TMI Blog2009 (8) TMI 970X X X X Extracts X X X X X X X X Extracts X X X X ..... ommittee on Disputes. However, we may mention that in case the Revenue desires to prosecute the appeals, it shall be free to move this Tribunal by appropriate petition for recalling the case after obtaining the permission of the Committee on Disputes. The Revenue s appeals are dismissed. I. T. A. No. 1822/Mds/2006 : In this appeal, the assessee has taken various grounds but at the time of hearing, learned counsel for the assessee submitted that the only two disputes involved, are, viz., (i) reopening of assessment and (ii) confirmation of disallowance of depreciation. At the outset learned counsel for the assessee submitted that he would like to argue the case on the merits before the reopening issue. He referred to paragraph 3 of the appellate order and submitted that the assessee had claimed depreciation amounting to Rs. 2,76,68,250 on gas sweetening plant. The plant was built during the previous year relevant to the assessment year 1997-98 but was never used thereafter due to non-availability of raw material, viz., sour gas. He submitted that this plant was commissioned after running the test run during the assessment year 1997-98. Considering the trial run as equivalent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT v. Southern Petrochemical Industries Corporation Ltd. [2007] 292 ITR 362 (Mad). The learned Departmental representative, on the other hand, submitted that section 32 has been amended since long and now, the word used has been substituted by the word use . He then referred to the decision of the hon ble Bombay High Court in the case of Dineshkumar Gulabchand Agrawal v. CIT [2004] 267 ITR 768 where it has been clearly observed that the word used in section 32 of the Income-tax Act denotes that the asset has been actually used and not that it is merely ready for use. It was further observed that the expression used means actual use for the purpose of business. Since in this case, the plant has not been used in this year and in fact never used after the assessment year 1997-98 till date, depreciation could not be granted. He then referred to the decision of the hon ble Karnataka High Court in the case of Deputy CIT v. Yellamma Dasappa Hospital [2007] 290 ITR 353 where again it was clearly held that unless and until the plant and machinery was used the assessee was not entitled to depreciation. The learned Departmental representative further referred to the decision of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture years is of no relevance because such committee is merely a high power administrative committee and is not technically competent to give its opinion on technical issues. The high power committee sometimes decides the issue on the basis of certain administrative conveniences. For example, not to encourage litigation. Since permission has been granted in this year, the issue has to be adjudicated on its own merits for this year. We have considered the rival submissions carefully in the light of the material on record. We have also perused the case law cited by both the parties. We find force in the submission of learned counsel for the assessee. In this case, admittedly the gas sweetening plant was installed in the assessment year 1997-98 and a test run was also done and accordingly on the basis of this test run, depreciation was allowed by the Department in the assessment year 1997-98. Since the plant could not be used due to non-availability of raw material in this year, depreciation has been denied mainly on the basis that the plant and machinery were not put to use in this relevant year. First of all, we would like to observe that after all depreciation is an allowance t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her the films were leased out and because of that it was none of the concern of the lessor whether the lessee can use the same or not. Throughout the judgment, the High Court has discussed the concept of usage and referred to the decision of the Division Bench of the Bombay High Court in the cases of CIT v. Viswanath Bhaskar Sathe [1937] 5 ITR 621 ; Whittle Anderson Ltd. v. CIT [1971] 79 ITR 613 and the hon ble Supreme Court decision in the case of Liquidators of Pursa Ltd. v. CIT [1954] 25 ITR 265. Ultimately it was held that since the assessee was keeping the machinery ready for usage, depreciation has to be allowed. Similarly, in the case of CIT v. Swarup Vegetable Products India Ltd. [2005] 277 ITR 60, the hon ble Allahabad High Court has held that once an asset is kept ready for use, but not actual used, then the same was entitled for depreciation. The hon ble Punjab and Haryana High Court has also taken similar view in the case of CIT v. Nahar Exports Ltd. [2008] 296 ITR 419. Therefore, we are of the view that sitting at Chennai Benches of the Tribunal, it may not be appropriate to ignore the direct judgment of the hon ble jurisdictional High Court in the case of Heera Financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within that block, which is sold or discarded or demolished or destroyed during that previous year together with the amount of the scrap value, if any, so, however, that the amount of such reduction does not exceed the written down value as so increased ; and (C) in the case of a slump sale, decrease by the actual cost of the asset falling within that block as reduced (a) by the amount of depreciation actually allowed to him under this Act or under the corresponding provisions of the Indian Income-tax Act, 1922 (11 of 1922) in respect of any previous year relevant to the assessment year commencing before the 1st day of April, 1988 ; and (b) by the amount of depreciation that would have been allowable to the assessee for any assessment year commencing on or after the 1st day of April, 1988 as if the asset was the only asset in the relevant block of assets, so, however, that the amount of such decrease does not exceed the written down value; (ii) in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April 1989, the written down value of that block of assets in the immediately preceding previous year as reduced by the depreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the asset is to form part of block of assets. Once the assets are part of block of assets, it loses its individual cost or written down value. In a way it loses its identity. Thereafter, the depreciation is allowable on the entire block of assets. In the instant case, the assets of international division was not a separate block of assets. The entire assets of all the divisions formed block of assets. Even these were ready for use though not used actually. In the decision of Delhi High Court in Capital Bus Services P. Ltd. v. CIT [1980] 123 ITR 404, it was held that even if the assets were not actually used, if the assets were kept ready for use by the owner in his business, will entitle the assessee to claim depreciation. Accordingly, applying the ratio laid by the Delhi High Court in the case of Capital Bus Services P. Ltd. [1980] 123 ITR 404 the claim of the assessee was allowable. In so far as the submissions of the learned Departmental representative are concerned, that this decision stands overruled by the judgment of the Karnataka High Court in the case of Yellamma Dasappa Hospital [2007] 290 ITR 353, does not seem to be correct. A careful perusal of this decision clearl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether permission was granted to contest the issue of reopening, we are of the view that the same has been rendered of academic nature. In the result, this appeal is allowed. I. T. A. No. 1823/Mds/2006 : In this appeal, ground Nos. 2, 3 and 4 in the grounds of appeal filed by the assessee relate to the issue of grant of depreciation against which no permission has been granted by the Committee on Disputes. Since permission has not been granted by the Committee on Disputes therefore we reject these grounds. Ground Nos. 5 to 8 in this appeal relate to the issue regarding denial of deduction under section 80HHC of the Act by exclusion of certain receipts from business profits. Before we go on to adjudicate individual items, it is relevant that the relevant observations of the hon ble Supreme Court in the case of CIT v. K. Ravindranathan Nair [2007] 295 ITR 228. In that case, while discussing section 80HHC, the hon ble Supreme Court had observed at page 241 of the report as under: In the above formula there existed four variables, namely, business profits, export turnover, total turnover and 90 per cent., of the sums referred to in clause (baa) to the said Explanation. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the above decision : 1. Sale of power: Though it was argued that the assessee-company had installed a power plant to meet the captive requirements and only excess power was sold but since the same has got nothing to do with the export activities of the assessee, the receipts from such sale of power cannot be included in the business profits. 2. Sale of scrap: Since the sale of scrap has got nothing to do with the export activities of the assessee the receipts from such sale of scrap cannot be included in the business profits. 3. Unclaimed/unspent liabilities: As far as this item is concerned, after hearing the rival parties, we find that this relates to items like unclaimed salary, liability to suppliers, forfeiture of security deposit etc. This means some of the items were debited to profit and loss account in the earlier period and profits stood reduced on account of such debits. Now, if the assessee is booking these items separately then it cannot be said that profits have been generated. Strictly speaking, this is only an adjustment entry and only booking of expenditure is nullified now. However, this concept will apply only in the case of revenue items like salary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reimbursement from PII and others. Hence, we set aside this issue to the file of the Assessing Officer for re-examination on the basis of our observation on unclaimed/unspent liabilities. These grounds are partly allowed as indicated above. Ground Nos. 9 to 11 relates to assessment of interest income as income from other sources. It was mainly argued before us that source of interest was interest received from customers and also interest received on special bonds. It was contended that the bonds have been given to the company by various corporations in discharge of trade payments. But the chart filed before us shows that interest has been received on the Government of India Special Bonds which may relate to subsidy provided by the Central Government. Since all the details are not available and admittedly assessment of this interest income under the head Income from other sources , would only affect to the extent where the decision in the case of CIT v. V. Chinnapandi [2006] 282 ITR 389 (Mad) or the decision in the case of Dollar Apparels v. ITO [2007] 294 ITR 484 (Mad) rendered by the hon ble jurisdictional High Court has to be applied because if such income is assessed as b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision is being followed in number of cases including I. T. A. No. 1967/Mds/06 and 1643/Mds/07 as contained in earlier part of the order agreed by both the Members. So, in the absence of permission of the Committee on Disputes to prosecute the appeal on reopening of assessment issue, I dismiss the ground of appeal of the assessee on this issue. As regards, confirmation of disallowance of depreciation is concerned, the assessee is found to have claimed depreciation of Rs. 2,76,68,250 on gas sweetening plant. The plant was stated to have been built during the assessment year 1997-98 when trial run was done and thereafter, it was not used for stated non-availability of raw material, but claim of the above amount of depreciation was made during the assessment year under consideration. The Assessing Officer disallowed such claim, because the plant was not put to use and the assessee took up the matter in appeal, but without any success. In further appeal, it was strongly pleaded since plant was ready for use so it should be construed that it has been put to use. Reliance was placed CIT v. Heera Financial Services Ltd. [2008] 298 ITR 245 ; 212 CTR 532 (Mad), Asst. CIT v. SRF Ltd. [200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partmental representative, learned counsel for the assessee submitted that no doubt in that case films are leased out, but depreciation was held to be allowable on the basis of the earlier decision of the hon ble Madras High Court in the case of Vayithri Plantations Ltd. [1981] 128 ITR 675 ; 18 CTR 9, wherein it was held that assets ready for use were eligible for depreciation. The hon ble Karnataka High Court decision is stated to be distinguishable as it never dealt with the issue regarding block of assets. So far as non-grant of permission by the high powered committee for future years is concerned it has no bearing on the issue being agitated in the present year because permission stands duly accorded for the year under consideration. The arguments of both the sides have been considered carefully in the light of materials on record as well as precedents relied upon by the rival sides. It is an undisputed fact that the gas sweetening plant has not been put to use at all and merely stated trial run was undertaken in the earlier year and it is the main contention of the assessee that since the plant was ready to use, therefore, the assessee is entitled for depreciation as claime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken by the Tribunal. In this view of the matter, no substantial question of law is involved. The appeal is dismissed in limine with no order as to costs. The hon ble Supreme Court has also dismissed the SLP filed by the assessee against this decision as reported in [2004] 266 ITR (St.) 106 (supra). (ii) The hon ble jurisdictional High Court in the case of CIT v. Maps Tours and Travels [2003] 260 ITR 655 (Mad) while referring to a decision of the hon ble Supreme Court has discussed the facts at pages 655 and 656 to decide the issue in favour of the Revenue as per last but one paragraph of its order and last but two paragraphs of the said orders are reproduced below. The assessee s claim for depreciation of these vehicles was negatived by the Assessing Officer. That order was affirmed by the appellate authority. The Tribunal, on further appeal, however, has held that depreciation is to be allowed by observing that the assessee as a businessman would have definitely used the cars though the same was purchased on the last day of the accounting year. No evidence of any such use has been placed before the authorities or the Tribunal by the assessee. The Supreme Court in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raft is acquired or the machinery or plant is installed, or if the ship, aircraft, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, Shri Thakar, learned counsel for the assessee, submitted that it was the choice of the assessee to claim depreciation either in respect of the year of installation or in respect of the year of first putting it to use for the business, and, hence the assessee was entitled to claim depreciation allowance even in respect of the year of installation of machinery. It is difficult to accept this line of approach. The scheme seems to be that the assessee is entitled to claim deduction in respect of the assessment year relevant to the previous year in which the machinery or plant was installed and was used in such year for the purposes of business carried on by the assessee. If, however, the machinery is not used in a year in which it has been installed but none the less it has been put to use in the year just following the year of installation, the assessee is entitled to claim deduction in respect of that year. Thus, if there is a gap of more than one clear previous year between th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf of the Department is that for allowance of deduction for depreciation, the asset must not only be owned by the assessee but it must also be used for the purposes of business or profession of the assessee. It is the case of the Department that the word used in section 32 of the Income-tax Act. 1961, refers to actual use of the asset. It is the case of the Department that having regard to the scheme of the Income-tax Act, 1961, and particularly, after the introduction of the concept of block of assets , actual use is the only requirement apart from ownership for allowance of depreciation under section 32. It is the case of the Department that an important question of law arose for determination before the High Court. That the High Court has failed to examine the said question and that it had erred in dismissing the tax appeals only on the ground that no substantial question of law had arisen. In the present case, the Tribunal has examined the statements of certain witnesses and after analysing the material on record, it has come to the conclusion on facts that there is nothing to show that the machinery, namely, expellers remained idle for the entire block period April 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation was claimed, has admittedly not been used for business purpose during the year under consideration, therefore, the assessee is not entitled to depreciation as claimed. This view gets further fortified by the Chennai B Bench decision in the case of Asst. CIT v. Shri Kurien E Kalathil in I. T. A. No. 1854/Mds/2006 for the assessment year 2002-03 order dated July 31, 2008. As such, while upholding the concurrent findings of both the authorities below in this regard, the appeal of the assessee is dismissed. Order of reference to Third Member I. T. A. No. 1822/Mds/2006 As there is difference of opinion between the Members constituting the Bench, the following question is formulated and referred for nominating the Third Member : (i) Whether in view of the facts and circumstances of the case, the depreciation on gas sweetening plant could be allowed or not ? (ii) Whether in the absence of approval from the Committee on Disputes for prosecuting the issue regarding reopening of assessment, ground in this regard could be dismissed or held to be academic ? Order of THIRD Member R. V. Easwar (Vice-President).-The following points of difference have been referred to me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of this conclusion, he relied on the order of the Delhi Bench of the Tribunal in the case of Asst. CIT v. SRF Ltd. [2008] 21 SOT 122 in which the Tribunal applied the judgment of the Delhi High Court in Capital Bus Services P. Ltd. v. CIT [1980] 123 ITR 404 where it was ruled that depreciation was allowable if the assets were kept ready for use though not actually used. In this view of the matter, the assessee s claim was upheld by the learned Accountant Member. The learned Judicial Member in his dissenting opinion has referred to the judgment of the hon ble Madras High Court in CIT v. Maps Tours and Travels [2003] 260 ITR 655 to hold that if the asset is not actually put to use in the relevant previous year, no depreciation can be allowed. In addition he has also referred to the order of the Chennai Bench in the case of Asst. CIT v. Sri Kurien E. Kalathil in I. T. A. No. 1854/Mds/06 dated July 31, 2008 for the assessment year 2002-03. Apart from these two decisions which have been referred to by the learned Judicial Member, he has also relied on the judgment of the Bombay High Court in Dineshkumar Gulabchand Agrawal v. CIT [2004] 267 ITR 768 where it was held that the word u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the committee has decided not to accord permission to the assessee for pursuing this point before the Tribunal. There seems to be some confusion in the matter due to the language used. However, it seems sufficiently clear to me that the assessee was not permitted to challenge the validity of the reopening of the assessment for the assessment year 1998-99. I, therefore, hold that the learned Judicial Member was right in holding that the assessee s appeal challenging the validity of the reopening of the assessment has to be dismissed. The learned Accountant Member, in my humble opinion and with due respect, ought to have dismissed the assessee s appeal on this point instead of holding that since the matter was being decided on the merits this point became academic. I thus, answer the second point of difference by saying that this ground of the assessee should be dismissed. Coming to the first point of difference it seems to me that even after the introduction of the block of assets concept, there is no change in the legal position to the effect that the assessee would be entitled to depreciation even though the assets in question were not actually put to use in the relevant pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT [1971] 79 ITR 613, it was noticed by the hon ble Madras High Court that the view taken by the Bombay High Court is the more appropriate view to take on the construction of the provision, as against a contrary view expressed by the Madhya Pradesh High Court in CIT v. Jiwaji Rao Sugar Co. Ltd. [1969] 71 ITR 319. Thus, the decision of the hon ble Madras High Court in Vayithri Plantations Ltd. [1981] 128 ITR 675 (Mad) ; 18 CTR 9 is a binding precedent so far as the Tribunal is concerned in favour of the view that in order to claim depreciation under section 32 of the Act it is not necessary that the machinery in question should have been actually used in the relevant previous year for the purpose of business and it is sufficient if the same is kept ready for use during the relevant previous year, though not actually used due to circumstances beyond the assessee s control. Section 32 of the Act has received several amendments but our attention was not drawn to any amendment which has clarified that depreciation would be allowed only if the asset in question was actually used during the relevant previous year and mere keeping ready for being used in the business was not sufficien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s High Court did not decide the question on the ground that it is the business of the assessee to lease out film rolls and therefore once the film rolls were leased out they must be taken to have been used for the purpose of the business, applying the ruling of the Supreme Court in the case of CIT v. Shaan Finance P. Ltd. [1998] 231 ITR 308. The Tribunal had allowed the assessee s claim only on the ground that the film rolls were kept ready for use by the lessee though they could not be actually used due to strike. Accordingly, it was held by the Tribunal that the assessee has to be given depreciation allowance on the ground of a passive user. The High Court affirmed the decision of the Tribunal by a reasoned judgment and dismissed the appeal, finding that no substantial question of law arose for consideration. I am unable to accept the argument put forward by the Department before me that this judgment cannot be taken as an affirmation of the Tribunal s order on the merits. The last paragraph of the judgment clearly shows that the appeal of the Department was dismissed. Further the dismissal is by an elaborate judgment considering several authorities and the legal position. The ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT [1996] 57 ITD 584 at pages 593 and 594. In this order in paragraph 8 it has been opined that the proviso to clause (ii) of section 32(1) contains the words put to use which shows that even after the introduction of the concept of block of assets, the requirement of user of the asset still continues and this user must be actual user. Now the connotation of the words put to use has been considered by the hon ble Madras High Court in Vayithri Plantations Ltd. [1981] 128 ITR 675 (Mad); 18 CTR 9 because section 33 which provided for development rebate required that the depreciation should be claimed in the year in which the plant was installed or in the next year in which it was first put to use . The hon ble Madras High Court equated the quoted words appearing in section 33 with the words used for the purposes of the business appearing in section 32(1) and proceeded to lay down the law that passive user would be sufficient to entitle an assessee to claim depreciation. In the light of this judgment of the hon ble Madras High Court I am unable to give effect to the order of the Mumbai Bench of the Tribunal in Nathani Steels Ltd. [1996] 57 ITD 584 which takes the view that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. I agree that the question of depreciation has to be examined in each year. However, what constitutes user of the asset has not been decided in this judgment cited by the Department. Therefore this judgment cannot advance the Department s case further. The judgment of the hon ble Madras High Court in CIT v. Maps Tours and Travels [2003] 260 ITR 655 cited by the Department turned on its peculiar facts. There the assessee purchased 10 motor cars on the last day of the accounting year relevant to the assessment year 1989-90 and no proof was adduced for having used them in the business before the end of the previous year. The Tribunal surmised that the assessee as a business man would have definitely used the cars though they were purchased on the last day. The High Court held that the cars were not registered for being brought on roads and there was no evidence that they were used before the end of the accounting year. As the facts show, they were peculiar and there was no claim by the assessee that the cars were kept ready for use in the business but could not be used due to circumstances beyond its control. In other words, the question whether the cars can be said to have b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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