes of S. 33 of the Act"" occurring in the said item III(iii) cannot be so interpreted as to deny the assessee the benefit of extra depreciation
allowance.
According to Shri Ramamani, again, the fact that development rebate available under S. 33 of the Act was withdrawn from a particular date, does
not ipso facto mean that extra depreciation allowance also simultaneously stood withdrawn automatically. Under the Scheme of the Act, it is S. 32
which grants depreciation allowance including extra depreciation allowance. Development rebate, however, is granted under a different section,
namely, S. 33 of the IT Act. Therefore, the grant of extra depreciation allowance does not depend upon the grant of development rebate.
For a fact, even as late as in November, 1985, the stand of the Government was that extra depreciation allowance was one of the incentives
offered by it to the private sector to attract private sector investment in tourism infrastructure - see reply to Lok Sabha Question No. 87 (pp. 11 to
14 of the paper book filed on behalf of the assessee).
To a specific query in this regard from the Bench, Shri Ramamani stated that the Govt. of India, Ministry of Finance (Department of Revenue
& Insurance) Notification No. SO 2167 of 28th May, 1971, which came to be issued under the provisions of S. 33(5) and which withdrew
development rebate from a specified date, did not amount to the deletion, in toto, of S. 33 itself. That section was allowed to remain on the statute
book for such purposes as withdrawing development rebate earlier granted, in the event of the assessees contravening the conditions on which
development rebate came to be granted originally.
Sri Ramamani next contended that the CBDT had at no point of time issued any Circular to the effect that with the withdrawal of development
rebate, extra depreciation allowance also stood withdrawn simultaneously.
In view of the foregoing, therefore, contended Sri Ramamani, the assessee is entitled to succeed on its claim for extra depreciation allowance.
Turning next to the assessees claim for triple shift allowance, Shri Ramamani contended that under Item III(iv) of Part I of Appendix I to the IT
Rules, 1962, the assessee is entitled to extra shift allowance. In this regard, he highlighted the fact that a Five Star Hotel of the type run by the
assessee works round the clock. In other words, the plant and machinery necessary to run the hotel are put to use round the clock. Therefore, the
CIT was not justified in holding that the assessee was not entitled to triple shift allowance on the plant and machinery in question, particularly when
in the earlier years extra shift allowance was granted to the assessee.
On his part, Shri Argal, the learned Departmental Representative strongly supported the impugned order in revision. He also referred to and
relied upon the decision of the Tribunal, Madras Bench C, in the case of M/s. Covelong Beach Hotel (India) Ltd., Madras (supra).
Laying particular emphasis on the phrase ""for purposes of S. 33 of the Act"" occurring in the said Item III(iii), Sri Argal vehemently argued that
when development rebate admissible to the assessee under S. 33 stood withdrawn, extra depreciation also stood withdrawn automatically. In this
regard, he sought to draw support for the said proposition also from the clause ""for the time being approved by the Central Government"" occurring
in the said Item III(iii).
Sri Argal also contended that the CIT was justified in holding that the assessee was not entitled to extra shift allowance.
We have looked into the facts of the case. We have considered the rival submissions.
To take up first the assessees claim for extra depreciation allowance. It is a matter of record that the assessee is running a hotel. There is also
no dispute that the hotel had been approved by the Govt. of India, Department of Tourism. Given these facts, one would have thought that the
assessee was entitled to extra depreciation allowance under Item III(iii) of Part I of Appendix-I to the IT Rules, 1962. However, the CIT has
taken the line that, with the withdrawal of development rebate, extra depreciation allowance also stood withdrawn simultaneously. It is the validity
of the said conclusion that falls to be considered in this case.
Now, development rebate was introduced by the Finance Act, 1955, w.e.f. 1st April, 1955; that is to say, even under the old Act,
development rebate was being granted. The scheme of granting development rebate was continued in the new Act also.
Finance Act, 1964 inserted sub-s. (5) to S. 33 w.e.f. 1st April, 1964. By the said sub-section, the Central Govt. assumed powers to withdraw
development rebate by giving a clear three-year notice of its intention to withdraw development rebate.
Finance Act, 1965 inserted sub-s. (6) to S. 33. The effect of this sub-section was that no deduction by way of development rebate shall be
allowed in respect of any plant or machinery installed after 31st March, 1965 in any office premises or any residential accommodation including
any accommodation in the nature of a guest house.
We then have Finance (No. 2) Act, 1967, which gave a package of tax concessions to hotels, as an integral part of the larger policy of promoting
tourism in the country. As pointed out supra, S. 33(6) debarred the deduction on account of development rebate in respect of machinery or plant
installed after 31st March, 1965. Finance (No. 2) Act, 1967 introduced a new proviso to S. 33(6) so as to make the provisions of that section
inapplicable to approved hotels.
We then have Govt. of India Notification No. SO 2167 of 28th May, 1971, which makes it clear that development rebate under S. 33 of the
IT Act shall not be allowed in respect of a ship acquired or machinery or plant installed after 31st March, 1974. The said cut off dt. 31st March,
1974 was extended to 1st June, 1975 in certain cases, by the Finance Act, 1974. This continuance of development rebate for a limited period in
certain cases was obviously designed to remove hardships in certain cases.
Relying only on the fact of withdrawal of development rebate, the CIT has concluded that extra depreciation allowable admissible to approved
hotels also stood withdrawn automatically. We are unable to agree for more than one reason. First, under the scheme of the Act, development
rebate and depreciation allowance (including extra depreciation allowance) are two separate and distinct allowances, governed by two separate
and distinct sections, viz., S. 32 and S. 33 respectively. Neither the Act nor the Rules made thereunder contain any provision even remotely
suggesting that the grant of extra depreciation allowance was conditional upon the grant of development rebate. Had that been the intention of
Parliament, the relevant provisions of the Act/Rules would have been drafted differently.
Item III(iii) of Part I of Appendix-I to IT Rules, 1962 states that extra depreciation allowance will be admissible to hotels where such hotels
are for the time being approved by the Central Government for purposes of S. 33 of the Act. As we see it, the said reference to S. 33 has a limited
role and rationale, namely, to identify the conditions which a hotel must satisfy in order to be eligible to the benefit of extra depreciation allowance.
The reference to S. 33 contained in Item III(iii) means nothing more than that in order to be eligible to extra depreciation allowance, the hotel must
fulfil the same conditions which it will have to fulfil in order to be able to get the benefit of development rebate. In other words, the eligibility
conditions for the grant of development rebate on the one hand, and of extra depreciation allowance on the other, are identical. This fact alone,
without anything more, cannot lead to the conclusion that the withdrawal of development rebate will necessarily mean the simultaneous and
automatic withdrawal of extra depreciation allowance also. Both in law and in logic we would be justified in holding that the assessee was earlier
entitled both to development rebate and extra depreciation allowance, because it satisfied the common eligibility conditions; that even after the
withdrawal of development rebate, the assessee continued to satisfy the common eligibility conditions; and that, therefore, it was entitled to extra
depreciation allowance, the withdrawal of development rebate notwithstanding.
There is yet another point that is noteworthy. The commonality of conditions noticed in relation to development rebate [S. 33(1)(b)(B)(ii)] and
extra depreciation allowance (Appendix-I, Part I, item III(iii) of the IT Rules, 1962) is not restricted to these two allowances alone. As one scans
the scheme of the Act particularly as respects the tax concessions available to hotel industry, one finds that the said commonality of conditions
extends to S. 32(1)(v), S. 80-I r/w S. 80B(7) and S. 80J(6).
As already pointed out, Finance (No. 2) Act, 1967 gave a package of tax concessions to hotels, as an integral part of the larger policy of
promoting tourism in the country. The following are the details of the tax concessions :
(a) The new cl. (v) of S. 32(1), which came into force w.e.f. 1st April, 1968, granted initial depreciation allowance on newly constructed hotel
buildings.
(b) The business of running hotels was accorded priority industry status for purposes of the IT Act [see S. 80B(7)] and an Indian company
engaged in hotel business came to be entitled to the following tax concessions :
(i) Development rebate at a higher rate [S. 33(1)(b)(B)(ii) as substituted].
(ii) Deduction under the newly introduced S. 80-I read with the newly introduced S. 80B(7) referred to supra.
(iii) Deduction under the newly introduced S. 80J(6). It is significant to note that the grant of the aforesaid tax concessions was subject to the
common condition that the hotel in question was for the time being approved by the Central Government.
That the perception of the CBDT is the same as that of ours will be clear from CBDT Circular No. 383 of 22nd June, 1984 [ (1984) 148 ITR
13].
The foregoing analysis will indicate that the granting of approval to the hotel by the Govt. of India in the Department of Tourism is a single act.
Once a hotel is approved by the said Department, the hotel becomes entitled to one or more of the aforesaid concessions.
In the case before us, the hotel in question has been approved by the Department of Tourism for purposes of S. 32(1)(v), S. 33(1)(b)(B)(ii)
and S. 80J(6). It should, therefore, follow that the assessee cannot be denied the benefit of extra depreciation allowance on the only ground that
development rebate admissible to it under S. 33(1)(b)(B)(ii) stood withdrawn from a certain date.
In view of the foregoing, therefore, we hold that the CIT was not justified in directing the Assessing Officer to withdraw extra depreciation
allowance granted to the assessee-company earlier by the Assessing Officer. We, accordingly, set aside the impugned order in revision on this
issue and restore that of the Assessing Officer.
That leaves for consideration the question whether the assessee is entitled to extra shift allowance. From the short order in revision it is seen
that the CIT concluded that the assessee was not entitled to extra shift allowance simply because he had held that the assessee was not entitled to
extra depreciation. For a fact the CIT has not discussed this aspect of the matter at all. Be that as it may, the fact of the matter is that all along the
assessee was allowed the benefit of extra shift allowance. We, therefore, hold that the assessee is entitled to extra shift allowance to the extent
admissible under Appendix-I, Part I, item III(iv) of the IT Rules, 1962. The Assessing Officer may look into this aspect of the matter.
In the result, for statistical purposes the assessees appeal is treated as allowed.