2011 (7) TMI 578 - AT - Income Tax

Tribunal allows transit loss deduction, limits warehouse depreciation to 10%, grants specified rates for bore-wells, accepts 100% wooden crates depreciation.

The Tribunal partly allowed the assessee's appeal, permitting the claim for transit loss deduction. However, the depreciation on warehouses and godowns ... Transit loss - Held that:- The amount relatable to transit loss which was actually deducted may not be income received by or accrued to the assessee till the payment is made by FCI. Therefore, the amount deducted towards transit loss during the financial years relevant for the assessment year under consideration has to be held as amount not received by the assessee. While holding that the amount deducted by FCI has to be allowed as deduction while computing the total income of the assessee, it has to be allowed in the assessment year relevant for the financial year in which the deduction was actually made by FCI. As the details of deduction made by FCI are not available on the file of this Tribunal the matter remitted back to the file of AO to verify the details - in favour of assessee by way of remand. Depreciation on cost/written down value of the warehouses and godowns - Held that:- The word 'plant' is defined in section 43(3) to 'include ships, vehicles, books, scientific apparatus and surgical equipment used for the purpose of business or profession'. Thus the definition is an inclusive one and it is not exhaustive - In the case of Assessee Corporation the warehouse is the apparatus with which carries of its business. The warehouse is not simply is not a place or premises where business is carried on. It is a tool or instrument with which the business is carried, therefore it is rightly claimed to be the plant eligible for depreciation at the rates applicable to the plant - in favour of assessee. Depreciation on wooden crates - @ 100% OR 25% - Held that:- As decided in CIT v. Madurai Soft Drinks (P.) Ltd. [2004 (10) TMI 58 - MADRAS HIGH COURT] that 'crates and bottles were entitled for depreciation at the rate of 100 per cent' - The bottles and shells also satisfied the durability test because it was nobody's case that their life was so transitory or negligible as to warrant an interference that they had no function to play in the assessee's trade, therefore to be taken as 'plant' for the purpose of the Act and the assessee is entitled to depreciation in respect of them under section 32(1)(ii) - in favour of assessee. Issues Involved:1. Allowability of transit loss incurred by the assessee.2. Allowability of depreciation on cost/written down value of warehouses and godowns.3. Allowability of depreciation on bore-wells and electrical installations at the rate of 25%.4. Allowability of depreciation on wooden crates at 100%.5. Exemption under section 11 considering the assessee as a charitable organization.Issue-wise Detailed Analysis:1. Allowability of Transit Loss:The first issue pertains to the allowability of transit loss incurred by the assessee. The Tribunal noted that this issue was previously resolved in favor of the assessee in ITA Nos. 1213/H/2004 & 171/H/2005 for the assessment years 2001-02 and 2002-03. The Tribunal had concluded that the transit loss deducted by FCI from the storage charges was not received by or accrued to the assessee during the relevant financial years. Consequently, the amount deducted by FCI should be allowed as a deduction while computing the total income for the relevant assessment year in which the deduction was made. The Tribunal remitted the matter back to the Assessing Officer to verify the details of the deductions made by FCI and allow the same as a deduction. Respectfully following the previous order, the Tribunal allowed the assessee's claim for transit loss.2. Allowability of Depreciation on Warehouses and Godowns:The second issue involves the allowability of depreciation on the cost/written down value of warehouses and godowns. The assessee claimed that warehouses and godowns should be classified as plant and machinery eligible for a higher depreciation rate of 25%, citing the Supreme Court decision in CIT v. Karnataka Power Corpn. However, the Assessing Officer restricted the depreciation to 10%, classifying them under the block of buildings as per Appendix - I of IT Rules, 1962. The Tribunal, after reviewing various judgments, including CIT v. Anand Theatres, concluded that the warehouses owned by the assessee cannot be considered as plant but should be treated as factory buildings. Therefore, depreciation should be allowed accordingly at the rate applicable to buildings, i.e., 10%.3. Allowability of Depreciation on Bore-wells and Electrical Installations:The third issue concerns the depreciation on bore-wells and electrical installations. The assessee argued that these should also be classified as plant and machinery and thus eligible for a higher depreciation rate of 25%. However, the Tribunal held that bore-wells and electrical installations cannot be considered as plant. Depreciation on these assets should be granted at the applicable rates mentioned in Appendix 1 of IT Rules, 1962, which are 10% for bore-wells and 15% for electrical installations.4. Allowability of Depreciation on Wooden Crates:The fourth issue is about the allowability of depreciation on wooden crates at 100%. The Tribunal noted that this issue was covered in favor of the assessee by the judgments of the Madras High Court in CIT v. Madurai Soft Drinks (P.) Ltd. and the Allahabad High Court in CIT v. Aqueous Victuals (P.) Ltd., where it was held that crates and bottles used by soft drink bottlers were essential tools of the trade and entitled to 100% depreciation. Following these precedents, the Tribunal allowed the assessee's claim for 100% depreciation on wooden crates.5. Exemption under Section 11:The last issue involves the exemption under section 11, considering the assessee as a charitable organization. This ground was not pressed by the assessee's counsel during the proceedings. Consequently, the Tribunal dismissed this ground as not pressed.Conclusion:In conclusion, the Tribunal partly allowed the assessee's appeal. The claim for transit loss was allowed, the depreciation on warehouses and godowns was restricted to 10%, the depreciation on bore-wells and electrical installations was granted at the applicable rates, and the claim for 100% depreciation on wooden crates was allowed. The ground regarding exemption under section 11 was dismissed as not pressed.