R.S Mohite, J.:— The questions of law which have been referred to this court under section 256(1) of the Income-tax Act, 1961 are as follows:
“1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in upholding the order of the Commissioner of Income-tax (Appeals) that the Income-tax Officer will recompute the disallowance under rule 6D by aggregating the expenditure of all tours in place of the present computation of the disallowances made by the Income-tax Officer on the basis of each trip of the employees?
2. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in upholding the order of the Commissioner of Income-tax (Appeals) that the addition of Rs. 55,27,000 on account of duty drawback and cash assistance on accrual basis was not justified?
3. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in upholding the order of the Commissioner of Income-tax (Appeals) that the assessee is entitled for depreciation on the canteen building at the higher rate applicable to factory building?
4. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in upholding the order of the Commissioner of Income-tax (Appeals) that the assessee is entitled to deduction under section 80G of Rs. 5,00,000 instead of Rs. 2,50,000?
5. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in confirming the Commissioner of Income-tax (Appeals)'s view that the expenditure incurred on advertisement for appointment/termination of dealers is taking to recruitment of personnel contemplated under section 37(3b)(ii) and that such expenditure is outside the purview of disallowance under section 37(3A) of the Act?”
2. As regards question No. 1, counsel submits that the issue referred is answered affirmatively by the decision of this court in the case of Commissioner Of Income-Tax v. Aorow India Ltd. reported in [1998] 229 ITR 325. In the circumstances, question is answered in the affirmative and against the assessee. As regards question No. 2, this question has been answered affirmatively by the judgment of this court in the case of Commissioner Of Income-Tax, Pune…Applicant; v. Matchwell Electricals (I) Ltd., Pune…. [2003] 263 ITR 227. Following the said judgment, we answer this question in the affirmative and in favour of the assessee.
3. As regards question No. 3, this issue was first considered by the Madras High Court in the case of CIT v. Engine Valves Ltd. reported in [1980] 126 ITR 347. While deciding the question the Madras High Court observed as under (page 351):
“But, whatever expression we might employ to describe the culinary process, there is no doubt whatever that the use of fuel and other forms of energy in that part of the canteen, would have the same damaging effect on the life of the building as a regular manufacturing process would by the use of plant of machinery…. These considerations definitely point to the conclusion that a canteen building is, in the proper sense of the term, a factory building for the purpose of depreciation allowance.”
4. The judgment of the Madras High Court was followed by the Karnataka High Court in the case of CIT v. Motor Industries Co. Ltd. reported in [1986] 158 ITR 734 and both these judgments were again approved by the Karnataka High Court in its later judgment in the case of CIT v. Motor Industries Co. Ltd. (No. 2) reported in [1998] 229 ITR 137 (Karn). This issue was once again dealt with by the Karnataka High Court in the case of Widia (India) Ltd. v. Chief CIT (Admn.) reported in [1998] 233 ITR 1 wherein it was once again held that canteen building located with factory premises for welfare of workmen is part and parcel of factory building-entitled to higher rate of depreciation.
5. On this question we are in respectful agreement with the reasoning and finding of the Madras High Court and the Karnataka High Court in the aforesaid stated cases. Section 32(1) provides that depreciation in respect of assets will be percentage of its written down value as may be prescribed. These percentages are prescribed in rule 5 read with Appendix I to the Income-tax Rules, 1962.
6. Appendix I prescribes higher rate of depreciation in respect of “factory buildings (exclusive office, godowns, officers and employees quarters, roads, bridges, culverts, wells and tube wells)”
7. Under the Factories Act, factories which employ over 250 workmen, are mandatorily required to provide a canteen. The canteen premises is thus a necessary adjunct to the factory building and it is meant for the benefit of the workers. It is also noticed that while making exclusion in respect of various kinds of buildings such as offices, quarters, roads, bridges, culverts, wells and tube wells, no specific exclusion is made for canteens. If canteens were meant to attract the lower depreciation applicable to general buildings, then it would have been specifically excluded from the term “factory buildings” as appearing in Appendix I Part A, Item 1(1), (2). We therefore, answer this question in the affirmative and in favour of the assessee.
8. As regards question No. 4 both sides agree that the same is covered by the decision of this court in the case of CIT v. Mafatlal Fine Spinning and Manufacturing Co. Ltd. reported in [2003] 263 ITR 140. On perusing the said judgment and following the same, we answer the question in the negative and against the assessee. As regards question No. 5 it would be useful to reproduce section 37(3A) and (3B) which were in force during the relevant assessment years. The relevant parts of the said sections are as under:
“(3A) Notwithstanding anything contained in sub-section (1) but without prejudice to the provisions of sub-section (2B) or sub-section (3), where the aggregate expenditure incurred by an assessee on advertisement, publicity and sales promotion in India exceeds forty thousand rupees, so much of such aggregate expenditure as is equal to an amount calculated as provided hereunder shall not be allowed as a deduction, namely:—
(i)
Where such aggregate expenditure does not exceed ⅓ per cent, of the turnover or, as the case may be, gross receipts of the business or profession.
10 per cent, of the adjusted expenditure;
(ii)
Where such aggregate expenditure exceeds ¼ per cent, but does not exceed ½ per cent, of the turnover or, as the case may be, gross receipts of the business or profession.
12½ per cent, of the adjusted expenditure;
(iii)
Where such aggregate expenditure exceeds ½ per cent, of the turnover or, as the case may be, gross receipts of the business or profession.
15 per cent, of the adjusted expenditure.
Explanation.—For the purposes of this sub-section,—
(a) ‘adjusted expenditure’ means the aggregate expenditure incurred by the assessee on advertisement, publicity and sales promotion in India as reduced by so much of such expenditure as is not allowed under sub-section (1) and as further reduced by so much of such expenditure as is not allowed under sub-section (2B) or sub-section (3):
(b) ‘turnover’ and ‘gross receipts’ means turnover or gross receipts, as the case may be, as reduced by any discount or rebate allowed by the assessee.
(3B) Nothing contained in sub-section (3A) shall apply in relation to any expenditure incurred by an assessee on—
(i) advertisement in any small newspaper;
(ii) advertisement in any newspaper for recruitment of personnel;…”
9. It was sought to be contended that section 37(3b)(ii) provided that the benefit to be conferred under section 37(3A) would not apply to expenditure incurred by the assessee on an advertisement in a newspaper for recruitment of personnel. In the present case, the advertisement was given for appointment of dealers. In our view, the appointment of a dealer by the assessee would not be akin to recruitment of personnel. A word “personnel” as defined in the Oxford Dictionary is “staff of an organization, people engaged in particular service profession, etc., employees, manpower, people, staff, workers, workforce, profession, etc.” A dealer in our view is an independent entity and is an agent who would not be covered by the term “personnel”. Such an agent is appointed under a contract of agency and is not recruited. In our view, therefore, the question is required to be answered in the negative and in favour of the assessee.
10. In view of the questions so answered, the reference stands disposed of. No order as to costs.