TMI Blog2018 (1) TMI 327X X X X Extracts X X X X X X X X Extracts X X X X ..... - - - Dated:- 3-1-2018 - Shri Pramod Kumar, Accountant Member And Shri S. S. Godara, Judicial Member By Revenue : Shri V. K. Singh Shri Prasoon Kabra, Sr. D.R. By Assessee : Bandish Soparkar, A.R. ORDER Per S. S. Godara, Judicial Member These two Revenue s appeals for assessment years 2011-12 2012-13 arise against the CIT(A)-XIV 8, Ahmedabad s order dated 18.09.2014 27.10.2015, in case nos. CIT(A)-XIV/DC.Cir.8(OSD)/333/2013-14 CIT(A)- 8/179/14-15, reversing Assessing Officer s identical action disallowing depreciation claims of ₹ 54,57,582/- and ₹ 46,96,856/-; respectively on the ground that the relevant leased assets could not be treated as to have been used in assessee s business followed by his directions to the Assessing Officer for allowing carried forward MAT credit pertaining to earlier years (in former assessment year only), in proceedings u/s.143(3) of the Income Tax Act, 1961, hereinafter the Act . Heard both the parties. Case file(s) perused. We heard these two cases in D C bench on 18/12/2017 01/01/2018; respectively. There is no dispute that similar issues are involved in both cases. Therefore, we dispose of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9-10 in this regard. (b) It has been examined and verified that issue of disallowances of depreciation with facts contentions were similar in previous year with that of earlier year asst. order. It is important to note here that appellant after establishing a textile weaving unit in 2005, leased out the factory with plant and machinery to M/s. Arvind Mills Ltd. (AMI) for eight years and regularly reflecting lease rent income under the head 'Income from other sources'. The books of accounts are audited and appellant submitted tax audit report as required U/S.44AB of the Act in Form 3CB 3CD, where tax auditor computed such eligible deduction of depreciation. It is only from A.Y. 2009-10 that depreciation so claimed were disallowed in view of provisions of section 57(ii) of the Act. read with section 32 and 38 of the Act. The major contention of A.O. during previous year is the two fold i.e. the lease deed enter into by appellant with M/s.AML was a finance lease and transactions were in the nature of Seal and lease back . Secondly, these transactions are not entitled for depreciation on assets so leased out in view of section 38 of the Act. read with section 57 (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lessee (M/s Arvind Mill Ltd.) or offer such manufacturing facilities on operating lease basis to be utilised by the lessee. This reflect that M/s Arvind Mill Ltd. being one of the leading textile manufacturer and processors was interested to develop ancillary unit which can fed them continuously qualify products so to unsure regular supply and uniform quality of ultimate product. This was with the object of reduction of the cost of such inter mediatory products of uniform quality for which M/s Arvind Mills Ltd. was otherwise dependent on other such unit outside Ahmedabad. As clearly mentioned in this preface / preamble that choice was given to entrepreneur who is interested to have such unit in textile park that either they manufacture for M/s Arvind Mills Ltd. on jobs work basis or leased out such facility on operating lease basis . In the said deed, it is clear that appellant company was in possession ownership of factory building, plant machinery, pipes, fitting, furniture fixture with other such rights as available for the Textile weaving unit . (ii) As per terms conditions of lease deed, the deed was for 8 years for a monthly rent of ₹ 8,33,000/- p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant purchased 24 set of gammex loom costing ₹ 6.32 cr. from M/s Arvind Mill Ltd. as high sea purchase. Other plant machinery were purchased by appellant from other parties. From the above details it can be concluded that appellant established its own weaving unit for which it has borrowed the money from Exim Bank. But for viability of this unit, the Exim Bank ensure that there be leasing out of this unit to M/s Arvind Mill Ltd. so that realisation of loan can be ensured. On the other hand, for upgradation of technology, M/s Arvind Mill Ltd. negotiated for imported looms which were sold to appellant with other such unit in the park. This act was to ensure quality machine quality product by M/s Arvind Mills. (e)(i) It is therefore, I am not inclined with A.O. that merely on the facts that machineries were purchased from M/s Arvind Mills as high sea purchase, the lease agreement between appellant M/s Arvind Mills Ltd. can be treated as finance lease or transaction of sale lease back . The ratio in the case of Indusand Bank Ltd. as relied on by A.O. was inter-alia based on the Hon'ble Supreme Court judgment in the case of Asian Brown Boveri where Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32(1) and 38(2). Section 57(ii) in the case of income of the nature referred to in clauses (ii) and (iii) of subsection (2) of section 56, deductions, so far as may be, in accordance with the provisions of sub-clause (ii) of clause (a) and clause (c) of section 30, section 31 and sub-sections (1) and (2) of section 32 and subject to the provisions of section 38; Section 32(1) In respect of depreciation of (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed- Section 38(2) Where any building, machinery, plant or furniture is not exclusively used for the purposes of the business or profession, the deductions under sub-clause (ii) of clause (a) and clause (c) of section 30, clauses (i) and (ii) of section 31 and clause (ii) of sub-section (1) of section 32 shall be restricted to a fair pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e been used by the assessee for his use or for non - business purpose. It is evident that the assets have been used for the purpose of hiring by the assessee and the lesser has used it for its business. I am inclined to agree with the explanation given by the appellant for the term 'so far as may be' to mean that the provisions may be generally followed to the extent possible. In case of machinery leased out, it is the lessor who uses the machinery and not the lessee. It would, therefore, be incorrect to apply the provisions of section 38 to mean that the assessee or the lessor should use the leased out machinery. The purpose of section 38 is to restrict the depreciation to the extent it was not used for the purpose of business. In present case, it would have been applicable if it was established that the machineries were used by the lessor for some purpose other than business. By applying the provisions of section 38, the A. O. has made the provisions of section 57(ii) redundant as in accordance with this interpretation, the claim of depreciation cannot be allowed, if the assets are used for hire or leased out. The reliance placed by the appellant on the judgme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s well as ITA Nos. 2211/Ahd/2012 and 1885/Ahd/2013 thereby holding the assessee to be entitled for the impugned depreciation as follows: 9. It is not in dispute that the lease rental income has been taxed under the head Income from other sources . The relevant provision invoked by the A.O. is Section 56(ii) and (iii) of the Act, which reads as under:- (ii) Income from machinery, plant or furniture belonging to the assessee and let on hire, if the income is not chargeable to income-tax under the head Profits and gains of business or profession ; (iii) where an assessee lets on hire machinery, plant or furniture belonging to him and also buildings, and the letting of the building is inseparable from the letting of the said machinery, plant or furniture, the income from such letting, if it is not chargeable to income-tax under the head Profits and gains of business or profession . 10. Section 57 allows certain deductions from such income. Under clause (ii) of Section 57 it is provided that only in cases falling under clauses (ii) and (iii) of sub-section 2 of Section 56, deductions u/s. 30, 31 and 32 of the Act would be allowed. 11. The main contention o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 147 has held The court cannot read anything into a statutory provision which is plain and unambiguous. A statute is the edict of the Legislature. The language employed in a statute is the determinative factor of legislative intent. The first and primary rule of construction is that the intention of the legislation must be found in the words used by the Legislature itself. The court only interprets the law and cannot legislate. If a provision of law is misused and subjected to the abuse of the process of law, it is for the Legislature to amend, modify or repeal it, if deemed necessary. Legislative casus omissus cannot be supplied by judicial interpretative process. 15. The Hon ble Supreme Court in the case of Hindustan Bulk Carriers 259 ITR 449 PP 465 has held The provision of one section of the statute cannot be used to defeat those of another unless it is impossible to effect reconciliation between them. Thus a construction that reduces one of the provisions to a useless lumber or dead letter is not a harmonized construction. To harmonise is not to destroy. 16. Coming back to the allowability of depreciation from the income taxed under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 of impugned order disallowed brought forward unabsorbed depreciation claim of ₹ 1,05,92,473/-. The A.O. while computing total income under normal provision started with Total income of ₹ 81,99,320/- before set off of b/f. depreciation allowance. The appellant in computation of income for previous year (copy filed) reflected Book profit u/s 115JB of the Act at ₹ 81,49,154/-. It is therefore considering the fact that no set off of unab. dep. for A.Y. 06-07 available to appellant and relief granted at para 5.1 above, the total income under normal provisions as well as book profit u/s 115JB of the Act will be at ₹ 81,99,320/- and ₹ 81,49,154/- respectively. Therefore total income under normal provisions are required to be taken as assessed income. The Income tax computation form as attached by appellant in appeal memo reflect that no such MAT credit is given. As per provisions of section 115JAA of the Act, such credit is to be granted. The A.O. is directed to grant such credit after verification of earlier year case record for such carry forward MAT credit from the tax so determined in previous year. This ground is treated as allowed. 6. Hear ..... X X X X Extracts X X X X X X X X Extracts X X X X
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