Gujarat High Court
M/S. Nirma Credit & Capital Ltd. vs Asst. Commissioner Of Income Tax ... on 28 June, 2007
TAXAP/1203/2006 1/6 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL No. 1203 of 2006
With
TAX APPEAL No. 1204 of 2006
To
TAX APPEAL No. 1205 of 2006
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M/S. NIRMA CREDIT & CAPITAL LTD. Appellant(s)
Versus
ASST. COMMISSIONER OF INCOME TAX Opponent(s)
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Appearance :
MR SN SOPARKAR WITH MRS SWATI SOPARKAR for Appellant(s) : 1,
None for Opponent(s) : 1,
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CORAM : HONOURABLE THE CHIEF JUSTICE Y.R.MEENA
and
HONOURABLE MR.JUSTICE AKIL KURESHI
Date : 28/06/2007
ORAL ORDER
The following questions of law are proposed for admission of these appeals:
"(A) Whether in the facts and circumstances of the case the Income tax Appellate Tribunal was right in law in holding that depreciation on Plant & Machinery, a part of Block of Assets of Plant & Machinery is not allowable on the ground that Appellant company had not manufactured the goods?
(B) Whether in the facts and circumstances of the case the Income
TAXAP/1203/2006 2/6 ORDER
tax Appellate Tribunal was right in law in holding that depreciation on the Plant & Machinery is not allowable when assets merged in the block of assets in the earlier year?
(C) Whether in the facts and circumstances of the case the Income tax Appellate Tribunal was right in law in disallowing depreciation on Plant & Machinery when the trucks were continued to be part of that block of assets, which were used by the company?
(D) Whether in the facts and circumstances of the case the Income tax Appellate Tribunal was right in law in holding that depreciation on Plant & Machinery is not allowable on the ground of passive use of the Plant & Machinery."
The Tribunal has, in detail, considered these aspects which are reproduced below: "We have heard the rival parties and perused the material on record. The Report on its activity as given by Directors in their report for the year ended on 31.03.2005 is : "As you are aware, the Company has suspended its manufacturing activity since second week of April, 1993. The Company deployed its surplus funds in the gainful employment by way of investments in shares, securities and short terms landings. The Company has also given third party corporate guarantee amounting to Rs.750 lakhs to M/s.Minal Oil and Agro Industries."
8.In the next Year's report for the year ended 31.03.1996, it is stated as under:
"The Company continues to deploy its surplus funds in the gainful employment by way of investments in shares, securities and short term landings. The Company has also continued to give corporate guarantee. Moreover, as you are aware, the Company owns a coffee estate in the Hassan Dist. Of Karnataka and undertakes coffee growing activities."
9. In as much as the Directors have used the word 'suspended' to contrast to word 'stopped, but no indication is TAXAP/1203/2006 3/6 ORDER given therein either to resume the manufacturing activity or an intention thereof. It is, therefore, a case of closure of business of manufacturing. The question of user of machinery therefore, does not arise. In our opinion, insofar as the depreciation on plant and machinery is concerned, it cannot be allowed to the assessee. The moment the assessee stopped the business of manufacturing, the plant and machinery would go out of the block of asset and therefore, and as they are not used for the purpose of business, no depreciation can be allowed to the assessee. This would also be in consonance with the allowance of depreciation only when the assets were used for the purpose of business. This further gets support from the provisions of Section 38(2) of the Act, which authorised the A.O. to disallow depreciation, if the asset were not used wholly or partly for purposes of business. The theory of passive use of the plant and machinery would also not of any help to the assessee. Nothing has been brought on record that the assessee intended to use the machinery or kept the machinery ready for use. We, therefore, hold that the depreciation insofar as it relates to plant and machinery would not be allowed to the assessee. Therefore, in our view, the CIT(A) is not justified in allowing the claim of the assessee. The claim of same business also is not borne out of records and more so the Directors' Report does not mention letting the trucks on hire as its one of the activities. It seems to be a simple letting of trucks without any venture in the nature of business activity. Letting or hire the trucks is different block as such therefore the concept of block of assets which are of the same nature of assets or entitled to same rate of depreciation fails and breaks. However, depreciation insofar as it relates to the truck would be allowable because the income from truck hiring has been shown by the assessee and the trucks have been used for earning that income. We direct him to allow that.
10. In the case of Dineshkumar Gulabchand Agrawal (supra) the Bombay High Court held that the word "used" in section 32 of the Incometax Act, 1961 denotes that the asset has been actually used and not that it is merely ready for use. The expression "used" means actually used for the purpose of the business. In Federation of Andhra Pradesh Chambers of Commerce and Industry & Others (supra) (SC) observed that in a taxing statute, no court is justified in imputing to the Legislature an intention that it has not clearly expressed in the language it has employed. Section 3 of the Andhra Pradesh Non Agricultural Lands Assessment Act, 1963, speaks of where "land is used for any industrial purpose", "land is used for any commercial purpose", and "land is used for any other non agricultural purposes". The emphasis is on the words "is used". For the purposes of levy of assessment on nonagricultural land TAXAP/1203/2006 4/6 ORDER at the rate specified in the schedule for land used for industrial purposes, therefore, there has to be a finding as a fact that the land is in fact presently in use for an industrial purpose. It is only land which is actually in use for an industrial purpose as defined in the said Act that can be assessed to nonagricultural assessment at the rate specified for land used for industrial purposes. The wider meaning given to the word "used" i.e. of "meant to be used" or "set apart for being used" is not tenable. In Suhrid Geigy Ltd. (supra) Gujarat High Court held, that the business of the assessee was to produce dyestuffs and the building was used for the purpose of business of production of dyestuffs only after the machinery became functional, i.e. with effect from March 1, 1965. Hence, merely because the machineries had already been installed, it could not be said that the building was used by the assessee for the purpose of its business at a point of time when the machines had not become functional. Therefore, the Tribunal was not justified in holding that the building was used for the purpose of business for more than 30 days in the accounting year relevant to the assessment year 196566 and was entitled to depreciation in the said assessment year.
11. In the case of Inductotherm (India) Ltd. (Supra), the Ahmedabad Bench of the Tribunal held that the Legislature has prescribed a different mode for allowing depreciation in respect of block of assets and henceforth a calculation of depreciation will be in a lumpsum for the entire block of depreciable assets. The theory of individual asset which prevailed before 1.4.1998 cannot be considered after the new provision of block assets came into force. If a particular machinery were owned, forming part of block asset, is not used during the year, still depreciation is to be allowed even if assets are not used during the present year. If one single asset out of the entire block has been discarded or not put to use by the assesee for its business consideration, for that ground alone partial depreciation cannot be disallowed. It was not a case where the assessee had sold the particular asset at a consideration which could be reduced for the purpose of computing WDV of block of assets as provided in section 43(6)
(c). The assessee had discarded a particular asset during year, in question, meaning thereby that particular asset was not put to use during the year. It is true that under section 43(6)(c), it has been provided to reduce the amount of depreciation by reduction of the moneys payable in respect of any asset falling within that block, which is sold or discarded or demolished or destroyed during that previous year together with the amount of the scrap value, if any. Unless and until scrap value of the machinery which has been discarded, demolished or destroyed during the previous year is ascertained the same cannot be reduced for the TAXAP/1203/2006 5/6 ORDER purpose of computing depreciation. In the instant case, the machinery in question was only scrapped during the year, that meant it had not been used during the previous year. The scrap value of the same had not been ascertained as yet which would be possible only after selling the same. Therefore, nothing could be reduced at present from the written down value of the block assets. The assessee in the present had stopped manufacturing business in which these machineries were being used therefore the block would have to be reduced to that extent. Individual value of the assets can be worked out on the basis of cost and rate of depreciation prescribed for that. This case therefore of no help to the assessee.
12. In the case of Ashima Syntex Limited (supra) the Gujarat High Court observed that the Tribunal on appreciation of evidence arrived at a conclusion that plant and machinery was used from March 26, 1993, till the end of the accounting year i.e March 31, 1993. The Tribunal also found that grey cotton was manufactured and with the permission of the authorities of Kandla Port Trust, the material was disposed of. The question was not one of setting up a new unit, but the question was of expansion of the unit. The Tribunal had found that 2,63,412 meters of grey cloth was manufactured. Law does not require that there must be optimum production for granting the benefit. Law only requires that there must be use of plant and machinery for the purpose of business. The assessee was entitled to depreciation on the machinery. This case on fact help the revenue as the Court says there must be use of Plant & Machinery for the purpose of business. In the case of Vindhyachal Distilleries Pvt. Ltd. (supra) the Madhya Pradesh High Court dismissing the appeal, held that the plant was installed in May 1992, and, the records clearly showed that on installation, it was commissioned in May, 1992, but on account of certain leakage during trial run, repairs had to be carried out and regular production started in October 1992. The assessee was entitled to full depreciation. In the case of Veecumsees (supra) the Supreme Court allowing the appeal, held that the Tribunal was right in concluding that such interest had to be treated as a deduction under section 36(1)(iii) of the Act. The loans had been obtained for the purposes of the assessee's business. The fact that the particular part of the business for which the loans had been obtained had been transferred or close down did not alternative the fact that the loans had, when obtained, been for the purpose of the assessee's business. Apart from this, the Tribunal found as a fact that the business carried on by the assesee as jeweler and running the cinema theatre, etc. was composite. In view of this finding also, the assesee was entitled to the deduction of the interest paid on the loans in question under section 36(1)(iii) of the Act. In the TAXAP/1203/2006 6/6 ORDER 1st case the machinery was ready for use but on account of leaking during trial run, it could not be run though commissioned. Whereas the present case is a reverse case where there is no evidence for intended revival of business. In the second case the loan when obtained was for the purpose of business and as it was a case of same business the interest was held allowable. Here in this case assessee had stopped the business and there are no indication of its intention to revive that and the requirement for allowing depreciation being user of the plant and machinery as held by Gujarat High Court in Ashima Syntex (supra), these cases therefore do not help the assessee."
Admittedly, the plant and machinery which was being used for manufacturing by the assessee has not been used at all in the assessment year in question. Considering the reasons given by the Tribunal, we see no case for admission of these appeals. No substantial question of law arises in these appeals. The appeals, therefore, stand dismissed at the admission stage.
(Y.R.MEENA, C.J.) (AKIL KURESHI, J.) (vjn)