2016 (1) TMI 233 - HC - Income Tax

Entitlement to 50% of the depreciation only on the plant and machinery in the Picture Tube Division at Pitampur (MP) - CIT(A) allowed 100% claim - Held that - In the present appeal admittedly the machinery has been purchased in an earlier assessment year but during the previous year under consideration it has been used for a period less than 180 days. As the language of the third proviso is explicit and unambiguous the only interpretation is that if the asset was acquired in the previous year 1991-92 and was used for less than 180 days in that previous year then only the depreciation admissible could be curtailed. As in this case the assets were acquired in the previous year i.e. 1990-91 learned Assessing Officer was not justified in curtailing the depreciation to 50%. - Decided in favour of assessee Deduction under section 80HH and 80I without adjusting the losses of other loss making industrial undertakings of the same assessee with the profit of eligible profit making units - Held that - As decided in Bajaj Motors P.Limited vs. Commissioner of Income Tax 2011 (3) TMI 475 - PUNJAB AND HARYANA HIGH COURT in computing the quantum of deduction under section 80I of the Act out of the profits and gains of unit No.1 the loss incurred in another independent unit No.2 should be set off against the profits of unit No.1. - Decided in favour of revenue

Summary

Issues Involved:
1. Depreciation on plant and machinery and cylinders.
2. Deductions under Sections 80HH and 80I of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Depreciation on Plant and Machinery and Cylinders:
The first issue addressed whether the assessee was entitled to full depreciation on plant and machinery and cylinders in the Picture Tube Division at Pitampura (MP) or only 50% as allowed by the Assessing Officer (AO). The AO restricted the depreciation to 50% on the grounds that the plant was used for less than 180 days during the previous year. The Commissioner of Income Tax (Appeals) [CIT(A)] reversed this decision, stating that the third proviso to Section 32(1)(ii) of the Income Tax Act, 1961, which restricts depreciation to 50%, applies only if the asset was both acquired and used for less than 180 days in the same previous year. Since the assets were acquired in the previous year 1990-91 and not put to use until the next year, the CIT(A) held that the full depreciation rate should apply. The Income Tax Appellate Tribunal (ITAT) upheld this view, agreeing that the proviso was applicable only if both acquisition and use within 180 days occurred in the same year. The High Court found no illegality or perversity in the CIT(A) and ITAT's approach and answered this question in favor of the assessee.

2. Deductions under Sections 80HH and 80I:
The second issue concerned whether the assessee was entitled to deductions under Sections 80HH and 80I of the Income Tax Act, 1961, without adjusting the losses of other loss-making industrial undertakings of the same assessee. The AO had adjusted the losses from other units against the profits of the eligible profit-making units before allowing the deductions. The CIT(A) and ITAT upheld the assessee's claim for deductions without such adjustments. However, the High Court relied on its earlier judgment in Bajaj Motors P. Limited vs. Commissioner of Income Tax, which held that for computing the quantum of deduction under Section 80I, the loss incurred in another independent unit should be set off against the profits of the eligible unit. The High Court cited the relevant provisions of Sections 80A(2), 80AB, and 80B(5) of the Act, which clarify that deductions are to be computed with reference to the gross total income after excluding any losses. Consequently, the High Court answered this question in favor of the revenue.

Conclusion:
The appeal was partly allowed, with the High Court answering the first question in favor of the assessee, allowing full depreciation on the plant and machinery, and the second question in favor of the revenue, requiring the losses of other units to be adjusted before computing deductions under Sections 80HH and 80I.