EAST INDIA HOTELS LTD. CALCUTTAversusCOMMISSIONER OF INCOME TAX, CALCUTTA

A                 EAST INDIA HOTELS LTD. CALCUTTA
                          I
                                 v.
               COMMISSIONER OF INCOME TAX, CALCUTTA

                              NOVEMBER 8, I996

B            [B.P. JEEVAN REDDY AND K.S. PARIPOORNAN, JJ.]

            Income Tax Act, 1961: Section 32.

            Income Tax-Depreciation-Approved Hotel-Extra Shift
C depreciation allowance-AY 1977-78-Entitlement to-Held: Approved
    hotel entitled not only to extra depreciation allowance but also to extra
    shift depreciation allowance-Income Tax Rules, 1962, R.5 and Appendix
    I, Item Ill (iii) and (iv)-Factories Act, 1948, S.2(r).

            Words and Phrases :
D
            "Shift"-Meaning of-In the context ofS.2(r) of the Factories Act,
    1948.

          The appellant-assessee was running an "approved hotel" and in
    respect of the Assessment Year 1977-78 the Inspecting Assistant
E   Commissioner allowed deduction for depreciation which included
    extra shift allowance on plant and machinery and also extra
    depreciation on office equipment. The High Court allowed the appeal
    filed by the respondent-Revenue. Being aggrieved the appellant
    preferred the present appeal.

F        On behalf of the respondent-Revenue it was contended that an
    approved hotel was entitled only to the depreciation allowance
    provided by Clause(iii) and not to the extra shift depreciation allowance
    provided by Clause (iv) of Item III in AppendiA I to the Income Tax
    Rules, 1962.
G
            Allowing the appeal, this Court

          HELD: The depreciation is allowed on machinery and plant
    and not with reference to the nature or character or the activity carried
    on in the premises where the said machinery is installed. Indeed prior
H   to 1-4-1970, there was no reference to hotels in Item III in Appendix
                                        632
        EASTINDIA HOTLES LTD. v C. I. T. [B.P. JEE VAN REDDY, J.] 633


I to the Income Tax Rules, 1962. If any machinery is installed in a A
hotel, such machinery is certainly entitled to depreciation allowance.
Admittedly, there is no provision in the Appendix-whether before 1-
4-1970 or thereafter-stating that a hotel is not entitled to extra shift
depreciation allowance. The expression "shift" is not defined in the
Income Tax Act, 1961. It is defined only in the Factories Act, 1948. In
this definition the concept of shift is with reference to the workers        B
and not with reference to the concern or establishment. In a hotel
which works twenty four hours a day, there is bound to be two or
more sets of workers working during different periods of the day. If
,o, the concept of shift cannot be said to be inapplicable or irrelevant
in the case of a hotel. Hence, a hotel is also entitled to claim extra
shift depreciation allowance on the machinery and plant under clause C
(iv) of Item Ill (after 1-4-1970). So far as the extra depreciation
allowance provided by clause (iii) is concerned, it is a special and an
additional allowance provided for "approved hotels" only. It does
not, however, mean that an approved hotel, to which the depreciation
provided in clause (iii) is allowed, is deprived of the depreciation
provided in clause (iv). 1636-BC, DFJ                                    D

        S.P. Jaiswal Estates (P) Ltd v. CJT(216) !TR 145 (Cal.), approved.

     S.P. Jaiswai Estates (P) Ltd. v. CIT (188) !TR 603 (Cal.),
disapproved.
                                                                             E
        CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4167 of
1994.

     From the Judgment and Order dated 9.8.91 of the Calcutta High
Court in l.T.R. No. 11 of 1991.
                                                                             F
      M.L. Varma, Ravinder Nath, H.K. Puri, Ujjwal Banerjee, Rajesh
Srivastava and Rajinder Narain and Co. for the Appellant.

     K.N. Shukla, Ranbir Chandra and B. Krishna Prasad for the
Respondent.                                                                  G

        The Judgment of the Court was delivered by

        B.P. JEEVAN REDDY, J. Under Section 256(2) of the Income
Tax Act, two questions were referred for the opinion of the High Court
vi&:                                                                         H
    634                      SUPREME COURT REPORTS [1996] SUPP. 8 S.C.R.


A                "I. Whether, on the facts and in the circumstances of the
                 case, the Appellate Tribunal was correct in law in cancelling
                 the Commissioner of Income-tax's Order Under Section 263
                 of the Income-Tax Act, 1961 for the assessment year 1977-
                 78?"

B                 2. Whether, on the facts and in the circumstances of the case,
                  the Appellate Tribunal was correct in law in holding that the
                  assessee was entitled to extra depreciation allowance and also
                  extra shift depreciation allowance on the reasoning that there
                  was no prohibition for granting both the allowance either in
                  the Income-tax Rules or in the Act?"
c
          The High Court has answered the second question against the assessee
    and in favour of the Revenue following the judgment of that Court in SP.
    Jaiswal Estates Private Limited v. Commissioner of Income Tax (188)
    !TR. 603. In view of its answer to question No.2, question No.I was also
    answered in favour of the Revenue and against the assessee.
D
          The assessment year concerned in this appeal is 1977-78. The
    assessment was made by the Inspecting Assistant Commissioner (l.A.C.)
    who allowed deduction for depreciation which incl tided extra shift allowance
    on plant and machinery and also extra depreciation on office equipment.
E   This order was revised by the Commissioner who set aside the assessment
    order and remitted the matter to the I.A.C. to re-determine the amount of
    admissible depreciation in accordance with law. He opined that in the case
    of an "approved hotel" only extra depreciation allowance was admissible
    but not extra shift depreciation allowance. The assessee preferred an appeal
    against the order of the Commissioner before the Tribunal. The Tribunal
F   allowed the appeal on merits following its earlier decision relating to an
    approved hotel.

           In SP. Jaiswal Estates Private Limited, the Calcutta High Court has
    taken the view that in the case of hotels, the very concept of double or
G   extra shifts is inapplicable. The High Court has opined that the said concept
    is relevant only i.n the case of factories. It was following the said decision
    that question No.2 was answered .in favour of the Revenue. It is brought to
    our notice that in a subsequent decision in SP. Jaiswal Estates (P) Ltd.
    (216) !TR 145 another Division Bench has taken a contrary view. The
    latter Division Bench has held that even a hotel is entitled to extra shift
H   allowance.
      EAST INDIA HOTLES LTD. v. C. I. T. [B.P. JEEV AN REDDY,!.]        635


      The rates of depreciation are provideddn Appendix-I to the Income         A
Tax Rules. Whether it is prior to I .4.1970 or thereafter, depreciation is
allowed on ''machinery and plant", mentioned as item III in the Appendix.
Prior to 1.4.1970, the rate of depreciation on machinery and plant was 7
per cent. But in the case of a concern working double shift, an additional
50 percent of the said rate of depreciation was allowed. Similarly in the
case of triple shift, another 50 percent of the said rate was allowed. In       B
other words, in the case of a concern working for three sh.ifts, the rate of
depreciation allowed was 14 per cent. After 1.4.1970, the extra shift
depreciation allowance was practically continued in same terms in clause
(iv) of Item III, though there was a change in the rate. Clause (iii) of Item
Ill, however, provided "extra depreciation allowance" for "approved
hotels". It would be appropriate to read clauses (iii) and (iv) of Item Ill,    C
to the extent they are relevant for our purposes.

              " .... (iii) An extra allowance of depreciation of an amount
              equal to one half of the normal allowance shall be allowed in
              the case of machinery and plant installed by an assessee, being
              an Indian Company, in premises used by it as a hotel is for       D
              the time being approved by the Central Government for the
              purpose of Section 33 of the Act.

              Explanation: For the purpose of this sub-item and sub-item
              (iv)" normal allowance means the amount of depreciation           E
              allowance under this item or the extra shift depreciation
              allowance under sub-item (iv) which is allowable under rule
              5.

              (iv). An extra allowance upto a maximum of an amount equal
              to one-half of the normal allowance shall be allowed where        F
              a concern claims sub-allowance on account of double shift
              working and establishes that it has worked double shift. An
              extra allowance upto a maximum of an amount equal to the
              normal allowance, instead of one-half of the normal
              allowance shall be allowed where a concern claims such            G
              allowance on account of tripe shift working and establishes
              that it has worked triple shift."

     The contention of the Revenue is that an approved hotel-(the appellant
is admittedly running an approved hotel)-is entitled only to the
depreciation allowance provided by clause (iii) and not to the extra shift      H
    636                     SUPREME COURTRI;PORTS [1996] SUPP. 8 S.C.R.


A depreciation allowance providiJtt by clause (iv). The contention is that an
  approved hotel is not entitled to both the said allowances simultaneously
  and that it is entitled only to the extra depreciation allowance in clause
  (iii) but not to extra shift allowance in clause (iv). It is not possible to
  agree. The depreciation is allowed on machinery and plant and not with
  reference to the ncture or character or the activity carried on in the premises
B where the said machinery is installed. Indeed prior to l.4.I970, there was
  no reference to hotels in Item Ill. If any machinery is installed in a hotel,
  such machinery is ce1tainly entitled to depreciation allowance. Admittedly,
  there is no provision in the Appendix-whether before J .4.1970 or
  thereafter-stating that a hotel is not entitled to extra shift depreciation
  allowance. The expression "shift" is not defined in the Income Tax Act. It
C is defined only in the Factories Act. The definition is of great relevance to
  the controversy herein. It reads:

                  "(r) where work of the same kind is carried out by two or
                  more sets of workers working during different periods of
                  the day, each of such sets is called a "relay" and each of such
D                 periods is called a "shift".

         A reading of the definition shows that the concept of shift is with
  reference to the workers and. not with reference to the concern or
  establishment. In a hotel which works twenty four hours a day, there is
  bound to be two or more sets of workers working during different periods
E of the day. If so, the concept of shift cannot be said to be inapplicable or
  irrelevant in the case of a hotel. We are, therefore, of the opinion that a
  hotel is also entitled to claim extra shift depreciation allowance on the
  machinery and plant under clause (iv) of Item III (after 1.4.1970). So far
  as the extra depreciation allowance provided by clause (iii) is concerned,
F it is a special and an additional allowance provided for "approved hotels"
  only. It does not, however, mean that an approved hotel, to which the
  depreciation provided in clause (iii) is allowed, is .deprived of the
  depreciation provided in clause (iv). Ifthe argument of Revenue is accepted,
  a strange consequence would follow: a hotel which is not approved may
  get extra shift depreciation allowance (for three shifts) under clause (iv)
G while an approved hotel will get only the depreciation provided by clause
  (iii), which would be less than the depreciation allowance provided by
  clause (iv). We are, therefore, of the opinion that plant and/or machinery
   installed in a hotel is entitled to extra shift depreciation allowance provided
   by clause (iv) of Item Ill in Appendix-I and that an approved hotel is
  entitled, in addition, to extra depreciation allowance provided by clause
H (iii). For the above reasons, question No.2 is answered in the affirmative
     EAST INDIA HOTLES LTD. v. C. I. T. [B.P. JEE VAN REDDY, J.]     637


i.e., in favour of the assessee and against the Revenue. Consequently,      A
question No. I is also answered in favour of the assessee and against the
Revenue. The civil appeal is allowed accordingly. No costs.

V.S.S.                                                  Appeal allowed.