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2018 (3) TMI 377

the vendor - Held that:- Since this issue is settled by the decision of the Hon’ble Supreme Court in CIT vs Hooghly Mills Co. Ltd [2006 (11) TMI 137 - SUPREME Court] as held had it been a case where the agreement to sale mentioned the entire sale price without separately mentioning the value of the land, building or machinery, we would have remitted the matter to the tribunal to calculate the separate value of the items mentioned in Section 32 and granted depreciation only on these items. However, in the present case, the agreement itself mentioned the value of the building, plant and machinery. Hence it is not necessary to remit the matter to the tribunal in this case. - No doubt, the word 'plant' had been given the deeming meaning vide Section 43(3) but even this deeming meaning does not include the gratuity liability. No depreciation can be granted on the gratuity liability taken over by the respondent assessee. - Decided in favor of revenue. - I.T.A No. 1935/Kol/2016 - Dated:- 7-3-2018 - Shri Aby. T. Varkey, JM And Shri M.Balaganesh, AM For The Appellant : Shri Arindam Bhattacharjee, Addl. CIT For The Respondent : None ORDER Per M.Balaganesh, AM 1. This is an appeal of .....

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g the year. Pursuant to the sale agreement dated 21.03.1994 and 20.04.1994 between vendore, M/s Gajanand Commercial (P) Ltd., owner of Meghna Jute Mills and buyer, M/s Padam Mercantiles (P) Ltd. the vendor sold land, factory building, godowns, plant & machinery and other movables at a consideration of ₹ 5 crores. The buyer, M/s Padam Mercantiles (P) Ltd. have paid a sum of ₹ 138 lacs. (previous year ₹ 493 lacs) as liability to workers in respect of gratuity, employees provident fund and other statutory dues on behalf of the vendor over and above the purchase consideration. Based on the expert opinion obtained by the company, the amount so paid forms part of purchase consideration and have been apportioned in the ratio of respective fixed assets. Consequent to such capitalization, depreciation has been charged accordingly on the additions so made. 3.2. The ld AO requested the assessee to produce the sale agreement made between M/s Gajanand Commercial (P) Ltd and the assessee. The assessee in reply furnished a copy of the expert s opinion relating to nature of outstanding liability of ₹ 263.06 lakhs in the name of M/s Padam Mercantiles (P) Ltd , which has .....

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consideration thereof. But this was taken over by the purchaser and as such this was an adjustment of the amount payable as consideration. Therefore, this could not be excluded from the cost of acquisition. Addition to different fixed assets was made as follows: Sl. No. Assets Rate of Depn. Additions Depr. Claimed 1 Factory Building 10% 30,94,262/- 3,09,426/- 2 Non-factory building 5% 14,78,476/- 73,923/- 3 Plant & Machinery 15% 3,78,51,075/- 56,77,661/- 4,24,23,813/- 60,61,010/- Thus, the expenditure paid by the assessee on behalf of vendor relating to outstanding gratuity, PF, bonus etc. was capital expenditure in nature, but it cannot be capitalized under different depreciable fixed assets viz. Factory building, non-factory building, plant & machinery on proportionate basis. Thus, depreciation of ₹ 60,61,010/- claimed by the assessee is disallowed. 4. The assessee stated that there is no dispute as to the factum of :- a) Purchase of jute mill by the assessee . b) Incurring of expenses on behalf of vendor for clearing old dues. c) Treatment of same as Capital expenditure and not as Revenue expenditure. d) Capitalisation of said expenses by assessee in the proportio .....

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es, he could have claimed the value thereof as cost of the assets sold and in that event, this amount would have been included in the cost of undertaking as consideration thereof. But this was taken over by the purchaser and as such this was an adjustment of the amount payable as consideration. Therefore, this cannot be excluded from the cost of consideration. Therefore, we agree with the grounds in favour of the assessee and affirm the order of the learned Tribunal, appealed against. Accordingly, the assessee pleaded before the ld CITA to allow the depreciation as claimed by the assessee in the sum of ₹ 60,61,010/- . 5. The ld CITA placed reliance on the decision of the Hon ble Jurisdictional High Court in the case of Hooghly Mills supra and deleted the disallowance of depreciation in the sum of ₹ 60,61,010/- . Aggrieved, the revenue is in appeal before us on the following grounds:- 1. That the Ld. CIT(A) erred in deciding that the payment on account of liability for gratuity, PF, Bonus and other statutory liabilities, forms part of the cost of acquisition of depreciable assets when this payment was made on behalf of the vendor. 2. The appellant craves leave to make an .....

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he vendee the position would be different. In the present case, in the agreement dated 24.3.1988 between the vendor (Fort Gloster Industries Ltd.) and the assessee, it is mentioned that the vendor shall purchase the Industrial Undertaking w.e.f, 26.3.1988 as a going concern for a price of ₹ 2 crores and shall also take over the gratuity liability. In clause l(C) of the said agreement it is stated: (C) The amount of consideration agreed to be paid by the purchaser to the vendor shall be apportioned amongst the following heads: (Rs. in Lacs) (A) Land 5 (B) Buildings, structures, godowns sheds and all other constructions and properties of immovable nature at the said premises 35 (C) Plant, Machinery and other movables 160 In the same agreement it was also stated: In addition to the consideration as mentioned in 1(A), the accrued and future gratuity liability of the taken over workers, junior and senior officers, on their retirement or otherwise on termination of their services payable under the Payment of Gratuity Act or otherwise including for the entire period of service with the Vendor shall be on Purchaser's account and shall be met by the Purchaser. Thus in the same agr .....

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tems. However, in the present case, the agreement itself mentioned the value of the building, plant and machinery. Hence it is not necessary to remit the matter to the tribunal in this case. No doubt, the word 'plant' had been given the deeming meaning vide Section 43(3) but even this deeming meaning does not include the gratuity liability. Hence, in our opinion no depreciation can be granted on the gratuity liability taken over by the respondent assessee. As a result, this appeal has to be allowed. The impugned judgment of the High Court as well as the Income Tax Authorities which have allowed depreciation on the gratuity liability are set aside and it is directed that the assessee is not entitled to any depreciation allowance on the gratuity liability nor on the value of the land in respect of the concern purchase by it. The appeal is allowed. No order as to costs. The ratio laid down by the apex court in the aforesaid case squarely applies to the facts of the instant case before us and respectfully following the same , we allow the ground raised by the revenue. 7. In the result, the appeal of the revenue is dismissed. Order pronounced in the Court on 07.03.2018 - Income .....

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