Calcutta High Court
Commissioner Of Income-Tax vs Union Carbide (I) Ltd. on 7 February, 2002
Equivalent citations: [2002]254ITR488(CAL)
Author: Maharaj Sinha
Bench: Maharaj Sinha
JUDGMENT
1. This is a reference raised at the instance of the Department in respect of the assessment year 1983-84.
2. The question raised is a single one and it is set out below :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the Commissioner of Income-tax was not right in withdrawing the depreciation and investment allowance allowed to the assessee in respect of the plant and machinery installed at Srinagar and Hyderabad ?"
3. In regard to both the depreciation and the investment allowance, two units of the assessee were under review. One was at Jammu and Kashmir and another at Hyderabad. On the basis of the director's report, the Commissioner of Income-tax (Appeals) found that the plant at Srinagar had gone into trial production during the assessment year, although not into commercial production. The said Commissioner, however, did not take a similar view with regard to the Hyderabad unit. On a further consideration of the facts before the Tribunal, however, the Tribunal came to the conclusion that even with regard to the Hyderabad unit, the machinery installed there had gone into trial production although not, once again, into commercial production.
4. The question of law raised before us, therefore, resolves itself into this, whether plant and machinery which goes into trial production during a previous year but not into commercial production during that year still qualifies for depreciation and investment allowance under Sections 32 and 32A.
5. Several cases were relied upon before us by both Mr. Mallick, appearing for the Revenue, and Dr. Pal, appearing for the assessee. Mr. Mallick gave us the cases of Addl. CIT v. Speciality Paper, a decision of the Gujarat High Court Division Bench reported at [1982] 133 ITR 879, the Supreme Court decision in CWT v. Ramaraju Surgical Cotton Mills Ltd, [1967] 63 ITR 478 and a decision of our Division Bench in the case of CIT v. Oriental Coal Co. Ltd. [1994] 206 ITR 682.
6. The first of these cases dealt with the question whether an expenditure was of a capital or revenue nature before the actual setting up of business, and the Supreme Court case dealt with a wealth-tax situation. In Oriental Coal Co. Ltd.'s case , the court opined, that although in view of a long line of cases, starting from the fifth year of the commencement of the Income-tax Reports series itself, plant and machinery passively awaiting use during the previous year is as much entitled to depreciation as machinery which is actually actively used, yet such machinery not used at all due to lock out could not attract the benefit of depreciation for the assessee.
7. Dr. Pal relied on the cases which he had also relied on before the Tribunal and those are as follows :
CIT v. Kanoria General Dealers (P.) Ltd. ; V. Ramakrishna and Sons Ltd. v. CIT and CIT v. Vayithri Plantations Ltd. .
8. In addition, he gave us the Delhi case Capital Bus Service (P.) Ltd. v. CIT [1980] 123 ITR 404.
9. Although the cases are many in number yet, as quite often happens none exactly fits the facts of our case.
10. It is one thing for machinery to wait passively during the year in question, ready to come into use commercially at any time although it might actually not have been used, because the running units ran perfectly, but this is not the same thing as plant or machinery which is being brought up to the state of actually active commercial use, during the year, which is wholly spent in trial production, i.e., in making the machinery fully ready for generating projected commercial profit.
11. Does this sort of use fit the language of Sections 32 and 32A ?
12. Under Section 32, it is necessary that the machinery is owned, wholly or partly, by the assessee and "used for the purposes of the business" ; it is the interpretation of the word "use" in this phrase which would be partly determinative of this reference.
13. Once ownership by the assessee and the lapse of the whole previous year are established, a full year of shelf-life of the machinery in question has inexorably lapsed. If it is found that during that year the machinery cannot be said to have been used for the purpose of the assessee's business, then depreciation cannot be allowed but once it is shown that the assessee has put the machinery to use, for the purpose of the assessee's business, then further inquiry about the degree or type of use is not permitted to be scrutinised by the language of the section. It might be that the assessee's use is to keep it as a stand by for the whole year ; it might again be that the assessee has to use it for a trial production or in some other purpose for the assessee's business, which is not immediately productive of commercial profit ; these would, again, not go against the assessee. Once the assessee can establish bona fide use of the machinery for the purposes of the assessee's business, then and in that event, the assessee establishes the assessee's right to claim depreciation.
14. In regard to investment allowance, the language in Section 32A requires that the machinery or plant in question "which is owned by the assessee" ... "is wholly used for the purposes of the business" and further that the "machinery or plant is first put to use in the immediately succeeding previous year". If these two conditions are satisfied, investment allowance as per Section 32A can be claimed. About the ownership by the assessee in regard to both the Srinagar and Hyderabad plants, no dispute arose before us.
15. As to whether the machinery was first put to use in the previous year in question, also, there was no dispute. The dispute before us related to, and only to, whether the machinery was wholly used for the purposes of the assessee's business.
16. It was not the case that the assessee used the machinery partly for business and partly for other purposes. The use itself, being the use for trial production, was argued by the Department to be not enough to come within the phrase "wholly used for the purposes of the business."
17. We do not see how the contention of the Revenue can be upheld. Unless there are words in the section indicating that not every type of use for the purposes of the business will suffice for attracting investment allowance, it is not open for the Revenue to read into the section, words of limitation so as to affect the interest of the assessee. It is with a view to the business of the asses-see that the assessee used the machinery for the purposes of its business in causing those to go into trial production at Srinagar and Hyderabad. If that is not using the machinery for the purposes of business, then we are at a loss as to how else we should describe the above activity of the assessee in that regard.
18. Before we conclude our opinion we wish to make one point clear. It sometimes happens that the claiming of depreciation or investment allowance is inextricably connected with the assessee commencing its business at all in the first place. If a new company has not commenced its business at all, it might be that no use made by it of plant or machinery can be said to be use by it for the purposes of its business, because it has no business as yet. Even in the cases referred to above this idea can be seen to be present in some places. But so far as the present assessee is concerned, it has had its business long running, and Srinagar and Hyderabad, were only two places of expansion of the assessee's business. The assessee did not have one assessment for Srinagar, another for Hyderabad and yet another for other places, but the assessment was one. Thus, trial production is quite sufficient, in our opinion, for the assessee to claim justly and properly both depreciation and investment allowance.
19. The decision of the Tribunal is accordingly quite right in point of law. The question referred to us is answered in the affirmative, i.e., in favour of the assessee.
20. All parties to act on a xeroxed signed copy of this order on the usual undertakings.