TMI Blog2017 (1) TMI 1442X X X X Extracts X X X X X X X X Extracts X X X X ..... during the assessment year 2005-2006 and had been sold prior to the end of the accounting year. Both the questions of law are answered in favor of the assessee and against the Revenue - ITA 13/2012, ITA 14/2012 - - - Dated:- 24-1-2017 - MR. S. RAVINDRA BHAT MR. NAJMI WAZIRI JJ. Sh. Nageswar Rao and Sh. Purushottam Anand, Advocates, for appellants. Sh. Zoheb Hossain, Sr. Standing Counsel with Sh. Deepak Anand, Jr. Standing Counsel. MR. JUSTICE S. RAVINDRA BHAT (OPEN COURT) 1. The following questions of law arise for consideration in both these cases: (i) Whether the Income Tax Appellate Tribunal was right in holding that the appellant is not entitled to depreciation under Section 32 of the Income Tax Act, 1961, in respect of the balance written down value relating to Daru Hera unit, forming part of the block of assets? (ii) Whether the appellant is entitled to depreciation in respect of the assets, which were part of the Daru Hera unit, even if the assets had not been put to use during the assessment year 2005-2006 and had been sold prior to the end of the accounting year? 2. The appellant, a wholly owned subsidiary of Sony Corporation, Japan wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts have been used earlier to the closure. The facts of the case of SRF Ltd. are also distinguishable because the assets could not be used in a particular year although they were used in preceding and subsequent years and the Tribunal came to the conclusion that the principle of passive user could be applied. In the case of Yamaha Motor (lndia) Pvt; Ltd. the question was regarding the year in which monies payable in respect of discarded assets could be reduced from the block of assets and, thus, the facts are distinguishable. Position in respect of Vinyl Chemicals (India).Ltd. is also similar. The facts of the case of Dineshkumar Gulabchand Aggarwal are also distinguishable in as much as the newly acquired asset had not been actually used in the business. 11.5 In the instant case, the question is not regarding passive user of the assets of the business or regarding the year in which sale consideration or the scrap value had to be reduced from the WDV of the blocks of buildings and machinery and plant on Dharuhera unit. These assets were transferred by the assessee in this year. Therefore, these assets' neither belonged to the assessee nor used for the purpose of business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation. He relied upon the previous ruling of this Court in Allied Electronics and Magnetics Ltd. v. CIT (2008) 304 ITR 160. 5. The relevant provisions of the Income Tax Act, 1961 are reproduced as follows: 6. Section 2(11) defines the term block of assets and reads as follows: block of assets means a group of assets falling within a class of assets comprising- (a) tangible assets, being buildings, machinery, plant or furniture; (b) intangible assets, being know-how, patents, copyrights, trade-marks, licences, franchises or any other business or commercial rights of similar nature, in respect of which the same percentage of depreciation is prescribed ; 7. Section 2(42A) defines capital assets as follows: short-term capital asset means a capital asset held by an assessee for not more than thirty-six months immediately preceding the date of its transfer : 8.. Section 32(1) reads as under: Depreciation. 32. (1) In respect of depreciation of- (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to the predecessor and the successor in the case of succession referred to in clause (xiii), clause (xiiib) and clause (xiv)of section 47 or section 170 or to the amalgamating company and the amalgamated company in the case of amalgamation, or to the demerged company and the resulting company in the case of demerger, as the case may be, shall not exceed in any previous year the deduction calculated at the prescribed rates as if the succession or the amalgamation or the demerger, as the case may be, had not taken place, and such deduction shall be apportioned between the predecessor and the successor, or the amalgamating company and the amalgamated company, or the demerged company and the resulting company, as the case may be, in the ratio of the number of days for which the assets were used by them. Explanation 1.- Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work in or in relation to, and b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... building, machinery, plant or furniture, together with the amount of scrap value, if any, fall short of the written down value thereof : Provided that such deficiency is actually written off in the books of the assessee. XXXXXX XXXXXX XXXXXX 9. Section 43(6)(c) reads as follows: Definitions of certain terms relevant to income from profits and gains of business or profession. 43. In sections 28 to 41 and in this section, unless the context otherwise requires- XXXXXX XXXXXX XXXXXX (6) written down value means- XXXXXX XXXXXX XXXXXX (c) in the case of any block of assets,- (i) in respect of any previous year relevant to the assessment year commencing on the 1st day of April, 1988, the aggregate of the written down values of all the assets falling within that block of assets at the beginning of the previous year and adjusted,- (A) by the increase by the actual cost of any asset falling within that block, acquired during the previous year; (B) by the reduction of the moneys payable in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation on such asset, provided in the books of account of the assessee in respect of such previous year or years preceding the previous year relevant to the assessment year under consideration shall be deemed to be the depreciation actually allowed under this Act for the purposes of this clause; and (c) the depreciation actually allowed under clause (b) shall be adjusted by the amount of depreciation attributable to such revaluation of the asset. XXXXXX XXXXXX XXXXXX 10. Sections 50(1) (2) reads as follows: Special provision for computation of capital gains in case of depreciable assets. 50. Notwithstanding anything contained in clause (42A) of section 2, where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed under this Act or under the Indian Income-tax Act, 1922 (11 of 1922), the provisions of sections 48 and 49 shall be subject to the following modifications :- (1) where the full value of the consideration received or accruing as a result of the transfer of the asset together with the full value of such considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on stipulated is that the block of asset should cease to exist. The block of asset should stand completely depleted and no asset should remain in the block. 19. In the present case, there is no finding of the Assessing Officer or the appellate authorities that the block of assets carrying the same rate of depreciation ceased to exist or that after adding the three elements mentioned in Section 50, there was surplus on the full value of consideration received or accruing as a result of transfer of plant and machinery or the building. It is not the finding of the Assessing Officer that the block of assets entitled to the same percentage of depreciation ceased to exist or there was a surplus in the block of assets carrying the same rate of depreciation. The Assessing Officer has proceeded on the basis that the division itself constitutes a separate and an independent block of assets. Appendix to the Rules as noticed above, is not a unit/division specific but is rate of depreciation specific, as all assets prescribed the same rate of depreciation are clubbed and are a part of the same block of assets. The view we have taken finds resonance and acceptance in two decisions of the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be maintained and not separately for each asset. 33. Having regard to this legislative intent contained in the aforesaid amendment, it is difficult to accept the submission of the learned counsel for the Revenue that for allowing the depreciation, user of each and every asset is essential even when a particular asset forms part of block of assets‟. Acceptance of this contention would mean that the assessee is to be directed to maintain the details of each asset separately and that would frustrate the very purpose for which the amendment was brought about. It is also essential to point out that the Revenue is not put to any loss by adopting such method and allowing depreciation on a particular asset, forming part of the block of assets even when that particular asset is not used in the relevant assessment year. Whenever such an asset is sold, it would result in short term capital gain, which would be exigible to tax and for this reason, we say that there is no loss to Revenue either. 34. The upshot of the aforesaid discussion is that though we are not entirely agreeing with the reasoning of the Tribunal contained in the impugned judgment, we are upholding the con ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
