R.K.AGRAWAL, J. - (1.) THE Tribunal, Allahabad Bench, Allahabad, has referred the following question of law for the opinion of this Court under S. 256(1) of the IT Act, 1961 ('the Act'): m
(2.) BRIEFLY stated facts giving rise to the present case are that the respondent -assessee is a registered firm constituted by Shri Ram Nath Mahendra, Shri Kailash Nath Mahendra, Shri Nirankar Nath Mahendra, Shri Prem Nath Mahendra and the minor sons of Shri Onkar Nath Mahendra, Master Rahul Mahendra and Master Pankaj Mahendra admitted to the benefits of partnership. The reference relates to the asst. year 1975 -76. During the previous year relevant to this assessment year, the respondent -assessee constructed a residential property at Auckland Road, Allahabad, which was used solely by the manager of the assessee -firm, Shri O.N. Mahendra for his residence. On the basis that the salary of Shri O.N. Mahendra was only Rs. 600 per month, i.e., less than Rs. 7,500 per year, it was claimed that on the cost of construction of this property the respondent - assessee was entitled to initial depreciation as laid down by cl. (iv) of Sub -S. (1) of S. 32 of the Act and also depreciation. The ITO gave a finding that this property was given to the manager Shri O.N. Mahendra who was being paid a monthly salary of Rs. 600 per month and was in the assessee's employment for the past several years, but this property was also occupied by the minor sons of Shri O.N. Mahendra who were admitted to the benefits of partnership. The ITO further found that this property was also in the occupation of Shri P.N. Mahendra another partner of the assessee -firm. Here it will be necessary to point out that so far as the previous year relevant to the asst. year 1975 -76 under consideration is concerned, which ended on 24th Oct., 1974, this property was occupied only by Shri O.N. Mahendra, while Shri P.N. Mahendra partner, shifted to a portion of this property after Grihpervesh on 11th Nov., 1974, i.e., in the subsequent year. The ITO held that initial depreciation and normal depreciation will be admissible only on the actual cost of the out -houses which were occupied for residence by the low paid employee each of whom was drawing less than Rs. 7,500 per year and not on the actual cost of the rest of the building. The respondent -assessee was aggrieved by the assessment and, therefore, went in appeal. The CIT(A), however, held that on the portion of the building which was meant for the exclusive use of Shri O.N. Mahendra, manager of the respondent -assessee -firm, the respondent -assessee -firm was entitled to initial depreciation as well as normal depreciation. However, for the two rooms of the first floor of the building, which were meant to be the guest house and the portion meant for the occupation of Shri P.N. Mahendra, partner, the CIT(A) held that in respect of the portion occupied by Shri P.N. Mahendra, partner (in the subsequent year), the respondent -assessee was not entitled even for normal depreciation. The result was that the CIT(A) directed the ITO to work out the initial depreciation on 3/4th of the actual cost of the building and similarly allow depreciation on 3/4th of the actual cost of the building, furniture and fittings for the asst. year 1975 -76.
(3.) AGAINST the order of the CIT(A), both the respondent -assessee as well as the Revenue came up in appeal before the Tribunal. The grievance of the respondent -assessee was that even the disallowance of 1/4th of the initial depreciation and depreciation on the actual cost of the building sustained in appeal by the CIT(A) was not justified. On the other hand, the grievance of the Revenue was that the CIT(A) wrongly allowed initial depreciation on 3/4th of the actual cost of the building as against the initial depreciation allowed by the ITO only on the actual cost of the outhouses. The Tribunal upheld the order of the CIT(A) on this issue in the following words : "We have carefully considered the rival submissions. It is not under dispute that Shri O.N. Mahendra was employed by the assessee -firm as its manager for the past several years and during the previous year relevant to the asst. year 1975 -76 he was being paid salary of Rs. 600 per month. It is further not under dispute that the value of the perquisite of the rent -free house was worked out in the assessment of Shri O.N. Mahendra for the asst. year 1975 -76, that is, the assessment year under consideration here at Rs. 900 only and the income of Shri O.N. Mahendra chargeable under the head 'Salaries' including value of this perquisite was determined by the ITO at Rs. 6,680 only. Here it might also perhaps not be out of place to mention that it is not the Department's case that the value of the rent -free house was treated as the perquisite and added to the total income of any of the minor sons of Shri O.N. Mahendra who were admitted to the benefits of the partnership. Considering all this, we have no hesitation in coming to the conclusion that the portion of the house in the occupation of Shri O.N. Mahendra was given to him for use by him solely for the purpose of residence and the minor sons and wife stayed with him not because the houses were given to the family of Shri O.N. Mahendra who in the normal course of human conduct were supposed to stay with the father or husband, as the case may be. Considering all this, we hold that on the actual cost of the building given to Shri O.N. Mahendra solely for his residence, the assessee was entitled to the claim of both initial depreciation and normal depreciation." ;