AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2004 (2) TMI 49
X X X X Extracts X X X X
X X X X Extracts X X X X
..... The assessee was claiming depreciation in respect of the bottles and crates (trays) purchased by the assessee, being the full value of such purchase under the proviso to section 32(1)(ii) of the said Act. That was allowed to the assessee from time to time. During the financial year, relevant to the assessment year 1991-92, the assessee sold scrap of bottles and trays (crates) for Rs. 50,850. However, in the computation of income, the assessee reduced the sale consideration from the income on the ground that the amount received is a capital receipt and since it does not form part of the block of assets, even the provision of section 50 of the said Act, relating to short-term capital gain on the sale of depreciable asset was not attracted. The Assessing Officer negatived the plea taken by the assessee and, instead, held that what was allowed to the assessee being depreciation, the proviso to section 50 of the said Act was applicable. Against this decision, the assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals). The said appellate authority, on the other hand, held that a deduction has been made in an earlier assessment year in respect of the ex....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ty required no interference. The above decision is the subject matter of challenge in this appeal at the instance of the assessee. In the appeal memo, following two substantial questions of law have been formulated, which, according to the appellant, may arise for consideration of this court, namely: "(a) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 50,850 was liable to tax under the provisions of section 41(1) of the Act? (b) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the provisions of section 41(1) of the Act are attracted so as to bring to tax the excess realised by an assessee over and above the written down value of an asset?" We have already formulated the principal question, which is a substantial question of law in paragraph 2 above, that would arise for our consideration. According to counsel for the assessee, since the deduction given was not in respect of loss, expenditure or trading liability, the provisions of section 41(1) of the Act were not applicable at all. On the other hand, the said item was chargeable to tax only by virt....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... counsel has also placed extensive reliance on the Notes on Clauses of the Finance Minister's Budget Speech for 1986-87 and the objects of the Finance Bill of 1995 to buttress his argument that reintroduction of section 41(2) is a pointer that the subject cannot be said to be covered by section 41(1) of the Act, for there would have been no reason for the Legislature to reintroduce section 41(2) of the Act from 1998-99 onwards. On the other hand, learned counsel for the Revenue has defended the decision passed by the appellate authority contending that the assessee made expenditure in paying for bottles and crates for its business, on which deduction in the form of depreciation under section 32(1)(ii) of the Act was allowed to the assessee. Subsequently, the assessee having obtained/received amount of sale of the said bottles and crates as scrap, such amounts would be deemed profits and gains of business and, accordingly, chargeable to income-tax under section 41(1) of the Act, as income accrued to the assessee. According to him, the expression "expenditure" is wide enough not only to cover revenue expenditure, but also capital expenditure. To support this submission, reliance i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... interference is warranted in this appeal. Before we proceed to examine the rival submissions, we would think it apposite to advert to section 41(1) of the Act, as it obtained during the assessment year 1991-92. The same reads thus: "41. Profits chargeable to tax.-(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee, and subsequently during any previous year the assessee has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cession thereof, the amount obtained by him or the value of benefit accruing to him, shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not". In our view, it is rightly submitted on behalf of the Revenue that the court will have to adjudicate the question relating to the liability of the assessee i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....provision, then no other argument would be of any assistance to the assessee. In our view, section 41(1), as it existed during the assessment year 1991-92, cannot be interpreted on the basis of the provisions which obtained prior to 1988 or as existing at present after 1998. We shall now turn to section 41(1) as it existed during the assessment year 1991-92. In our opinion, section 41(1) will be attracted if-(i) any loss, expenditure or trading liability has been incurred by the assessee in the assessment for any year; (ii) allowance or deduction therefor has been made in the assessment for any year; (iii) subsequently, during any previous year, the assessee obtains whether in cash or in any manner whatsoever any amounts in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof; and (iv) the amount was obtained by the assessee or the value of or benefit accruing to him is irrespective of whether the business or profession is in existence in that year or not. On fulfilling the above requirements, by virtue of the deeming fiction in the latter part of the provision, the amount so obtained by the assessee or th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was considering the meaning of the expression in the context of the argument of actual liability in preasenti and a liability de futuro, which, for the time being, is only contingent. The court went on to observe that the former is deductible but not the latter. In our opinion, this is not an authority for the proposition that depreciation is not in the nature of expenditure. On the other hand, we find force in the submission canvassed on behalf of the Revenue that the expression "expenditure" occurring in section 41(1) of the Act is wide enough not only to include revenue, but also capital expenditure. The Act does not provide for the definition of the term" depreciation" nor, for that matter, the expression of "expenditure". It will be useful to advert to Black's Law Dictionary, which provides for the meaning of "expenditure". It observes: "Expenditure. Spending or payment of money; the act of expending, disbursing, or laying out of money; payment." It also mentions that the meaning of the expression "expense" should also be referred to. The expression "expense" is defined as under: "Expense. That which is expended, laid out or consumed. An outlay; charge; cost; price. T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ceed five thousand rupees, the actual cost was allowed as deduction in respect of the previous year in which such items were first put to use by the assessee for the purpose of its business or profession. As 100 per cent. depreciation was claimed in respect of the said purchases, that was in the nature of expenditure and deductible from tax liability. If it is so, the assessee having made provision for allowance or deduction in the earlier assessment. year in respect of such expenditure and subsequently during the previous year (i.e., the assessment year 1991-92) the assessee having sold the items and obtained cash being sale proceeds thereof, in respect of the said expenditure, the amount so obtained is deemed to be profits and gains from business or profession and, accordingly, chargeable to income-tax, as the income of that previous year of the assessee. We, therefore, find no fault with the approach of the appellate authorities below in taking the view-that section 41(1) was attracted in the fact situation of the present case, so as to bring the said amount as chargeable to income-tax, as the income of that previous year. On the above reasoning, no other argument canvassed o....