TaxTMI 
TaxTMI 
2017 (7) TMI 951
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....ax (Appeals) has failed to appreciate even if the asset is "ready for use" and not actually used, the same entitles an assessee to claim depreciation. 1.3 That the learned Commissioner of Income Tax (Appeals) has even otherwise failed to appreciate that sortex machine and generator were also plant and machinery and therefore once an asset forms part of block of asset there can be no justification to disallow part of depreciation from the said block of assets and as such denial of claim of deduction is legally and factually misconceived and hence untenable." 2. By means of all the above grounds, the assessee has challenged the disallowance of depreciation of Rs. 5,65,440/-made by the ld. CIT(A) on Generator and Sortex Machine installed during the year. 3. The brief facts of the case are that the assessee is engaged in the business of trading of rice, iron ore and other commodities. He filed return of income on 29.09.2010 declaring total income at Rs. 1,68,40,424/-. During the assessment proceedings, the AO noticed that the assessee installed new plant & machinery, the details of which are as under : Description Quantity Date put to use Cost (Rs.) Deprec....
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....iation. In other words, even "passive use" distinct from "active use" is the determinative test for claim of depreciation. Reliance is placed on the following decisions : i) CIT v. Geo Tech Construction Corporation, 244 ITR 452 (Ker) ii) CIT vs. Oswal Woollen Mills Ltd., 206 CTR 141 (P&H) iii). CIT vs. Nahar Export Ltd., 296 ITR 419, 296 ITR 419 (P&H) iv). Capital Bus Service (P) Ltd. v. CIT, 123 ITR 404. v). CIT v. Oswal Agro Mills Ltd., 341 ITR 467 vi). CIT v. Insilco Ltd., 320 ITR 322 vii). CIT v. Radio Today Broadcasting Ltd., 382 ITR 42 (Del.) viii). CIT v. Soughern Petrochemical Industries Corpn. Ltd. 292 ITR 362 6. It was also submitted that even otherwise the ld. CIT(A) failed to appreciate that sortex machine and generator were also plant and machinery and form the part of block of asset and therefore, there is no justification to disallow part of depreciation from the said block of assets. 7. On the other hand, the ld. DR relied on the order of the first appellate authority and urged for its sustenance. 8. We have considered the rival submissions and have gone through the entire material on r....
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...., plant or building in the business. On the other hand, the wider meaning will include not only cases where the machinery, plant, etc., are actively employed but also cases where there is, what may be described as. a passive user of the same in the business. An asset can be said to be in use when it is kept ready for use. CIT v. Oswal Woollen Mills Ltd. 206 CTR 141 (P&H) "As regards first question in ITA No 1360/Chd/1987, reliance is placed on judgment of this Court in CIT v. Pepsu Road Transport Corporation(2002) 172 CTR (P&H) 72: (2002) 253 ITR 303 (P&H) taking the view that the machinery which is kept ready for use but may not be actually used, will qualify for normal depreciation as there is normal depreciation of value even when a machine is merely kept in a store. It is pointed out that this judgment has been followed by the Allahabad High Court in CIT v. Swarup Vegetable Products India Ltd. (2005) 196 CTR (All) 595: (2005) 277 ITR 60 (all). No contrary view has been shown on behalf of the revenue. Accordingly following judgment of this court in Pepsu Road Transport (supra), We answer this question in favour of the assessee and against the revenue. CIT v. Na....
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....ar as the assessee was concerned he did not employ the trucks for the purposes of the business. They were kept ready for operation and they- were there only in the business and for use in that business. In these circumstances, in our opinion, it can be said, without straining the language of the statute and the context in which it is employed, that the buses were used for the purposes of the business throughout the year though they were not actually plied on the roads for more than 30 days. CIT v. Oswal Agro Mills Ltd. 341 ITR 467 12. It cannot be disputed that by catena of judgments, it stands settled that the assessee should have used the asset for the whole of assessment year in question to claim full depreciation. Passive user of the asset is also recognized as 'user for purpose of business'. This passive user is interpreted to mean that the asset is kept ready for use. If this condition is satisfied, even when it is not used for certain reason in the concerned assessment year, the assessee would not be denied the depreciation. This was so discussed and restated, after taking stock of various judgments, by a Division Bench of this Court in CIT v. Refri....
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....siness. The above survey of the decisions on the subject clearly shows that the consensus of judicial opinion is in favour of adopting the liberal interpretation. We are also of opinion that in the context in which the expression occurs and also having regard to the various types of cases that could arise, the wider interpretation has to be placed on this expression. The decided cases, which have been earlier referred to, have arisen in different contexts which clearly indicate that the wider and more liberal interpretation of the provisions would in the context of section 10(2)( vi) and (vii) may be appropriate. Though it is true that a machinery generally depreciates with actual user, the decisions indicate that it is not necessary to import this concept in interpreting the expression 'used' in the statute. In the first place, a machinery may well depreciate even where it is not used in the business and even due to non-user or being kept idle. Secondly, a very strict correlation between the actual use of machinery and the concept of depreciation would lead to several anomalies and difficulties, for a machinery cannot be used throughout the day and night ....
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....n to say that the depreciation is the measure of an effective life of an asset owing to use or obsolescence during a given period. The object of providing for depreciation is to spread the expenditure incurred on the asset over its effective lifetime, and the amount written off during an accounting period is intended to represent the proportion of such expenditure which has expired during the period. The Court noted that the principle factors responsible for reduction in the value of capital asset and, therefore, responsible for depreciation are (i) ordinary wear and tear (ii) unusual damage (iii) inadequacy and (iv) obsolescence. These factors include not only those relating to physical deterioration but also those referring to the suitability of the asset as an economically productive unit after a period of time. The depreciation allowance under section 32 is, however, a statutory allowance not confined expressly to diminution in value of the asset by reason of wear and tear. The allowance can be claimed, if the asset in question is shown to be capable of diminishing in value on account of any factor known to the prevailing accounting or commercial practice. 17.6 In view....
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....ed on the licence fee, i.e. a non-intangible asset and not on a tangible asset. The order of the CIT (A) also proceeded on the same footing. No provision of the Act has been brought to the notice of the Court which states that an Assessee would be denied the claim of depreciation on intangible assets only because there was no claim also on the tangible asset. 37. For the purpose of Section 32 it is sufficient that assets be kept ready for use in order to claim depreciation thereon. This has been reiterated by this Court in the two decisions relied upon by the Assessee, i.e.* Refrigeration & Allied Ind. Ltd's case (supra) and Capital Bus Service (P.) Ltd's case (supra}. In the former decision it was held that an asset can be said to be 'used' when it is kept 'ready for use1. Likewise in Capital Bus Service Pvt. Ltd.'s case (supra) it was held that while interpreting the expression 'used" it would be more appropriate to envisage the expression as comprehensive cases where the machinery is kept ready by the owner for its use in the business and the failure to use it actively in the business is not on account of its incapacity for being used for that pu....