1991 (7) TMI 43 - HC - Income Tax

Disallowance of Terminal Allowance under Income-tax Act for 1972-73 due to Machinery Usage Issue

Commissioner Of Income-Tax Versus Co-operative Wholesale Society Limited

Commissioner Of Income-Tax Versus Co-operative Wholesale Society Limited - [1992] 195 ITR 361, 97 CTR 142, 62 TAXMANN 292 Issues:1. Entitlement to terminal allowance under section 32(1)(iii) of the Income-tax Act, 1961.2. Justification of holding that assets sold during the year should have been used in the business during the previous year.Entitlement to Terminal Allowance:The case involved an assessment year of 1972-73 where the assessee sold two assets to a purchaser, with possession given in the previous year. The assessing authority rejected the claim under section 32(1)(iii) as the machinery was not used during the relevant previous year. The Commissioner of Income-tax (Appeals) upheld this decision, citing the need for the machinery to be used at some point during the previous year in which it was sold. The Appellate Tribunal later allowed the claim, stating the machinery was available for use by the assessee during the year. However, the High Court held that as the machinery was being used by the purchaser for their business and possession was transferred before the relevant period, the claim was not sustainable. The court referred to previous decisions emphasizing the necessity for machinery to be used during the accounting year to claim the allowance under section 32(1)(iii).Assets Usage in Business:The court analyzed that the machinery sold had not been available for the assessee's use during the relevant period, as possession was handed over to the purchaser before the assessment year. The court reiterated the requirement for machinery to be used, actively or passively, during the accounting year to claim the allowance. Referring to the Supreme Court's decision, the court emphasized that if machinery was not used at any time during the accounting year, no allowance could be claimed under section 32(1)(iii). The court concluded that for any deduction claim, it must be linked to the accounting year, as per the Income-tax Act's provisions. Consequently, the court answered both questions against the assessee, confirming the denial of the terminal allowance and the necessity for assets to be used in the business during the previous year.This detailed judgment from the Kerala High Court clarifies the requirements for claiming terminal allowance under section 32(1)(iii) of the Income-tax Act, emphasizing the crucial aspect of machinery usage during the relevant accounting year.