TaxTMI 
TaxTMI 
2009 (10) TMI 612
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....undertaking can proceed with before any Court or Tribunal without the approval of High Power Committee known as COD. Nothing was placed before us to demonstrate that what action the Revenue took for obtaining the approval of COD. 3. However, we may mention that in case the Revenue desires to prosecute the appeals, it shall be free to move this Tribunal by appropriate petition for recalling the case after obtaining the permission of the COD. 4. The Revenue's appeals are dismissed. ITA No. 1822/Mad/2006: 5. In this appeal, the assessee has taken various grounds but at the time of hearing, the learned counsel for the assessee submitted that the only two disputes involved viz., (i) reopening of assessment; and (ii) confirmation of disallowance of depreciation. 6. At the outset the learned counsel for the assessee submitted that he would like to argue the case on merits before reopening the issue. He referred to para 3 of the appellate order and submitted that the assessee had claimed depreciation amounting to Rs. 2,76,68,250 on gas sweetening plant. The plant was built during the previous year relevant to the asst. yr. 1997-98 but was never used thereafter due to non-availability ....
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.... two years but during the year the asset could not be used on account of non-receipt of orders even then the assessee was entitled to depreciation. He also relied on the decision of the Hon'ble jurisdictional High Court in the case of CIT vs. Southern Petrochemical Industries Corporation Ltd. (2007) 211 CTR (Mad) 116 : (2007) 292 ITR 362 (Mad). 7. The learned Departmental Representative, on the other hand, submitted that s. 32 has been amended since long and now, the word "used" has been substituted by the word "use". He then referred to the decision of the Hon'ble Bombay High Court in the case of Dineshkumar Gulabchand Agrawal vs. CIT (2004) 267 ITR 768 (Bom) where it has been clearly observed that the word 'used' in s. 32 of the IT Act denotes that the asset has been actually used and not that it is merely ready for use. It was further observed that the expression 'used' means actual use for the purpose of business. Since in this case, the plant has not been used in this year and in fact never used after the asst. yr. 1997-98 till date, depreciation could not be granted. He then referred to the decision of Hon'ble Karnataka High Court in the case of Dy. CIT vs. Yellamma Dasappa ....
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.... Court in the case of Yellamma Dasappa Hospital has never dealt with the issue regarding block of assets. He contended that non-grant of permission by the High Power Committee for the future years is of no relevance because such Committee is merely a High Power Administrative Committee and is not technically competent to give its opinion on technical issues. The High Power Committee sometimes decide the issue on the basis of certain administrative conveniences. For example, not to encourage litigation. Since permission has been granted in this year, the issue has to be adjudicated on its own merits for this year. 10. We have considered the rival submissions carefully in the light of the material on record. We have also perused the case law cited by both the parties. We find force in the submission of the learned counsel for the assessee. In this case, admittedly gas sweetening plant was installed in the asst. yr. 1997-98 and a test run was also done and accordingly on the basis of this test run, depreciation was allowed by the Department in the asst. yr. 1997-98. Since the plant could not be used due to non-availability of raw material in this year, depreciation has been denied ma....
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....r. Moreover, a perusal of the judgment would show that there is no discussion by the High Court whether the films were leased out and because of that it was none of the concern of the lessor whether the lessee can use the same or not. Throughout the judgment, the High Court has discussed the concept of usage and referred to the decision of the Division Bench of Bombay High Court in the cases of CIT vs. Viswanath Bhaskar Sathe (1937) 5 ITR 621 (Bom), Whittle Anderson Ltd. vs. CIT (1971) 79 ITR 613 (Bom) and the Hon'ble Supreme Court decision in the case of Liquidators of Pursa Ltd. vs. CIT (1954) 25 ITR 265 (SC). Ultimately it was held that since the assessee was keeping the machinery ready for usage, depreciation has to be allowed. Similarly, in the case of CIT vs. Swamp Vegetable Products India Ltd., the Hon'ble Allahabad High Court has held that once an asset is kept ready for use, but not actually used, then the same was entitled for depreciation. The Hon'ble Punjab & Haryana High Court has also taken similar view in the case of CIT vs. Nahar Exports Ltd. Therefore, we are of the view that sitting at Chennai Benches of the Tribunal, it may not be appropriate to ignore the direct....
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....r discarded or demolished or destroyed during that previous year together with the amount of the scrap value, if any, so, however, that the amount of such reduction does not exceed the WDV as so increased; and (C) in the case of a slump sale, decrease by the actual cost of the asset falling within that block as reduced- (a) by the amount of depreciation actually allowed to him under this Act or under the corresponding provisions of the Indian IT Act. 1922 (11 of 1922) in respect of any previous year relevant to the assessment year commencing before the 1st April, 1988; and (b) by the amount of depreciation that would have been allowable to the assessee for any assessment year commencing on or after the 1st April, 1988 as if the asset was the only asset in the relevant block of assets, so, however, that the amount of such decrease does not exceed the WDV; (ii) in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1989, the WDV of that block of assets in the immediately preceding previous year as reduced by the depreciation actually allowed in respect of that block of assets in relation to the said preceding previous year an....
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....tening plant has been totally discarded and very nominal value was realised. In that case, such nominal value would have been reduced from the WDV of the block of assets and depreciation would have been allowed on the balance figure, which means that the depreciation has to be allowed on the block. 16. Similar view was taken by the Delhi Bench of the Tribunal in the case of Asstt. CIT vs. SRF Ltd. wherein it was held that: "Under s. 32(1) depreciation on certain assets owned and used for the purpose of business is allowable and the same is allowable at the prescribed percentage on the WDV of block of assets, which comprises of various assets entitled to same rate of depreciation. Thus, the ownership and user both are tile criteria for claim of depreciation. However, the user criteria is to be fulfilled at the time when the asset is to form part of block of assets. Once the assets are part of block of assets, it looses its individual cost or WDV. In a way it looses its identity. Thereafter, the depreciation is allowable on the entire block of assets. In the instant case, the assets of international division was not a separate block of assets. The entire assets of all the divisions....
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....ee is entitled to depreciation on the gas sweetening plant. In these circumstances, we set aside the order of the CIT(A) and direct the AO to allow depreciation on the gas sweetening plant. 19. As far as the issue regarding reopening of the assessment is concerned, detailed arguments were made by both the parties. In fact, doubt was also expressed by the learned Departmental Representative whether permission has been given to contest this issue because he read item No. 16 of the minutes of COD meeting held on 23rd Nov., 2006 and while referring to various columns he pointed out that no permission was given for contesting the reopening issue. Since we have decided the issue on merits without going into the controversy whether permission was granted to contest the issue of reopening, we arc of the view that the same has been rendered of academic nature. 20. In the result, this appeal is allowed. ITA No. 1823/Mad/2006: 21. In this appeal, ground Nos. 2, 3 and 4 in the grounds of appeal filed by the assessee relate to the issue of grant of depreciation against which no permission has been granted by the COD. Since permission has not been granted by COD therefore, we reject these gr....
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....s not income under the IT Act and every income may not be attributable to exports. This was the reason for this Court to hold that indirect taxes like excise duty which are recovered by the taxpayers for and on behalf of the Government, shall not be included in the total turnover in the above formula [CIT vs. Lakshmi Machine Works (2007) 210 CTR (SC) 1 : (2007) 6 Scale 168]." Thus, on the basis of the above decision it was held that, receipts which have nothing to do with the exports cannot be included in the business profits under cl. (baa) for calculating deduction under s. 80HHC of the Act. 24. Now, we shall examine individual items in the light of the above decision: 1. Sale of power: Though it was argued that the assessee company had installed a power plant to meet the captive requirements and only excess power was sold but since the same has got nothing to with export activities of the assessee, the receipts from such sale of power cannot be included in the business profits. 2. Sale of scrap: Since the sale of scrap has got nothing to do with the export activities of the assessee the receipts from such sale of scrap cannot be included in the business profits. 3. Unclaime....
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....set off against training expenditure. However, on a perusal of the records, we do not find any details. Therefore, we set aside this issue also and remit the matter to the file of the AO for re-examination. If it is found on verification that this expenditure was rightly incurred on reimbursement of training expenses, then it should be set off against the training expenditure. 9. Reimbursement from PII and others for deputation of employees: Here again, no details are available before us for reimbursement from PH and others. Hence, we set aside this issue to the file of the AO for re-examination on the basis of our observation on unclaimed/unspent liabilities. 25. These grounds are partly allowed as indicated above. 26. Ground Nos. 9 to 11 relate to assessment of interest income as income from other sources. It was mainly argued before us that source of interest was interest received from customers and also interest received on special bonds. It was contended that that bonds have been given to the company by various corporations in discharge of trade payments. But the chart filed before us shows that interest has been received on Government of India special bonds which may relat....
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....olumns of minutes of COD meeting held on 23rd Nov., 2006, as per item No. 16, no permission is stated to have been granted for contesting the reopening issue and on verification, the same is found to be correct, so in my considered view, assessee being public sector undertaking could not prosecute the matter without such permission as per the directions of the Hon'ble Supreme Court in the case of Oil & Natural Gas Commission vs. CCE and such decision is being followed in number of cases including ITA Nos. 1967/Mad/2006 and 1643/Mad/2007 as contained in earlier part of the order agreed by both the Members. So, in the absence of permission of COD to prosecute the appeal on reopening of assessment issue, I dismiss the ground of appeal of the assessee on this issue. 30. As regards confirmation of disallowance of depreciation is concerned, the assessee is found to have claimed depreciation of Rs. 2,76,68,250 on gas sweetening plant. The plant was stated to have been built during the asst. yr. 1997-98 when trial run was done and thereafter, it was not used for stated non-availability of raw material, but claim of the above amount of depreciation was made during the assessment year under....
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....ese assets and, therefore, the claim of depreciation was not appropriate. 30.1 In his rejoinder to the argument of the learned Departmental Representative, the learned counsel of the assessee submitted that no doubt in that case films are leased out, but depreciation was held to be allowable on the basis of earlier decision of the Hon'ble Madras High Court in the case of CIT vs. Vayithri Plantations Ltd., wherein it was held that assets ready for use were eligible for depreciation. The Hon'ble Karnataka High Court decision is stated to be distinguishable as it never dealt with the issue regarding block of assets. So far as non-grant of permission by High Powered Committee for future years is concerned it has no bearing on the issue being agitated in the present year because permission stands duly accorded for the year under consideration. 30.2 Arguments of both the sides have been considered carefully in the light of materials on record as well as precedents relied upon by the rival sides. It is undisputed fact that gas sweetening plant has not been put to use at all and merely stated trial run was undertaken in the earlier year and it is the main contention of the assessee that ....
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....substantial question of law is involved. The appeal is dismissed in limine with no order as to costs." The Hon'ble Supreme Court has also dismissed the SLP filed by the assessee against this decision as reported in (2004) 266 ITR (St) 106. (ii) The Hon'ble jurisdictional High Court in the case of CIT vs. Maps Tours & Travels (2004) 191 CTR (Mad) 177 : (2003) 260 ITR 655 (Mad) while referring to a decision of Hon'ble Supreme Court has discussed the facts at pp. 655 and 656 to decide the issue in favour of the Revenue as per last but one para of its order and last but two paras of the said orders are reproduced below: "The assessee's claim for depreciation of these vehicles was negativated by the AO. That order was affirmed by the appellate authority. The Tribunal, on further appeal, however has held that depreciation is to be allowed by observing that the assessee as a businessman would have definitely used the cars though the same were purchased on the last day of the accounting year. No evidence of any such use has been placed before the authorities or the Tribunal by the assessee. The Supreme Court in the case of Liquidators of Pursa Ltd. vs. CIT (1954) 25 ITR 265 (SC), has h....
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....nery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year,' Shri Thakar, learned counsel for the assessee, submitted that it was the choice of the assessee to claim depreciation either in respect of the year of installation or in respect of the year of first putting it to use for the business, and, hence the assessee was entitled to claim depreciation allowance even in respect of the year of first putting it to use for the business, and, hence the assessee was entitled to claim depreciation allowance even in respect of the year of installation of machinery. It is difficult to accept this line of approach. The scheme seems to be that the assessee is entitled to claim deduction in respect of the assessment year relevant to the previous year in which the machinery or plant was installed and was used in such year for the purposes of business carried on by the assessee. If, however, the machinery is not used in an year in which it has been installed but not the less it has been put to use in the year just following the year of installation, the assessee is entitled to claim deduction in respect of that year. Thus, if there is ....
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.... behalf of the Department is that for allowance of deduction for depreciation, the asset must not only be owned by the assessee but it must also be used for the purposes of business or profession of the assessee. It is the case of the Department that the word 'used' in s. 32 of the IT Act, 1961, refers to actual use of the asset. It is the case of the Department that having regard to the scheme of the IT Act, 1961, and particularly, after the introduction of the concept of 'block of assets', actual use is the only requirement apart from ownership for allowance of depreciation under s. 32. It is the case of the Department that an important question of law arose for determination before the High Court. That the High Court has failed to examine the said question and that it had erred in dismissing the tax appeals only on the ground that no substantial question of law had arisen. In the present case, the Tribunal has examined the statements of certain witnesses and after analyzing the material on record, it has come to the conclusion on facts that there is nothing to show that the machinery, namely, expellers remained idle for the entire block period 1st April, 1988 to 24th Feb., 1999....
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.... assessee is not entitled to depreciation as claimed. This view gets further fortified by the Chennai 'B' Bench decision in the case of Asstt. CIT vs. Kurien E. Kalathil in ITA No. 1854/Mad/2006 for the asst. yr. 2002-03 order dt. 31st July, 2008. As such, while upholding the concurrent finding of both the authorities below in this regard, the appeal of the assessee is dismissed. REFERENCE UNDERS. 255(4) OF THE IT ACT, 1961 11th Dec., 2008 As there is difference of opinion between the Members constituting the Bench, the following questions are formulated and referred for nominating Third Member: "(i) Whether in view of the facts and circumstances of the case, the depreciation on gas sweetening plant, could be allowed or not? (ii) Whether in the absence of approval from COD for prosecuting the issue regarding reopening of assessment, ground in this regard could be dismissed or held to be academic?" R.V. EASWAR, VICE PRESIDENT(AS THIRD MEMBER): &....
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....he assets as computed in accordance with the s. 43(6)(c) of the Act. In support of this conclusion, he relied on the order of the Delhi Bench of the Tribunal in the case of Asstt. CIT vs. SRF Ltd. (2008) 21 SOT 122 (Del) in which the Tribunal applied the judgment of the Delhi High Court in Capital Bus Service (P) Ltd. vs. CIT (1980) 17 CTR (Del) 155 : (1980) 123 ITR 404 (Del) where it was ruled that depreciation was allowable if the assets were kept ready for use though not actually used. In this view of the matter, the assessee's claim was upheld by the learned AM. 4. The learned JM in his dissenting opinion has referred to the judgment of the Hon'ble Madras High Court in CIT vs. Maps Tours & Travels (2004) 191 CTR (Mad) 177 : (2003) 260 ITR 655 (Mad) to hold that if the asset is not actually put to use in the relevant previous year, no depreciation can be allowed. In addition he has also referred to the order of the Chennai Bench in the case of Asstt. CIT vs. Kurien E. Kalathil in ITA No. 1854/Mad/2006, dt. 31st July, 2008, for the asst. yr. 2002-03. Apart from these two decisions which have been referred to by the learned JM, he has also relied on the judgment of the Bombay Hig....
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....ttee has decided not to accord permission to the assessee for pursuing this point before the Tribunal. There seems to be some confusion in the matter due to the language used. However, it seems sufficiently clear to me that the assessee was not permitted to challenge the validity of the reopening of the assessment for the asst. yr. 1998-99. I therefore hold that the learned JM was right in holding that the assessee's appeal challenging the validity of the reopening of the assessment has to be dismissed. The learned AM, in my humble opinion and with due respect, ought to have dismissed the assessee's appeal on this point instead of holding that since the matter was being decided on merits this point became academic. I thus, answer to second point of difference by saying that this ground of the assessee should be dismissed. 6. Coming to the first point of difference it seems to me that even after the introduction of block of assets concept, there is no change in the legal position to the effect that the assessee would be entitled to depreciation even though the assets in question were not actually put to use in the relevant previous year, but were kept ready for being put to use for....
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....Court that the view taken by the Bombay High Court is the more appropriate view to take on the construction of the provision, as against a contrary view expressed by the Madhya Pradesh High Court in CIT vs. Jiwaji Rao Sugar Co. Ltd. (1969) 71 ITR 319 (MP). Thus, the decision of the Hon'ble Madras High Court in CIT vs. Vayithri Plantations Ltd. is a binding precedent so far as the Tribunal is concerned in favour of the view that in order to claim depreciation under s. 32 of the Act it is not necessary that the machinery in question should have been actually used in the relevant previous year for the purpose of business and it is sufficient if the same is kept ready for use during the relevant previous year, though not actually used due to circumstances beyond the assessee's control. 7. Sec. 32 of the Act has received several amendments but our attention was not drawn to any amendment which has clarified that depreciation would be allowed only if the asset in question was actually used during the relevant previous year and merely keeping ready for being used in the business was not sufficient. It seems to me that when the interpretation of s. 32, especially of the word "used" appear....
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....out they must be taken to have been used for the purpose of the business, applying the ruling of the Supreme Court in the case of CIT vs. Shaan Finance (P) Ltd. (1998) 146 CTR (SC) 110 : (1998) 231 ITR 308 (SC). The Tribunal had allowed the assessee's claim only on the ground that the film rolls were kept ready for use by the lessee though they could not be actually used due to strike. Accordingly, it was held by the Tribunal that the assessee has to be given depreciation allowance on the ground of a passive user. The High Court affirmed the decision of the Tribunal by a reasoned judgment and dismissed the appeal, finding that no substantial question of law arose for consideration. I am unable to accept the argument put forward by the Department before me that this judgment cannot be taken as an affirmation of the Tribunal's order on merits. The last para of the judgment clearly shows that the appeal of the Department was dismissed. Further the dismissal is by an elaborate judgment considering several authorities and the legal position. The earlier judgment in Vayithri Plantations Ltd. was followed and applied to the case which arose under s. 32 of the Act and in respect of a year ....
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.... asset still continues and this user must be actual user. Now the connotation of the words "put to use" has been considered by the Hon'ble Madras High Court in Vayithri Plantations Ltd. because s. 33 which provided for development rebate required that the depreciation (sic) should be claimed in the year in which the plant was installed or in the next year in which it was "first put to use". The Hon'ble Madras High Court equated the quoted words appearing in s. 33 with the words "used for the purposes of the business" appearing in s. 32(1) and proceeded to lay down the law that passive user would be sufficient to entitle an assessee to claim depreciation. In the light of this judgment of the Hon'ble Madras High Court I am unable to give effect to the order of the Mumbai Bench of the Tribunal in Nathani Steels Ltd. which takes the view that the words "put to use" connote actual user and not passive user. 12. I will now refer to the two judgments of the Supreme Court which were cited before me on behalf of the Department. The first is the judgment in Dy. CIT vs. N.K. Industries Ltd. This case related to s. 32 as it was applicable after the introduction of the concept of block of asse....
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....nt turned on its peculiar facts. There the assessee purchased 10 motorcars on the last day of the accounting year relevant to the asst. yr. 1989-90 and no proof was adduced for having used them in the business before the end of the previous year. The Tribunal surmised that the assessee as a businessman would have definitely used the cars though they were purchased on the last day. The High Court held that the cars were not registered for being brought on roads and there was no evidence that they were used before the end of the accounting year. As the facts show, they were peculiar and there was no claim by the assessee that the cars were kept ready for use in the business but could not be used due to circumstances beyond its control. In other words, the question whether the cars can be said to have been passively used could not have, and did not, arise for decision. Therefore, this judgment does not help the Revenue in its contention. 13.1 For the above reasons, I am inclined to agree with the view taken by the learned AM and hold that since the gas sweetening plant was kept ready for use, but could not be actually used due to lack of raw material, was eligible for depreciation as....