2009 (7) TMI 5

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....s entitled to and allowed 100% depreciation on the cost of the said bottles and crates, in the year in which they were acquired, under the proviso to Section 32(1)(ii) of the Income Tax Act, 1961 ("1961 Act" for short). When bottles and crates got worn out, they were sold by the assessee and proceeds therefrom were shown as "miscellaneous income" in the subsequent years. If these sales had taken place in the previous years relating to the assessment years prior to 1988-89, the same would, without doubt, would have been included in the business income of the assessee under Section 41(2). This was because prior to the assessment year 1988-89, Section 41(2) inter alia provided for balancing charge which was chargeable as income taxable under the 1961 Act. However, with effect from assessment year 1988-89, Section 41(2), which inter alia dealt with profit on sale of depreciable asset (balancing charge), stood deleted. Notwithstanding such deletion, the Department sought to tax Rs. 50,850/- holding that the sale proceeds of the 100% depreciated and written off assets can still be treated as the business income of the assessee under Section 41(1) of the 1961 Act. 5. Was the Department e....

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....ence between the actual cost and the written down value shall be chargeable to income-tax as income of the business or profession of the previous year in which the moneys payable for the building, machinery, plant or furniture became due : Provided that where the building sold, discarded, demolished or destroyed is a building to which Explanation 5 to section 43 applies, and the moneys payable in respect of such building, together with the amount of scrap value, if any, exceed the actual cost as determined under that Explanation, so much of the excess as does not exceed the difference between the actual cost so determined and the written down value shall be chargeable to income-tax as income of the business or profession of such previous year : Provided further that where an asset representing expenditure of a capital nature on scientific research within the meaning of clause (c) of sub-section (2B) of section 35, read with clause (4) of section 43 owned by the assessee which was or has been used for the purposes of business after it ceased to be used for the purpose of scientific research related to the business is sold, discarded, demolished or destroyed, the provisions of this....

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....liability incurred by the assessee, and subsequently during any previous year the assessee had obtained, such loss or expenditure in respect of such trading liability by way of remission or cessation thereof, the amount obtained by him, shall be deemed to be income of that previous year in which the recoupment takes place. According to the Department, notwithstanding, the deletion of Section 41(2), since the assessee had obtained the benefit of depreciation in the earlier years as allowance or deduction in respect of expenditure incurred by it when it bought bottles and crates, on recoupment in the assessment years in question, such recoupment was liable to be taxed as deemed income under Section 41(1). We do not find merit in the argument of the Department. Prior to 1.4.1988, Section 41(1) and Section 41(2), both, existed on the statute book. Section 41(2) specifically brought to tax the balancing charge as a deemed income under the 1961 Act. It stated that where any plant owned by the assessee and used for business purposes was sold, discarded or destroyed and the moneys payable in respect of such plant exceeded the written down value, then, so much of the surplus which did not e....

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....ncept was foreign to the scheme of Section 41(1). The balancing charge under Section 41(2) arose only where any depreciable asset (building, machinery, plant or furniture) was sold. In fact, when the concept of "block of assets" stood introduced w.e.f. 1.4.1988, Section 41(2) stood deleted. However, even after 1.4.1988, the proviso to Section 32(1)(ii) continued till 1.4.1996 when by the Finance (No. 2) Act, 1995 the bottles and crates even below Rs. 5,000/- came within the "block of assets" as defined under Section 2(11) of the 1961 Act. As stated, this judgment is confined to depreciable assets costing less than Rs. 5,000/-which did not enter the block of assets during the assessment years in question (when Section 41(2) stood deleted). Effect of introducing Finance (No. 2) Act, 1995 w.e.f. 1.4.1996: 10. At the outset, it may be noted that, by the above Finance Act, the first proviso to Section 32(1)(ii) stood deleted w.e.f. 1.4.1996. Consequently, bottles, crates and cylinders whose individual cost did not exceed Rs. 5,000/- also came to be included in the block of assets. 11. Before us, in this batch of civil appeals, we have four Civil Appeals (Civil Appeals arising out of S....