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PETITIONER: THE EAST INDIA HOTELS LIMITED, CALCUTTA

       Vs.

RESPONDENT: COMMISSIONER OF INCOME TAX, CALCUTTA

DATE OF JUDGMENT:       08/11/1996

BENCH: B.P. JEEVAN REDDY, K.S. PARIPOORNAN

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T      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 viz.:      "1. 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?"      "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?"      The High Court has answered the second question against the assessee  and in  favour of  the Revenue  following  the judgment  of  that  Court  in  S.P.Jaiswal  Estates  Private Limited v. Commissioner Income Tax [188 I.T.R. 603]. In view of its  answer to  question No.2,  question  No.1  was  also answered in favour of the Revenue and against the assessee.      The assessment  year concerned  in this appeal is 1977- 78. The  assessment was  made by  the  Inspecting  Assistant Commissioner (I.A.C.) who allowed deduction for depreciation which included  extra shift allowance on plant and machinery and also  extra depreciation on office equipment. This order was  revised   by  the    Commissioner  who  set  aside  the assessment order  and remitted  the matter  to the I.A.C. to redetermine  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

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assessee preferred  an  appeal  against  the  order  of  the Commissioner before  the Tribunal.  The Tribunal allowed the appeal on  merits following its earlier decision relating to an approved hotel.      In S  P.Jaiswal Estates  Private Limited,  the Calcutta High Court  has taken  the view  that in the case of hotels, the very  concept of double or extra shifts is inapplicable. The High  Court has opined that the said CONCEPT is relevant only in  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  S.P.Jaiswal Estates  (P) Ltd.  [216 I.T.R. 145] another Division Bench has taken a contrary view. The latter Division Bench  has held  that even  a hotel  is entitled to extra shift allowance.      The rates  of depreciation  are provided in Appendix to the Income  Tax Rules.  Whether it  is prior  to 1.4.1970 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  per  cent  of  the  said  rate  of depreciation was  allowed. Similarly  in the  case of triple shift, another  50 per cent of the said rate was allowed. In other words,  in the  case of  a concern  working for  three shifts, 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 III,  however, provided  "extra depreciation allowance" for "approved  hotels". It  would  be  appropriate  to  read clauses (iii)  and (iv)  of Item III, 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  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  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 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      allowance  on   account  of  triple      shift working  and  establishesthat

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    if 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  depreciation allowance provided 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  nature or  character of the activity carried on  in the  premises where  the  said  machinery  is installed. Indeed  prior to 1.4.1970, there was no reference to hotels  in Item  III. If  any machinery is installed in 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. It 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   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 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, 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). If the 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) 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 III in Appendix-I and that  an approved  hotel is  entitled, in  addition,  tn extra depreciation, allowance provided by clause.      For the above reasons, question No.2 is answered in the affirmative i.e.,  in favour of the assessee and against the Revenue. Consequently,  question No.1  is also  answered  in favour of  the assessee  and against the  Revenue. The civil appeal is allowed accordingly. No costs.