1987 (9) TMI 426 - AT - Income Tax

Dispute over asset depreciation during business suspension resolved in favor of assessee

Income-tax Officer Versus Gujarat Mini Steel Ltd.

The case involved the entitlement to depreciation on assets not actively used. The Judicial Member ruled in favor of the Revenue, denying depreciation due ... - Issues Involved:1. Entitlement to depreciation on building, plant, machinery, and electrical installations when not actively used.Detailed Analysis:1. Entitlement to Depreciation on Building, Plant, Machinery, and Electrical Installations When Not Actively Used:Judicial Member's Perspective:The primary issue in both appeals was whether the assessee was entitled to depreciation on building, plant, machinery, and electrical installations even though they were not actively used during the relevant accounting years. The CIT(A) had allowed the depreciation claim based on the decision in CIT v. Vayithri Plantations Ltd. [1981] 128 ITR 675 (Mad.). The Department's Representative (DR) relied on the decision in CIT v. Suhrid Geigy Ltd. [1982] 133 ITR 884 (Guj.), which emphasized that 'depreciation is inseparable from the actual user for business' and that there must be 'actual, effective and real user in the commercial sense.' The Judicial Member concluded that since the assessee's factory was not operational, the claim for depreciation could not be allowed, and thus, the appeals were allowed in favor of the Revenue.Accountant Member's Perspective:The Accountant Member disagreed with the Judicial Member's view, emphasizing that the assessee's business had not been discontinued but merely faced a temporary lull due to market conditions and labor issues. The assessee argued that the assets were kept ready for use, which constituted 'passive use.' The Accountant Member cited various judgments, including Vayithri Plantations Ltd., Whittle Anderson Ltd. v. CIT [1971] 79 ITR 613 (Bom.), and Capital Bus Service (P.) Ltd. v. CIT [1980] 123 ITR 404 (Delhi), which supported the broader interpretation of 'used' to include passive use. The Accountant Member concluded that the assessee was entitled to depreciation for the years under appeal, subject to compliance with section 34 of the Income-tax Act, 1961.Third Member's Perspective:The Third Member was tasked with resolving the difference of opinion between the Judicial and Accountant Members. The Third Member examined the facts, noting that the assessee's plant had started commercial production in December 1974, operated until August 1975, and then faced a temporary shutdown due to market and labor issues until it restarted in May 1978. The Third Member distinguished the case from Suhrid Geigy Ltd., where the plant had not commenced production. The Third Member found that the assessee's situation involved a temporary suspension of business activities, and the plant and machinery were kept ready for use, constituting passive use. Consequently, the Third Member concluded that the assessee was entitled to depreciation for the relevant years.Conclusion:The Third Member's decision resolved the issue in favor of the assessee, concluding that the assessee was entitled to depreciation on the building, plant, machinery, and electrical installations due to the passive use during the temporary suspension of business activities. The matter was referred back to the Division Bench for passing the order based on the majority decision.