1992 (4) TMI 14 - HC - Income Tax

Court rules on depreciation treatment for depreciable assets under section 80J

ITC. Limited Versus Commissioner Of Income-Tax

ITC. Limited Versus Commissioner Of Income-Tax - [1994] 205 ITR 126, 69 TAXMANN 510 Issues Involved:1. Whether the Tribunal was correct in concluding that the conditions of sub-clause (ix) of clause (b) of the Explanation to section 40A(8) were satisfied.2. Whether the Tribunal was correct in holding that the Commissioner of Income-tax was justified in presuming that the order of the Inspecting Assistant Commissioner was erroneous regarding the exemption of Rs. 58,96,594 under sub-clause (ix) of clause (b) of the Explanation to section 40A(8).3. Whether the initial depreciation under section 32(1)(v) should be deducted in determining the written down values of depreciable assets for the computation of capital employed for section 80J.Issue-wise Detailed Analysis:Issue 1: Conditions of Sub-clause (ix) of Clause (b) of the Explanation to Section 40A(8)The first issue revolves around the exemption from the restrictive provisions of section 40A(8) concerning the payment of interest by a corporate assessee. The appellant had accepted public deposits, which were secured by a charge on the company's current assets. The Assessing Officer accepted the appellant's claim of exemption for Rs. 58,96,594 without disallowance. However, the Commissioner of Income-tax found no evidence that the conditions of sub-clause (ix) were satisfied and set aside the Assessing Officer's order. The Tribunal agreed with the Commissioner, noting a lack of evidence that the loan did not exceed 75% of the market price of the securing assets. The Tribunal found that the Assessing Officer had not sufficiently examined the applicability of section 40A(8) or its exceptions. The court upheld the Tribunal's decision, concluding that the assessee's assertion lacked sufficient evidence to satisfy the conditions of the exemption clause.Issue 2: Presumption of Erroneous Order by the Commissioner of Income-taxThe second issue pertains to whether the Commissioner of Income-tax was justified in presuming the Inspecting Assistant Commissioner's order was erroneous. The Commissioner concluded that the necessary conditions for the exemption under sub-clause (ix) were not demonstrated. The Tribunal supported this view, indicating that the Assessing Officer did not adequately address the disallowance of interest under section 40A(8). The court agreed with the Tribunal, affirming that the Commissioner was correct in presuming the order was erroneous due to insufficient examination of the exemption conditions by the Assessing Officer.Issue 3: Initial Depreciation under Section 32(1)(v) and Written Down Values for Section 80JThe third issue involves the computation of capital employed for section 80J and whether initial depreciation under section 32(1)(v) should be deducted in determining the written down values of depreciable assets. The court analyzed the definition of 'written down value' under section 43(6) and noted that the proviso excludes certain depreciations from the written down value. The court found that the initial depreciation under section 32(1)(v) should not be included in the written down value as it is an incentive rather than real depreciation. The court referenced a prior decision in CIT v. Texmaco Ltd., which supported this view. Consequently, the court answered the third question in the negative, in favor of the assessee, concluding that initial depreciation should not reduce the written down value for section 80J purposes.Conclusion:The court affirmed the Tribunal's decisions on the first two issues, ruling against the assessee. On the third issue, the court ruled in favor of the assessee, stating that initial depreciation should not be deducted in determining the written down values of depreciable assets for the computation of capital employed under section 80J. There was no order as to costs.