SHALIVAHANA CONSTRUCTIONS LTD. v. DEPUTY COMMISSIONER OF INCOME TAX
[Citation -2006-LL-0329-11]

Citation 2006-LL-0329-11
Appellant Name SHALIVAHANA CONSTRUCTIONS LTD.
Respondent Name DEPUTY COMMISSIONER OF INCOME TAX
Court ITAT
Relevant Act Income-tax
Date of Order 29/03/2006
Assessment Year 1998-99
Judgment View Judgment
Keyword Tags 100 per cent depreciation • depreciation allowance • written down value • valuation report • debatable issue • income returned • revenue nature • glazed tile
Bot Summary: The CIT-III, Hyderabad, issued a notice to the assessee for invoking his jurisdiction under s. 263 on the issue as to whether the AO was right in allowing depreciation at the rate of 100 per cent on temporary construction amounting to Rs. 14,02,810 instead of 10 per cent as the structures in question have all the characteristics of a permanent building. After A hearing the assessee, the CIT held that on going through the details and measurements of the temporary sheds submitted by the assessee, it was found that the structure had such characteristics as a masonry wall in cement, brick masonry in cement, polished Shahbad stone flooring 25 m m. thick over 20 mm. The learned Departmental Representative, on the other hand, controverted the arguments of the learned counsel for the assessee and submitted that the CIT was right in holding that the structures in question were permanent structures and not purely temporary structures as specified in the depreciation table. In the case of contractors, certain structures are put up at project site on land given temporarily by the contractee. The assessee might have used material which gives longer life to the structures in question, but the fact remains that the assessee is neither the owner of the land nor has it any claim over the structures after completion/termination of the contract. Coming to categorisation in Appendix I to IT Rules, 1962, the relevant portion of rates of depreciation reads as follows: Block of assets Depreciation allowance as percentage of written down value I. Buildings Purely temporary erections such as wooden structures.... At best, it is only an illustration of the term purely temporary erections. Viewed from the point of ownership of the land, the function of such structures and their utility, and also keeping in mind the ratio of the judgment of the apex Court in the case of Malabar Industrial Co. Ltd. vs. CIT 159 CTR 1: 243 ITR 83, it is difficult to accept the view of the learned CIT that the order passed by the AO suffers from an error and it is prejudicial to the interests of the Revenue.


This is appeal filed by assessee, directed against order of CIT-III, Hyderabad, under s. 263 of IT Act, 1961, dt. 17th March, 2003. Brief facts of case are as follows. assessee company filed its return of income for asst. yr. 1998-99 o n 30th Nov., 1998 declaring total income of Rs. 9,14,840. return was processed under s. 143(1) on 1st Dec., 1999. assessment was completed under s. 143(3) on 28th March, 2001 accepting income returned. CIT-III, Hyderabad, issued notice to assessee for invoking his jurisdiction under s. 263 on issue as to whether AO was right in allowing depreciation at rate of 100 per cent on temporary construction amounting to Rs. 14,02,810 instead of 10 per cent as structures in question have all characteristics of permanent building. After hearing assessee, CIT held that on going through details and measurements of temporary sheds submitted by assessee, it was found that structure had such characteristics as masonry wall in cement, brick masonry in cement, polished Shahbad stone flooring 25 m m . thick over 20 mm. thick cement mortar bed, 20 mm. thick polished Cuddapah stone skirting, glazed tile flooring in toilet, 35 mm. thick solid core flush shutter bounded phenol formal dehyde resin with country wood main frame, M S grills of 12 mm. square bars for all windows, proprietary water proofing treatment over terraces, fabricating fixing and painting mild steel angle gate etc. Thus, he held that structure had all characteristics of permanent building and such depreciation was allowable at 10 per cent and not 100 per cent. He directed AO to treat structure as permanent building and allow depreciation on same at 10 per cent and modify assessment accordingly. Aggrieved, assessee is in appeal. learned counsel for assessee submitted that as assessee is contractor, he carries out works in different work sites of contractees. He submitted that contractee temporarily provides him with certain area of land near construction site for purpose of assessee putting up temporary camp structure for housing not only its site office but also certain residential structures for employees and labour. He thus contended that these structures that are constructed are temporary in nature and only useful to assessee till date of completion of project and have to be vacated thereafter. He emphasized that land neither belongs to assessee nor has been given on lease or such other arrangement by contractee. He vehemently contended that project offices at work sites are only temporary constructions and it is wrong on part of CIT to treat these constructions as permanent structures. He referred to Appendix I to IT Rules, 1962, which is table of rates at which depreciation is admissible, at Category I Buildings, cl. (4), and submitted that term "purely temporary erections such as wooden structures" is separate category in block of assets and CIT was wrong in holding that only wooden structures would be eligible for 100 per cent depreciation whereas description given in clause, "such as wooden structures", meaning similar structures which are purely temporary erections, have to be granted 100 per cent depreciation. In second limb of his argument, learned counsel submitted that, in any event, there is no error in order of AO passed under s. 143(3), much less it is order which is prejudicial to interests of Revenue, for reason that depreciation in question was allowed in accordance with Act. He further submitted that even if it is thought that this issue is debatable issue, then also view taken by AO in his order under s. 143(3) is possible view and cannot be termed as erroneous in view of facts and circumstances of case and thus ratio of judgment of Hon ble Supreme Court in case of Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1: (2000) 243 ITR 83 (SC), is squarely applicable to facts of case. He also relied on order of Hyderabad Bench B of Tribunal in case of Jt. CIT vs. Lanco Industries Ltd. (ITA No. 487/Hyd/2000, order dt. 31st Jan., 2005), and submitted that in that case it was clearly held that for temporary structures depreciation is allowable at 100 per cent. He prayed for relief. learned Departmental Representative, on other hand, controverted arguments of learned counsel for assessee and submitted that CIT was right in holding that structures in question were permanent structures and not purely temporary structures as specified in depreciation table. He filed paper book running into 7 pages and submitted that at pp. 1 to 4 of paper book is copy of valuation report filed by assessee itself of paper book is copy of valuation report filed by assessee itself before Revenue authorities. He drew attention of Bench to this valuation report and submitted that plain reading of same shows that brick masonry in cement mortar with ratio T.6 had been used, 5 mm. thick glazed tile flooring in toilets was used, MS grills made out of 12 mm. square bars were used for all windows, reinforced cement concrete of mix 1:2:4 was used etc. These, he submitted, show that structure in question was permanent structure as held by CIT and thus entitled to depreciation only at rate of 10 per cent. He referred to cl. (4) under Category I of Table of Rates of depreciation admissible, in Appendix I to IT Rules, 1962, and contended that purely temporary erections contemplated therein are those which are made with material such as wooden structure etc. and not those which can be considered as permanent building structures built up in cement mortar. He referred to assessment order under s. 143(3) and submitted that AO had not applied his mind to this issue and finding is not given therein. He argued that AO is very brief in his discussion on this issue and had straightaway accepted income returned without any modification whatsoever. Thus, he submitted that argument of learned counsel for assessee that AO had taken possible view is not correct for reason that no view whatsoever had been taken by AO in his order. He prayed that order of CIT be upheld. We have heard rival contentions. On careful consideration of facts and circumstances of case, we hold as under. In case of contractors, certain structures are put up at project site on land given temporarily by contractee. These structures are meant for use by contractor as his project office and also for housing labour as well as employees of contractor. land is neither owned by contractor nor is it held by contractor as leasehold. In this view of matter, structures put up on such land, of whatever nature, are purely temporary structures. assessee might have used material which gives longer life to structures in question, but fact remains that assessee is neither owner of land nor has it any claim over structures after completion/termination of contract. In fact, when such structures are put up on land not belonging to person, expenditure is of revenue nature in view of judgment of Hon ble Supreme Court in case of CIT vs. Madras Auto Service (P) Ltd. (1998) 148 CTR (SC) 398: (1998) 233 ITR 468 (SC). same view has been taken by this Bench of Tribunal in case of Smt. S. Premalata v. Dy. CIT (1995) 53 ITD 69 (Hyd). We are of considered opinion that CIT has overlooked this issue of ownership of land. Coming to categorisation in Appendix I to IT Rules, 1962, relevant portion of rates of depreciation (for income-tax ) reads as follows: Block of assets Depreciation allowance as percentage of written down value I. Buildings (4) Purely temporary erections such as wooden structures.... At best, it is only illustration of term "purely temporary erections". Nowhere in this class of assets it is mentioned that purely temporary erection should not be made of cement or brick. Viewed from point of ownership of land, function of such structures and their utility, and also keeping in mind ratio of judgment of apex Court in case of Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1: (2000) 243 ITR 83 (SC), it is difficult to accept view of learned CIT that order passed by AO suffers from error and it is prejudicial to interests of Revenue. Under these circumstances, we allow) appeal of assessee and cancel order passed by CIT under s. 263 of Act. In result, appeal of assessee is allowed. *** SHALIVAHANA CONSTRUCTIONS LTD. v. DEPUTY COMMISSIONER OF INCOME TAX
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