TMI Blog2013 (5) TMI 759X X X X Extracts X X X X X X X X Extracts X X X X ..... cturing Butachlor for several years and had continued to be so used till the market conditions became adverse, and thereafter also though the same was kept idle it was kept in readiness for use as and when the market revived, it cannot be said that the said plant was not in use during the assessment years under consideration merely because the same was not put to actual use during the said period. Tribunal was justified in allowing depreciation claim - in favour of assessee. Receipt by way of gain on cancellation of foreign exchange contracts - revenue v/s capital - Held that:- As decided in DCIT(Assessment) vs. Garden Silk Mills Ltd. ( 2009 (2) TMI 95 - GUJARAT HIGH COURT) the surplus received on cancellation of forward foreign exchange contract was a capital receipt not liable to tax and that it did not fall under section 28(iv). Exclusion of excise duty at the time of valuing closing stock at the end of the accounting period - Held that:- As decided in ACIT vs. Narmada Chematur Petrochemicals Ltd., (2010 (8) TMI 263 - Gujarat High Court) wherein held that excise duty is required to be excluded at the time of valuation of the closing stock on finished goods at the end of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Plant, which, according to the assessee, was ready for use but was not actually put to use due to adverse market conditions? (2) Whether the Appellate Tribunal was right in law and on facts in holding that the receipt by way of gain on cancellation of foreign exchange contracts is a capital receipt not liable to tax and accordingly directing the Assessing Officer to make necessary adjustments to the cost of acquisition/WDV of the plant and machinery to which the said receipt pertains and to make consequential adjustment to the depreciation granted? 4. While admitting Tax Appeal No.77/2008, this Court had by an order dated 7th May, 2008 formulated the following three substantial questions of law:- (1) Whether on the facts and in the circumstances of the case, the Tribunal was right in law to exclude the excise duty at the time of valuing closing stock at the end of the accounting period? (2) Whether on the facts and in the circumstances of the case, the Tribunal was right in law in deleting the disallowance made U/s. 36(1)(iii) of the Act in respect of interest relatable to diversion of interest bearing funds to interest free advances? (3) Whether on the facts and in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Technical) and Butachlor Formulation up to financial year 1992-93 relevant to assessment year 1993-94. Depreciation claimed for those years was allowed by the Assessing Officer. However, at the end of financial year 1992- 93, the assessee company found that the product was not economical due to unfavourable market conditions and, therefore, no production was made during the financial year 1993-94. Nonetheless, the plant was kept in ready to use condition during the financial year 1993-94. The assessee company continued to sell Butachlor during the said year and sale for the financial year 1993-94 came to Rs.93.33 lakhs. It was pointed out that the assessee company had tried to retain the market for its own product and waited for an opportunity to produce the item and sell it again. It was submitted before the Tribunal that the claim made by the assessee had not been mentioned in the assessment order. It was further submitted that the plant was kept in good condition and the machinery was also ready to put to use as soon as the market revived and as such, the assessee was entitled to depreciation on the said plant and machinery. In support of its plea, the assessee placed reliance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rol of the assessee. In support of his submissions the learned counsel placed reliance upon the decision of the Bombay High Court in Whittle Anderson Ltd. v. Commissioner of Income-tax (supra) wherein the assessee who owned Ginning and Pressing factories had kept two out of the four presses idle under a pooling arrangement with other two concerns. The Court after referring to various decisions of different High Courts as well as the decision of the Supreme Court in the case of Liquidators of Pursa Ltd v. Commissioner of Income-tax, Bihar, 25 ITR 265, held that the pooling agreement clearly provided that, although two out of the four presses which were directly in the pooling arrangement were to remain idle while the two presses worked, it is clear that the owner of those presses which were idle had to keep them ready for use at any time and the contingency for their use could also, upon the terms of the agreement, arise at any time and having regard to the definition of the word used as indicated in the authorities referred to in the said decision, it is clear that even those presses which remained under forced idleness were in use during the entire period of the year. The learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under section 32 of the Act. In support of his submissions the learned advocate placed reliance upon the following decisions:- (i) The decision of the Patna High Court in the case of Commissioner of Income-Tax, Bihar and Orissa vs. Dalmia Cement Ltd., (1945) 13 ITR 415 (ii) The decision of the Madras High Court in the case of Commissioner of Income-tax vs. Vayithri Plantations Ltd., (1981) 128 ITR 675. (iii) The decision of the Allahabad High Court in the case of Commissioner of Income-tax vs. Swarup Vegetable Products India Ltd., (2005) 277 ITR 60. (iv) The decision of the Madras High Court in the case of Commissioner of Income-tax vs. Heera Financial Services Ltd., (2008) 298 ITR 245. (v) The decision of the Karnataka High Court in the case of Commissioner of Income-Tax and another vs. Chamundeshwari Sugar Limited, (2009) 309 ITR 326. (vi) The decision of the Karnataka High Court in the case of Commissioner of Income-Tax and another vs. Blend Well Bottles P. Ltd., (2010) 323 ITR 18. (vii) The decision of the Madhya Pradesh High Court Indore Bench in the case of Commissioner of Income- Tax vs. Premier Industries (India) Ltd., (2010) 323 ITR 672 (viii) The decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uirement of law is to establish the use of concerned block of assets and not the use of particular equipment individually. In support of his submission the learned counsel placed reliance upon the decision of the Delhi High Court in Commissioner of Incometax vs. Bharat Aluminium Co. Ltd., (2010) 187 Taxmann 111 (Del.) wherein, the Court was dealing with a question where there was no dispute that the machinery in question was not put to use during the previous year. At the same time, the machinery in question formed part of block of assets. On behalf of the assessee, it was submitted that once an asset merges into the block of assets, it loses its identity. Thus, the user of individual asset is not required and relevant factor would be the use of block asset. The Tribunal, in the said case, had held that once a particular asset falls within the block, it is added to the written down value and the depreciation is to be allowed on the block assets. Thus, individual asset loses its identity. In these circumstances, whether individual asset is put to use in a particular year or not is of no consequence inasmuch as the requirement of law is to establish the use of concerned block of asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of time is the binding pre-bifurcation decision of the Bombay High Court in the case of Commissioner of Income-tax vs. Viswanath Bhaskar Sathe (1937) 5 ITR 621 wherein, the Court in the context of section 10 of the Income Tax Act, 1922 held that the word used in the said section may be given a wider meaning and embraces passive as well as active user. Machinery which is kept idle may well depreciate, particularly during the monsoon season. The ultimate test is, whether, without the particular user of the machinery relied upon, profits sought to be taxed could have been made. 15.1 In Commissioner of Income-Tax, Bihar and Orissa vs. Dalmia Cement Ltd. (supra), the Patna High Court, placing reliance upon the above referred decision of the Bombay High Court, was of the view that depreciation may be allowed in certain cases even though the machinery was not in use or was kept idle. 15.2 In Whittle Anderson Ltd. vs. Commissioner of Income-tax (supra), the Bombay High Court after considering its decision in the case of Viswanath Bhaskar Sathe (supra) as well as the decision of the Patna High Court in the case of Dalmia Cement Ltd. (supra) as well as the decision of the Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that depreciation might be allowed in certain cases even though the machinery was not in use or was kept idle. The words used for the purpose of business are capable of larger and narrower interpretation. If the expression used is construed strictly, it can be taken as connoting or requiring the active requirement or actual working of the machinery, plant or building in the business. On the other hand, the wider meaning will include not only the cases where the machinery and plant etc. are actively employed but also the cases where there is what may be described as passive user of the same in the business and the same can be said to be in use when it is kept ready for use. The Court, in the facts of the said case, held that there is normal depreciation or value even when machines or equipments are merely kept in the store. Looking to the nature of business of the assessee, who was a transporter, it was held that keeping spare engines in store to meet emergent situations, was the requirement of business and that the Tribunal was justified in allowing claim of depreciation on the plant and machinery of vegetable ghee unit though the same were not actually used for the full year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of used for the purpose of business . Further, as the statute does not prescribe a minimum time limit for use of the machinery, the assessee cannot be denied the benefit of depreciation on the ground that the machinery was used for a very short duration for trial run. The Court further held as follows:- The law does not require that there must be optimum production for granting the benefit. Law only requires that there must be use of plant and machinery for the purpose of business. Use of such words that plant and machinery was run more extensively or was required to be used for larger production is not to be found in the Act or Rules. Whether the plant and machinery were up to the extent of its efficiency is irrelevant for the purpose of deciding depreciation. The test is that building, plant and machinery are used for the purpose of business. It is not even necessary that in a year it must have been used for a particular number of days. If the intention of the Legislature was that if the plant and machinery is used for a particular number of days, only then one is entitled to get the benefit of depreciation, the Legislature would have made that provision. Earlier, rules wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was dealing with a case where depreciation was claimed in respect of a building wherein the machinery had just been installed but the same had not become functional. The Court held that the assessee was not entitled to claim depreciation in respect of the said building as depreciation can be claimed only when production commences. Thus, it is apparent that in the peculiar facts of the said case the building could not be said to have been put to use or to be in readiness for use for the purpose of business or profession, whereas in the facts of the present case the Butachlor plant had in fact been used for the purpose of business but in view of adverse market conditions production was stopped but the plant was kept ready for use. 18. As noticed earlier, in the facts of the present case, the assessee due to adverse market conditions had not put the Butachlor plant to actual use in the assessment years under consideration. According to the assessee the plant had been kept ready for use as and when the conditions became favourable. The Tribunal, upon appreciation of the evidence on record has recorded a finding of fact to the effect that the Butachlor plant was kept ready for use as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not in use during the assessment years under consideration merely because the same was not put to actual use during the said period. The assessee is, therefore, entitled to depreciation under section 32 of the Act in relation to its Butachlor plant and the Tribunal was justified in holding so. 19. As regards the contention that the Butachlor plant forms part of a block of assets and as such, even otherwise if the plant is not put to use, the claim for depreciation in respect of the said plant cannot be restricted, a perusal of the impugned order of the Tribunal indicates that no factual foundation has been laid in this regard on behalf of the assessee. In the circumstances, in the absence of any foundational facts, it is not possible for the Court to consider the said contention raised on behalf of the assessee. 20. In the light of the aforesaid discussion, the question is, accordingly, answered in the affirmative, that is, in favour of the assessee and against the revenue. The Income Tax Appellate Tribunal was right in law in directing to allow depreciation on the Butachlor plant, which according to the assessee, was ready for use but not actually put to use due to adverse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee's claim of deduction under section 37(1) on account of donation of Rs.25 lakhs made to voluntary organisation, having no business connection with the assessee. 24.1 In the year under consideration, the assessee gave a donation of Rs.25 lakhs to the Narmada Integrated Rural and Environmental Development Society (NIRDES) and claimed full deduction under section 37(1) of the Act. NIRDES is an institute engaged in social activities and is entitled to get donations on which deduction is allowable at the rate of 50% to the donors under section 80G(5) of the Act. The assessee also submitted a copy of certificate issued by the said institute under section 80G(5) of the Act. The Assessing Officer disallowed the aforesaid claim of Rs.25 lakhs as non-business expenditure. He, however, entertained the claim separately under section 80G(5) of the Act. In assessee's appeal before Commissioner (Appeals), it was pointed out that actually the donation had been given to NIRDES as per order of the Gujarat State Government who was a major shareholder in the assessee company. Moreover, it was in the interest of the company also because the assessee company being a fertilizer producing company, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re and allowable. Following the said decision, the Tribunal found that the facts in the year under consideration were similar to the above assessment year wherein similar type of contribution to State Government has been held as business expenditure and accordingly dismissed the ground of appeal. 24.3 The Supreme Court in the case of Sri Venkata Satyanarayana Rice Mill Contractors Co. vs. Commissioner of Income-Tax (supra) has held thus: From the aforesaid discussion it follows that any contribution made by an assessee to a public welfare fund which is directly connected or related with the carrying on of the assessee s business or which results in benefit to the assessee s business has to be regarded as an allowable deduction under section 37(1) of the Act. Such a donation, whether voluntary or at the instance of the authorities concerned, when made to a Chief Minister s Drought Relief Fund or a District Welfare Fund established by the District Collector or any other fund for the benefit of the public and with a view to secure benefit to the assessee s business, cannot be regarded as payment opposed to public policy. It is not as if the payment in the present case had been ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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