2006 (11) TMI 137

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....undertaking and by the same agreement had also taken over the accrued and future gratuity liability of the vendor, which amounted to Rs. 3.5 crores. The respondent-assessee claimed that since this amount of Rs. 3.5 crores towards gratuity is capital expenditure hence it is entitled to depreciation on the sum under section 32 of the Income-tax Act. The Commissioner of Income-tax (Appeals) as well as the Tribunal allowed the assessee's claim and their orders were upheld by the High Court by the impugned judgment. Learned counsel for the appellant contended in this appeal that the expenditure on taking over the gratuity liability of the employees of the vendor is not capital expenditure but revenue expenditure. He has referred to section....

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....and all other constructions and properties of immovable nature at the said premises 35 (C)  Plant, machinery and other movables         160   200 In the same agreement it was also stated: "In addition to the consideration as mentioned in l(A), the accrued and future gratuity liability of the taken over workers, junior and senior officers, on their retirement or otherwise on termination of their services payable under the Payment of Gratuity Act or otherwise including for the entire period of service with the vendor shall be on the purchaser's account and shall be met by the purchaser." Thus in the same agreement of sale of the undertaking it was not only mentioned tha....

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....pect of the gratuity liability even if it is regarded as capital expenditure. The gratuity liability is neither a building, machinery, plant or furniture nor is it an intangible asset of the kind mentioned in section 32(1)(ii). Hence, we fail to see how depreciation can be allowed on the same. In fact, depreciation cannot even be allowed on land because that too is not mentioned in section 32. It may be mentioned that in the present case, the agreement of sale, dated March 24, 1988, separately mentioned the price of the land, building and the machinery. Had it been a case where the agreement of sale mentioned the entire sale price without separately mentioning the value of the land, building or machinery, we would have remitted the ma....