2001 (9) TMI 65 - HC - Income Tax

Depreciation on transport corporation's spare engines kept in storage for emergency replacement upheld as business-use asset

The dominant issue was whether depreciation was allowable on spare engines purchased by a transport corporation but kept in store. The HC held that such ... Deduction on account of forfeiture of the contributory provident fund as well as depreciation - Whether, the Appellate Tribunal was right in holding that mere forfeiture of contributory provident fund did not give the amount the colour of income in the hands of the assessee and thus the amount has to be treated in accordance with the provident fund scheme rules? - HELD THAT:- Admittedly, the assessee is a transport corporation. It has a large fleet of buses. These can normally be seen standing by the road side. Thus, it has to keep spare engines in store. The engines are meant to be used in case of need. Thus, it cannot be said that the spare engines purchased by the assessee and kept in store are not meant for use. Every thing ages with the passage of time, including engines which gather dust in the store room. There is a normal depreciation of value even when a machine or equipment is merely kept in a store. Secondly, keeping in view the nature of the assessee's business, it has to necessarily keep certain spare engines in store to meet an emergent situation. There is nothing on record to indicate that an engine, which was purchased a year or two earlier, will fetch the same price in the open market even today. In this situation, it is clear that the authorities have taken a possible view. Nothing has been pointed out to show that the opinion is perverse or untenable. Resultantly, it cannot be said that a substantial question of law arises for consideration of this court within the meaning of section 260A of the Act. No other point has been raised. - appeal is dismissed in limine. Issues involved: Disallowance of deductions claimed by the assessee, including forfeiture of contributory provident fund and depreciation on spare engines.Forfeiture of Contributory Provident Fund: The Assessing Officer disallowed the claim of the assessee for forfeiture of contributory provident fund, adding the amount to the income of the assessee. However, the Commissioner of Income-tax (Appeals) allowed the appeal, stating that the forfeited amount belonged to the trust and not the assessee. The Income-tax Appellate Tribunal upheld this decision, ruling that the amount did not constitute income for the assessee.Depreciation on Spare Engines: The claim for depreciation on spare engines by the assessee was initially disallowed. The Revenue contended that depreciation could only be claimed if the machinery was actively used. However, it was argued that the spare engines were necessary for the transport corporation's operations, even if not actively in use. The Tribunal supported the claim for depreciation, noting that the nature of the business required the maintenance of spare engines for emergencies.Legal Dispute: The Revenue filed a second appeal under section 260A of the Income-tax Act, 1961, raising substantial questions of law regarding the treatment of the forfeited provident fund and the allowance of depreciation on spare engines. The court upheld the decisions of the lower authorities, stating that no substantial question of law arose for consideration. The appeal was dismissed, affirming the decisions on both issues in favor of the assessee.