9911796707
TMI Blog1987 (9) TMI 426X X X X Extracts X X X X X X X X Extracts X X X X ..... d went on till 6th August, 1975 when it was closed and it was again started in 1978. He also argued that it was enough that the machinery kept ready, relying upon the decision in the case of Capital Bus Service ( P.) Ltd. v. CIT [1980] 123 ITR 404 (Delhi). The Gujarat High Court in the aforesaid decision in the case of Suhrid Geigy Ltd. (supra) has held as follows : "Depreciation is inseparable from the actual user for business and depreciation allowance is permissible only on that account. It is not an allowance for natural wear and tear by reason of the aging process. Every building starts aging from the day it is constructed, . . . . . . . . The emphasis is on the 'user' of the building in the business of the assessee. There must be actual, effective and real user in the commercial sense and the user must be so linked with the business that it can be said that there is an immediate nexus between the user and the business, that is, the real business of the assessee." In that case the Court was concerned with the assessee's claim of depreciation on a building in which certain machinery was housed. The High Court held that the depreciation could not be granted on the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, relied on the decision reported in CIT v. Jiwaji Rao Sugar Co. Ltd. [1969] 71 ITR 319 (MP) as well as the decision of the Hon'ble Gujarat High Court in the case of Suhrid Geigy Ltd. (supra). It would be relevant to point out that the decision of the Hon'ble Gujarat High Court cited (supra) is distinguishable on facts inasmuch as it was dealing with a situation where the assessee had not commenced production but had only installed machinery in the factory building (emphasis supplied). The question posed before the Hon'ble High Court was the determination of the date on which the building came to be "used" in the business of the assessee. It may also be relevant to point out that the provision for depreciation as prevailing at that time was that no depreciation was to be allowed on an asset which had been used for less than 30 days in the relevant accounting year. The matter was decided in favour of the Revenue as the Hon'ble Court opined that the building had not been used for more than one month in the relevant accounting year and so was not entitled to depreciation. In view of the facts which have emerged above, the aforesaid decision would not be applicable to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 626 (Nag.) and has also discussed the decision of the Hon'ble Supreme Court in the case of Liquidators of Pursa Ltd. v. CIT [1954] 25 ITR 265. We may also mention that the ITO has relied on the aforesaid decision to deny the claim of depreciation to the assessee. The learned CIT (Appeals) has, however, rightly observed in his order that the Hon'ble Supreme Court in the aforesaid decision was not deciding the question whether "passive" use of the plant and machinery could be regarded as "user". 6. I, therefore, following the ratio laid down by the various decisions cited by the learned counsel of the assessee, do hold that the assessee is entitled to the claim in respect of depreciation in both the years under appeal. 7. I also observe that in the assessment year 1977-78, the assessee claimed the aforesaid depreciation for the first time before the CIT (Appeals) by means of an additional ground. It is not known whether he has complied with the various conditions envisaged u/s. 34 of the Income-tax Act. The ITO is accordingly directed to allow depreciation subject to the fulfilling of various conditions laid down in section 34 of the Income-tax Act, 1961. 8. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, came to the conclusion that there was a lull and, therefore, the assessee was having the passive use of the building, plant, machinery etc. and accordingly he, relying on the decisions in Vayithri Plantations Ltd.'s case (supra), Whittle Anderson Ltd.'s case (supra), Viswanath Bhaskar Sathe's case (supra), Capital Bus Service (P.) Ltd.'s case (supra) and Liquidators of Pursa Ltd.'s case (supra) came to the conclusion that the assessee was entitled for depreciation. 3. The departmental representative indicated the facts and first disputed that it is not known whether the mini plant started in May 1978. He further disputed that the mini plant was closed due to glut in the market but not due to the labour problem. For this purpose the departmental representative referred to the auditor's note and the Directors' report in the published accounts. He further stated that the matter has been concluded by the Hon'ble Gujarat High Court in Suhrid Geigy Ltd.'s case (supra) and, therefore, the assessee was not entitled for depreciation. He indicated that it is clear that the assessee was not having the active use of the building, plant, machinery etc. and, therefore, the question of passi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at in the present case the plant was doing commercial production from December 1974 to 6-8-1975 and it was closed only due to the glut in the steel market and labour problem. The assessee was always having the passive use and this fact is clarified by the assessment order passed by the ITO for the assessment year 1979-80 when the depreciation has been allowed to be carried forward. The counsel further supported the Ending by the order of the Accountant Member and relied on Viswanath Bhaskar Sathe's case (supra), Whittle Anderson Ltd.'s case (supra), CIT v. Elecon Engg. Co. Ltd. [1974] 96 ITR 672 (Guj.) and Capital Bus Service (P.) Ltd.'s case (supra). The assessee's counsel alternatively indicated that if two views are possible, the view favourable to the assessee may be taken. He relied on CED v. R. Kanakasabai [1973] 89 ITR 251 (SC). 5. The D.R. replying to the argument of the assessee's counsel urged that it is incorrect that there was any passive use of the plant. The plant was not used at all. He further referred to the order of the ITO and indicated that the ITO passed the order on 23-9-1980. Till date it was not known whether the factory has started and, therefore, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... representative, in the course of the argument, stated that the facts after the close of the previous year should not be taken into consideration. This cannot be correct. The case of the assessee is that there was a temporary lull when the business activities of the assessee were suspended and the same were restarted when the position was favourable to it. Under the circumstances, the position even after the previous year will have to be taken into consideration in order to judge whether there was a temporary, suspension of the business or the assessee had its intention to close the business for ever. It is clear from the activities of the assessee that the business was temporarily suspended due to unfavourable steel market and labour problem. After two years when the labour problem was over and the steel market was little favourable to the assessee the factory was reopened. Therefore, it is clear that the active use of the plant and machinery, though was not during the years, the passive use was and it cannot be said that the plant was closed and, therefore, the plant and machinery etc. were not entitled for depreciation. Several decisions had been cited from both the sides. After ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
