1981 (8) TMI 110 - AT - Income Tax

Summary

Issues:
1. Whether the written down value for depreciation calculation can be reduced by the amount of liabilities waived by a creditor.
2. Interpretation of provisions under section 32(1)(ii), section 43(6), section 43A, and section 41(1) in relation to evaluating the actual cost to the assessee.
3. Application of section 43(1) in determining if the cost of assets was met directly or indirectly by another person.
4. Assessment of whether the remission of liabilities by a creditor constitutes the meeting of the cost of assets by the assessee.

Detailed Analysis:
1. The appeal before the Appellate Tribunal ITAT Cochin involved a dispute regarding the reduction of the written down value for depreciation calculation by the amount of liabilities waived by a creditor. The assessee had purchased machinery and a fishing trawler with finance from an American constituent, and the creditor later waived a portion of the outstanding amount. The Income Tax Officer (ITO) reduced the written down value based on the waived amount, leading to an appeal by the revenue against the Commissioner (Appeals) order.

2. The Commissioner (Appeals) held that there was no provision in law to make variations in the written down value as done by the ITO. The Commissioner analyzed provisions under section 32(1)(ii), section 43(6), section 43A, and section 41(1) to conclude that the ITO's reduction of the written down value was not justified. The appeal by the revenue challenged this interpretation.

3. The department relied on various case laws to argue that the waived liabilities should be considered in evaluating the actual cost to the assessee. The argument was based on the application of section 43(1) and section 43(6)(b) to assert that the cost was indirectly met by the creditor. However, the assessee contended that the cost was incurred by taking a loan and the remission of liabilities did not constitute another person meeting the cost of assets.

4. The Tribunal disagreed with both the Commissioner (Appeals) and the assessee, holding that the remission of liabilities by the creditor did not equate to the creditor meeting the cost of assets on behalf of the assessee. The Tribunal emphasized that the creditor acted as an agent and a financier, not a seller, and the liabilities remitted were not solely related to the purchase of machinery. Therefore, the Tribunal dismissed the appeal, ruling in favor of the assessee.

In conclusion, the judgment clarified the application of provisions related to evaluating the actual cost to the assessee and determined that the remission of liabilities by the creditor did not impact the written down value for depreciation calculation.