High Court allows depreciation on assets inclusive of gratuity liability, emphasizing consideration of liabilities in asset cost.

C.I.T. (CENT-I), CAL Versus HOOGHLY MILLS LTD.

C.I.T. (CENT-I), CAL Versus HOOGHLY MILLS LTD. - TMI Issues:
- Whether depreciation can be allowed on the written down values of assets after including the gratuity liability taken overRs.
- Whether the consideration shown in the agreement is the real consideration unless liability towards payment of gratuity and leave salary is spread over the consideration shownRs.

Analysis:
1. Depreciation on Assets with Gratuity Liability:
The High Court considered the appeal challenging the Income Tax Appellate Tribunal's decision allowing depreciation on fixed assets acquired by the assessee, including gratuity and leave salary liability. The Tribunal directed the Assessing Officer to consider the present-day value of these liabilities as part of the asset cost for depreciation purposes. The Revenue appealed, questioning the Tribunal's decision. Mr. Agarwal argued citing a Supreme Court judgment that depreciation is only allowable on tangible and intangible assets specified in the Income-tax Act, excluding liabilities like gratuity. However, the Court acknowledged Mr. Khaitan's argument that the liability incurred for acquiring assets should be considered as part of the asset cost for depreciation.

2. Application of Supreme Court Judgment:
Mr. Khaitan highlighted differences in the agreement under consideration from the one in the Supreme Court case, emphasizing clauses related to assumed liabilities and apportionment of consideration. He contended that the liability on gratuity taken over by the purchaser became part of the consideration, warranting depreciation. The Court acknowledged the differences but noted that it is bound by the Supreme Court's views. However, it expressed the need for the matter to be reconsidered by the Supreme Court.

3. Liability as Consideration for Assets:
Mr. Khaitan argued that the liability assumed by the buyer for gratuity should be considered as part of the asset cost, as it was incurred for acquiring the assets. He referred to Section 43(2) regarding incurred liabilities. The Court agreed with the argument but stated that any re-consideration should be done by the Supreme Court.

In conclusion, the High Court allowed the appeal but expressed the need for the Supreme Court to re-examine the issue of allowing depreciation on assets considering liabilities like gratuity. The Court acknowledged the arguments regarding the nature of liabilities incurred for asset acquisition but emphasized its adherence to the Supreme Court's precedent.