Oil India Ltd v. Commissioner Of Income-tax (central)

DEB, J.

(1) THIS is a, reference under Section 256 (1) of the Income-tax Act, 1961, and the question before us is as follows: "whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that no depreciation was admissible on drains, culverts, roads, etc. "

(2) THE statement of the case relates to the assessment years 1965-66 and 1966-67. The assessee is a company. It claimed depreciation on the actual, cost of construction of drains, culverts, roads, etc. The Income-tax Officer disallowed the claim on the ground that the expenditure incurred on construction of these assets did not bring into existence assets eligible for allowance of depreciation.

(3) THE assessee filed appeals. As the drains, culverts, roads, etc. , were constructed outside the plinth of the bungalows and were spread over in a big area, the Appellate Assistant Commissioner did not accept the contention made on behalf of the assessee that these assets were integral parts of the bungalows. Since the word "building" has not been denned in the Act, the Appellate Assistant Commissioner, by following its ordinary meaning as stated in the Concise Oxford Dictionary, held that these drains, culverts, roads, etc. , were "buildings" and directed the Income-tax Officer to allow the appropriate depreciation.

(4) THE department then filed appeals. It was argued on its behalf that the word "building" should be understood in its ordinary or common parlance, i. e. , in its popular sense. According to the departmental representative, the word "building", in its popular sense, is understood as an enclosure of walls made of bricks, stone, mud, etc. , coverd by a roof and, therefore, to include in the meaning of the word "building" such items as drains, culverts, roads, etc. , will be to do violence to its meaning in its common parlance or popular sense. Accordingly, it was argued that the Appellate Assistant Commissioner was wrong in holding that these assets were "buildings" and in directing the Income-tax Officer to allow the depreciation on these assets.

(5) IT was argued, on behalf of the assessee, on the other hand, that these assets were "buildings" and in support of this contention reliance was placed on an earlier order of the Appellate Tribunal in the case of Indo-Burma Petroleum Company Ltd. v. Income-tax Officer being I. T. A. No. 20117 of 1966-67 in which it was held that the driveway and compound wall of a petrol pump station should be treated as part of that building.

(6) THE Tribunal; however, did not follow its aforesaid earlier order. In its opinion the word "building" should be understood in which it is understood by a common man in preference to its scientific or technical meaning. It also said "if we were to call drains, culverts and roads as buildings it would not pass off normally unnoticed and the persons hearing it would feel something strange about it". In that view of the matter, the Tribunal held that these assets could not be treated as buildings and allowed the appeals and sustained the orders of the Income-tax Officer.

(7) THOUGH the word "building" has not been denned in the Act, we do not approve the observations of the Tribunal quoted earlier. Further, the expression "common man" does not mean a stranger who does not know the facts and the circumstances of the case. Moreover, the ordinary meaning of a word is that meaning which is given in the ordinary English dictionaries and not in the scientific or technical dictionaries.

(8) SINCE the word "building" has not been defined in the Income-tax Act, 1961, its meaning should be understood in the context of the relevant provisions of the Act and in the light of the facts and circumstances of each case. An open air swimming pool and a roofless large stadium constructed at a considerable expense would be "buildings" as observed by the Supreme Court in the case of Ghanshiam Das v. Debi Prasad, but not the brick kiln which was the subject-matter of the said appeal before the Supreme Court in view of the special facts and circumstances of that case. The Supreme Court also quoted with approval the observation of Blackburn J. (as he then was) in the case of R. v. Neath Canal Navigation Co. [1870] 40 LJMC 193, 197, which runs thus :

"the masonary on the sides of a canal is not sufficient to constitute it a building. A London Street, though paved and faced with stonework, would yet be land; whilst the Holborn Viaduct would be a building. "

(9) WHETHER drains, culverts, roads, etc. , are "buildings" or not, must necessarily depend on the facts and circumstances of each case. The nature of their construction,, the expenditure incurred or laid out for the purposes of their construction and the object and purpose for which they were con strutted are some of the factors which should be taken into account in deter mining the question as to whether they are "buildings" or not. Similarly, whether the bungalows, in the instant case before us, can be usefully used for the purposes for which they were built without the drains, roads culverts, etc. , is also an important consideration.

(10) IT is not that depreciation on every type of assetsowned by an assessee is an allowable deduction under the Income-tax Acts. Section 32 of the Income-tax Act, 1961, allows depreciation only on buildings, machinery, plant or furniture owned by an assessee and used by him during the relevant year for the purposes of his business or profession.

(11) IT is only when an asset owned by an assessee is held to be a "building" then and then only the question will arise whether such building has been used by him during the relevant accounting year for the purposes of his business or profession. Therefore, the fact that an asset owned by an assessee is used by him for the purposes of his business or profession cannot be taken into consideration for the purposes of determining the question as to whether such asset is a building or not.

(12) IN this state of the law, in our opinion, the authorities below did not apply their mind to the real issues before them and as such the Tribunal has not, ascertained the basic facts in order to enable us to answer the question in this reference.

(13) IN the premises the learned senior counsel for both the parties jointly submit that the matter should be sent back to the Tribunal for the purposes of ascertaining the primary facts on the evidence that may be adduced by both the parties and to decide whether depreciation as claimed by the assessee is allowable or not. They also rightly submit that even if these assets are ultimately held to be "buildings" by the Tribunal, yet no depreciation as claimed by the assessee can be allowed qn them unless they were used by the assessee for the purposes of its business in the relevant accounting years and, therefore, the Tribunal should also decide whether these assets were used for the purposes of the business of the assessee in terms of Section 32 of the Act.

(14) THE learned counsel for the assessee also submits that the Tribunal should also consider whether the judgment dated February 1, 1978, of a Division Bench of this court in Income-tax Reference No. 193 of 1971 (Commissioner of Income-tax v. Indo-Burma Petroleum Co. Ltd.) would be applicable or not to the facts and circumstances of the case as may be found by the Tribunal.

(15) AS we are unable to answer the question for the aforesaid reasons and as submitted by the learned counsel for both the parties, we send back the matter to the Tribunal with the directions that, after giving a reasonable opportunity to both the parties of adducing evidence and counter-evidence and of being heard, it shall ascertain the primary facts and on the basis of such findings it shall then decide whether these assets are "buildings" or not and, if it is held by the Tribunal that these assets are "buildings", whether they were used for the purposes of the business of the assessee in the relevant accounting years and whether the depreciation as claimed by the assessee is admissible or not. The Tribunal will also ascertain the nature of the business carried on by the assessee in order to decide the aforesaid questions and will also consider the applicability of the aforesaid case cited on behalf of the assessee.

(16) THIS reference is accordingly disposed of without answering the question. There will be no order as to costs.