Kerala High Court
Commissioner Of Income-Tax vs Co-Operative Wholesale Society Ltd. on 8 July, 1991
Equivalent citations: [1992]195ITR361(KER)
JUDGMENT K.P. Radhakrisiina Menon, J.
1. Income-tax Reference No. 19 of 1989 is at the instance of the Commissioner of Income-tax, whereas I. T. R. No. 20 of 1989, is at the instance of the assessee. The question referred at the instance of the Department reads :
"Whether, on the facts and in the circumstances of the case, the assessee is entitled to the terminal allowance under Section 32(1)(iii) of the Income-tax Act, 1961 ?"
2. The question referred at the instance of the assessee for our opinion reads :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assets which were sold during the year should have been used in the business during the previous year other than the previous year in which they were first brought into use ?"
3. The year of assessment is 1972-73 corresponding to the previous year ending September 25, 1971. During the assessment year, the assessee sold two of its assets, the estate of Mananthody and another estate to M/s. Gounder & Co. Pvt. Ltd. The sale deed was executed on April 30, 1971, although possession of the assets had been given to the purchaser on May 1, 1970. While determining the tax liability of the assessee for the year of assessment, the assessing authority rejected the claim of the assessee coming under Section 32(1)(iii) on the ground that the assessee had not used the machinery in question at any time during the previous year. The appeal taken therefrom was rejected by the Commissioner of Income-tax (Appeals) by order dated September 24, 1983. The Commissioner of Income-tax (Appeals), after considering the various aspects of the question involved, held as follows :
"Admittedly, the machinery in question had not been used at any time during the relevant previous year. Although the machinery was sold during the previous year, possession was handed over to the prospective purchaser in the earlier previous year. The question of user of machinery, active or passive, during the previous year in such circumstances is out of question. Even the remote possibility of the machinery being available for use on a breach of agreement cannot be construed as a passive use of the machinery so long as the agreement is not breached. Whatever be the circumstance, a loss under Section 32(1)(iii) will be admissible only if the machinery is used at some point of time during the previous year in which it is sold. In fact, a more or less identical claim had been considered by the Kerala High Court in Forest Industries Travancore Ltd. v. CIT [19641 51 ITR 329. The following observations of the Supreme Court in the case of Liquidators of Pursa Ltd. v. CIT [1954] 25 ITR 265, quoted in the above decision, are apposite (at page 331 of 51 ITR) :
"The word 'used' has been read in some of the pool cases in a wide sense so as to include a passive as well as active user. It is not necessary, for the purposes of the present appeal, to express any opinion on that point on which the High Courts have expressed different views. It is, however, clear that in order to attract the operation of Clauses (v), (vi) and (vii), the machinery and plant must be such as were used, in whatever sense that word is taken, at least for a part of the accounting year. If the machinery and plant have not at all been used at any time during the accounting year, no allowance can be claimed under Clause (vii) in respect of them and the second proviso also does not come into operation."
On a plain reading of the above decision of the Kerala High Court, I can only say that the deduction was rightly denied by the Income-tax Officer. The disallowance is, therefore, confirmed".
4. The Appellate Tribunal before which the assesses filed an appeal allowed the claim on the ground that the machinery must be held to have been available for being used by the assessee during the year in question. The above questions arise from out of the order of the Tribunal.
5. That the machinery was not available for being used by the assessee is clear from the finding of the Tribunal that the purchaser was using them for his own business". That-the assessee had delivered possession of the property on May 1, 1970, to the purchaser is beyond challenge. That means that during the relevant period, that is the year ending September 25, 1971, the machinery had never been used or could not have been used by the assessee for the purpose of his business. Under such circumstances, the claim under Section 32(1)(iii) is, not sustainable as has been held by the Supreme Court. A reference in this connection to the following excerpt from the decision of the Supreme Court in Liquidators of Pursa Ltd. v. CIT [1954] 25 ITR 265 is profitable (at page 272) :
"The word 'used' has been read in some of the pool cases in a wide sense so as to include a passive as well as active user. It is not necessary, for the purposes of the present appeal, to express any opinion on that point on which the High Courts have expressed different views. It is, however, clear that in order to attract the operation of Clauses (v), (vi) and (vii), the machinery and plant must be such as were used, in whatever sense that word is taken, at least for a part of the accounting year. If the machinery and plant have not at all been used at any time during the accounting year, no allowance can be claimed under Clause (vii) (corresponding to sec. 32(1)(iii) of the Income-tax Act, 1961) in respect of them and the second proviso also does not come into operation."
6. That that is the position in law cannot, therefore, be disputed. Even otherwise, to have an assessment of the income of the business, every claim for deduction must necessarily be geared to the accounting year and that is the object that is sought to be achieved by section 28 of the Income-tax Act.
7. The question at the instance of the Revenue, therefore, is answered in the negative and in favour of the Department. The second question is also answered in the negative and against the assessee.
8. A copy of the judgment under the signature of the Registrar and the seal of this court shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.