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Civil Reference No. 10 of 1970, heard on 31st March 1976.
Ss. 10(2), (vi), (a), (aa), Explanation‑Depreciation to buildings- Buildings erection begun and completed between 1‑4‑1946 and 30‑6‑1975 and not meant for housing industrial labour‑Held, cannot be classified as buildings covered by sub‑clauses (aa) & (b).
Sh. Abdul Haq for Appellant.
Muhammad Amin Butt for Respondent.
Date of hearing : 31st March 1976.
‑Messrs Colony Textile Mills Ltd. Lahore, a public limited company, engaged in the manufacture of textile, submitted its returns for the assessment year 1957‑58 and being aggrieved by the order of the Income‑tax Officer filed a direct appeal which was disposed of by the Income‑tax Appellate Tribunal on 27th of May, 1969.
2. The matters in controversy before the Tribunal included the question whether the rate of depreciation in respect of certain buildings permissible under the law was to be 10 per cent. or 15 per cent. The Tribunal has already found in I. T. A. No. 491 of 1963‑64 dated 20th of October, 1964 that 15 per cent was the correct rate to be applied in such circumstances. The Tribunal, therefore, accepted the appeal to this extent and directed the Income‑tax Officer to revise the depreciation allowed in accordance with this decision.
3. An application presented by the Commissioner of Income‑tax for a reference to the High Court resulted in the Tribunal referring only one question to us for opinion, which is as follows:‑
"Whether on the facts and in the circumstances of the case the Tribunal was justified in granting depreciation under section 10 (2) (vi) (a) to buildings not covered by explanation to sub‑clause (aa) "
4. Our answer is in the affirmative and our reasons follow.
5. Section 10 of the Income‑tax Act deals with profits and gains of business, profession or vocation. Subsection (2) provides for making allowances therein before computing such profits and gains. Subsection 2(vi) deals with depreciation in respect of buildings and the rate of depreciation to be allowed in such computation is given in sub‑clauses (a), (aa) and (b) ate. Sub‑clauses (a) to (b) run as follows:‑
"(a) In the case of buildings, other than buildings referred to in sub clause (aa) and sub‑clause (b) the erection of which is begun and completed between the 1st day of April, 1946 and the thirtieth day of June, 1975 (both dates inclusive), to fifteen per cent of the cost thereof to the assessee;
(aa) in the case of residential buildings for industrial labour, the erection of which is begun and completed between the 1st day of April, 1954, and the thirtieth day of June, 1975 (both dates inclusive), to twenty‑five per cent. of the cost thereof to the assesses;
Explanation.‑The expression "residential buildings for industrial labour" means buildings constructed for use as dwelling houses by workmen and other persons, employed on monthly wages not exceeding four hundred rupees, in an industrial undertaking falling under any of the classes specified in clauses (a) to (e) of subsection (2) of section 15‑B;
(b) In the case of other buildings, to 10 per cent. of the cost thereof to the assessee."
A bare reading of the first sub‑clause shows that it is applicable to such buildings as have been completed within the period mentioned in that sub clause and are not covered by sub‑clause (aa) and sub‑clause (b). The nature or use to which such buildings are put are alien to sub‑clause (a)r as no reference has been made to either of the aforesaid matters in this sub‑clause. Such buildings are entitled to a rebate of 15 per cent. of the cost.
6. Sub‑clause (aa) deals with such buildings as are used for the purposes of residence but only by industrial labour and which have been constructed between the dates mentioned in that sub‑clause. The depreciation to be allowed in cases falling within this clause is 25 per cent. of the cost of the assessee.
7. Sub‑clause (b) is attracted to all other buildings i.e. all buildings which do not fall within the four corners of those described in sub‑clause (a) and sub‑clause (aa). The depreciation in their case is allowable at 10 per cent. The present case relates admittedly to buildings which were constructed between the 1st day of April, 1946, and the 30th day of June, 1975, and were not meant for housing industrial labour. It is, therefore, very clear to us that neither being buildings which were meant for the residence of industrial labour nor being such as were not constructed between the Ist day of April, 1946 and 30th day of June, 1975, they could not by any stretch of imagination be classified as buildings covered by sub‑clause (aa) and sub‑clause (b).
8. Mr. Abdul Haq, Advocate for the Department, however, vehemently contended that the insertion of sub‑clause (aa) into this section by Act I of 1954, made the intention of the Legislature very clear in so far as after that date residential buildings were classified in (a) and (aa) while non‑resi dential buildings were classified in (b).
9. We are unable to agree with learned counsel for the Department for the reasons already given by us because it is not possible for us to introduce the word "residence" in sub‑clause (a), referred to above. The costs, shall be borne by the Commissioner of Income‑tax.
S. Q. Reference answered.
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