The judgment of the court was delivered by
CHALLA KODANDA RAM J.-At the instance of the Revenue, the Income-tax Appellate Tribunal, Hyderabad Bench, had referred the following questions of law :
“1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in allowing the higher rate of depreciation of 10 per cent. on 'creche building' to the assessee for the assessment years 1983-84 to 1985-86 ?
2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in allowing the assessee's claim of liability for the assessment years 1984-85 and 1985-86 under the Drugs (Price Control) Order, 1979 ?
3. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that the assessee's claim of liability for the assessment years 1984-85 and 1985-86 under the Drugs (Price Control) Order, 1979, was a statutory liability and as such is allowable ?"
2 In this case, in the assessment for the assessment years 1983-84 to 1985- 86, the assessee claimed depreciation at the rate of 10 per cent. on the creche building which the Assessing Officer allowed at 21h per cent. by treating it as non-factory building. The Commissioner of Income-tax (Appeals) declined to interfere with the same by following his order for assessment year 1982-83. The assessee's case was that the creche is situated within the premises of the factory and, therefore, the same should be classified as a business asset and as a factory building and as such entitled to higher rate of depreciation. This claim was allowed by the Tribunal in the assessment year 1982-83 following which it had allowed for the years under consideration.
3 For the assessment years 1984-85 and 1985-86, the assessee claimed deductions representing the deposit made by them towards the drugs price equalization account (for short, "the DPEN'), as a liability under the Drug Price Control Order, 1979 (for short "the DPCO"). This deposit was made by the assessee for over charged price of medicine manufactured by the assessee, over and above the price fixed by the Government under the DPCO. The provision has been made by the company on receiving the letter dated May 4, 1984, from the authorities that the assessee had violated the provisions of the DPCO and as such they could proceed to take action for contravention of the same. Further, by letter dated January 6, 1987, the assessee was informed that it had over charged the prices of drugs manufactured by it and directed the assessee to deposit the excess amount in the DPEA. The assessee disputed the allegations. But, however, as a matter of precaution paid certain amounts which was not accepted by the Government. The assessee approached the High Court and finally the assessee had deposited a sum of Rs. 55.49 lakhs which in fact the assessee had paid by May 11, 1990. The view of the authority was that the provision which is made by the assessee which came to be deposited that the DPEA is at best a contingent liability and not a statutory liability and as such not allowable as a deduction. The Tribunal for the assessment year 1982-83 in I. T. A. No. 567/Hyd/1987, vide its order dated December 26, 1989, upheld the contention of the assessee and after detailed analysis of the DPca had held the liability fastened on the assessee on account of selling the specified drugs other than at the prices notified under the DPCa is in the nature of a statutory liability and is not a penalty and as such the same is allowable deduction.
None appeared for the assessee.
Heard the learned standing counsel for the Income-tax Department.
With regard to the first question, the Tribunal followed its own decision for the assessment year 1982-83 in 1. T. A. No. 567/Hyd/87 and allowed depreciation at 10 per cent. on the creche building. There is no challenge to the order of the Tribunal for the assessment year 1982-83.
The building used for creche is considered to be part of factory building and high rate of depreciation was allowed. The expression of "factory building" was not defined in the Act or in the Rules. Thereby, the ordinary dictionary meaning of the word "factory" will have to be taken. The buildings referred in the Act are building which are used for the purposes of business or profession of the assessee. Such user may relate to manufacture or storage or even the welfare of the employees employed in the business or profession of the assessee. The courts have extended the scope of factory building to sports pavilions and workers, canteens, roads inside the housing colonies, drainage and compound walls of petrol pumps, fencing, culverts and drainage within a factory compound. All these assets are held to be entitled at a high rate of depreciation than that were allowed on the simple buildings.
It is not in dispute that the creche building is situated within the same compound of the factory where the assessee carries on manufacturing activity. For the purpose of increasing efficiency, productivity of the women employees were engaged in the factory, creche is created by the assessee in a separate building. In other words, the creche building is being utilized in the process of manufacturing of the products. Considering the importance of the creche building, the creche building is included as one of the business assets which is allowable for granting of depreciation. In this context, it may also be noted that the assessee is being assessed under the head of "Income from business". In that view of the matter, the order of the Tribunal in allowing the depreciation at 10 per cent. treating the creche building as a business asset cannot be found fault.
9 With respect to the controversy regarding the excess prices recovered and deposited with the DPEA as a deduction, a few undisputed facts need to be noted.
10 The Tribunal has recorded that by May, 1990, the assessee had paid an amount of Rs. 55.49 lakhs to the Government on account of the excess amounts charged for the tablets is in 300 mg., and pyridium over and above the prices fixed in the DPCO. During the relevant period, the assessee made a claim for deduction of these amounts for the purpose of computing the total income which were disallowed by the Assessing Officer. The Tribunal had analysed the DPCO issued under the Essential Commodities Act and finally came to the conclusion that the excess amounts collected in disregard of the DPCO price is burdened with a corresponding obligation of depositing the same in the DPEA. The relevant provisions of the DPCO does not leave any option to the assessee to retain the excess amounts collected. Liability under the provisions of the DPCO is fastened on the assessee the moment the sales are made at a price exceeding the price prevailing on the date of introduction of the DPCO. Merely because the assessee though challenged the liability by filing a writ petition in the High Court of Mumbai, the liability itself does not get obliterated as the liability is in fact on account of a statutory control order issued in exercise of the powers vested in the Government under the Essential Commodities Act. In fact, the Tribunal had taken the same view and had come to a conclusion after detailed analysis of the provisions of the DPCO that the liability imposed on the assessee with respect to excess amounts collected over and above the prices notified in the DPCO are of the statutory nature. The Tribunal also followed the ratio laid down by the Supreme Court in Kedarnath lute Manufacturing Co. Ltd. v. crr [1971] 82 ITR 363 (SC) whereunder the Supreme Court had analysed a similar control order issued under the Essential Commodities Act, viz., the Levy Sugar Supply (Control) Order, 1972. In our considered opinion, the ratio of the law laid down by the Supreme Court in the said case squarely applicable and there are no valid reasons to take a contra view in this case.
11 The Tribunal also followed the judgment of this court in CIT v. Chodavaram Co-operative Sugars Ltd. [1987) 163 ITR 420 (AP) wherein similar circumstances under the levy sugar control order, this court took the view that the excess amounts collected over and above the statutory control order cannot be treated as a trading receipt and the assessee is entitled for deduction of the same as per the mercantile system. In these circumstances, all the questions are answered in favour of the assessee and against the Revenue.
Accordingly, the referred case is disposed of. No order as to costs. Miscellaneous petitions, if any, pending in this R. C. shall stand closed.