Income Tax Appellate Tribunal - Madras
Venture Graphics (P.) Ltd. vs Deputy Commissioner Of Income-Tax on 22 August, 1995
Equivalent citations: [1996]56ITD540(MAD)
ORDER
T.V.K. Nataraja Chandran, Sr. Vice-President
1. This is an appeal by the assessee which is directed against the order of the CIT(Appeals) dated 24-11-1993 wherein he has upheld the decision of the Assessing Officer not to grant depreciation claimed by the assessee.
2. The assessee is a resident company. The assessment year involved is 1990-91 for which the accounting year ended on 31-3-1990. The assessee is engaged in the business of creating graphics by use of laser technology. The assessee returned loss of Rs. 12,29,030 in the return filed on 31-12-1990. Earlier an intimation under Section 143(1)(a) of the Income-tax Act dated 20-2-1992 was communicated to the assessee by disallowing the loss claimed by the assessee on the ground that the assessee has not started its business or production activities and, therefore, depreciation was not admissible.
3. In the fresh assessment made under Section 143(3) on 25-2-1993 the Assessing Officer elaborated the facts and the conclusion reached in the intimation cited with the result the depreciation of Rs. 9,48,992 claimed by the assessee was disallowed.
4. On appeal, the CIT(Appeals) upheld the decision of the Assessing Officer for the reasons given by the Assessing Officer. In short, the case of the Assessing Officer and also the appellate authority was that the business of the assessee was not commenced and there was no commercial billing for the activities. The case of the assessee on the other hand was that trial production was done and demonstration was made on 31-3-1990 to the customers. A copy of the report from Linotype Ltd., Brentford, London was produced to show that Mr. David Smith whom came to India during the period 28-3-1990 to 31-3-1990, integrated the system and completed the test. The report said that the test took one hour duration on 29-3-1990, 30-3-1990 and 31-3-1990 and on the last day the test came to an end at 5.30 p.m. The submission of the Director of the assessee at that time was that the time taken for the job to be completed required around 1 1/2 hours duration. From this the Assessing Officer concluded that it was highly unlikely that anything was does after 5.30 p.m. on the evening of 31 -3-1990 when no bill has been raised at the end of the month. However, the CIT (Appeals) was carried away by the statement of the Chief Executive of the company that no commercial order was executed or started by 31-3-1990. In these circumstances, the CIT (Appeals) concluded that no commercial production was started and whatever expenditure has been incurred should be treated as capital expenditure. Therefore, the disallowance of depreciation was sustained by the CIT (Appeals.).
5. At the time of hearing, the learned counsel for the assessee relied on the decision of the Tribunal, 'A' Bench of the Allahabad Benches in the case of Raj Kumar Singh & Co. v. Dy. CIT [1994]51 ITD 628 at 632. That was a case where the assessee was earning income from hiring out tippers and vans and on which depreciation was claimed. The claim was disallowed on the ground that they were actually not used, rejecting the assessee's plea that the vehicles were required to be kept ready for use by hirers as and when required by them and these were so kept and as such it was entitled to allowance. The Tribunal held that the law as it stood only required that the vehicles concerned should be kept in readiness for use. There was no dispute in the case that these tippers and vans were not provided at the site. If because of the paucity of work, they could not be utilised by the hirers, then the law does not permit the disallowance of the depreciation and the repair charges if any to the owner of the vehicles. Therefore, the Assessing Officer was directed to allow depreciation for those tippers and vans which were kept in readiness for hirers.
6. The learned departmental representative, on the other hand, supported the orders of the authorities.
7. We have duly considered the rival submissions. The assessee filed a small paper compilation which contained case laws and pictorial system of the assessee's business and other technical information. It is seen that the business of the assessee consists services such as phototype setting, Desk-Top Publishing, Advertisements Visualising and such pre-press activities and thus the business is basically service in nature. Further it seen that the equipment used in the unit are stand-alone computers (IBM compatibles & Apple Macintosh) and Systems (Linotronic 300R Laser Imagesetter). These are integrated using standard networking softwares using ordinary cables. The literature describes the integration of the system as follows :-
The integration of the system involve just networking of all these stand-alone computers and the systems using cables and softwares and making it to work according to out requirements. Whilst, the integration of the systems are simple in nature for which schematic diagrams are already provided by the suppliers, still they choose to send Engineers while integrating for attending to any possible problems in the Hardware which may occur due to Transportation and Handling while importing.
8. In view of the description of the integration of the system involved in the business of the assessee the claim made by the assessee before the authorities and the evidence produced before them, namely that Mr. David Smith came to India and integrated the system and completed the test before 31-3-1990 and evidenced by a report from Linotype Ltd., Brentford, London, is valid and authentic and cannot be disputed or rejected.
The claim of the assessee that trial production was made and public demonstration was done cannot be disputed or denied. Therefore, the entire system was geared up and kept in readiness for commercial production which depended upon the orders to be placed by the customers. The decision of the Allahabad Bench of the Tribunal in the case of Raj Kumar Singh & Co. (supra) would apply to this case with equal force. Further reliance was also placed on the decisions in Hotel Alankar v. CIT [1982] 133 ITR 866(Guj.), CIT v. Suhrid Geigy Ltd. [1982] 133 ITR 884(Guj.), IAC v. Piem Hotels Ltd. [1993] 45 TTJ (Bom.) 510 and Asstt. CIT v. Pharpur Cooling Towers (P.) Ltd. [1993] 44 ITD 540 (Cal). Keeping in view the peculiar nature of the plant and machinery under consideration and the nature of the business carried on by the assessee, the claim of depreciation is admissible under Section 32(1) of the Act. Accordingly, the order to the CIT(Appeals) is modified and the Assessing Officer is directed to grant depreciation claimed by the assessee.
9. In the result, the appeal is allowed.