Calcutta High Court
Commissioner Of Income-Tax vs M/S. Norplex Oak India on 31 March, 2011
Author: Bhaskar Bhattacharya
Bench: Bhaskar Bhattacharya
1
IN THE HIGH COURT AT CALCUTTA
Civil Appellate Jurisdiction
(Original Side)
Present:
The Hon'ble Mr. Justice Bhaskar Bhattacharya
And
The Hon'ble Justice Sambuddha Chakrabarti
I.T.A. No.17 of 2001
Commissioner of Income-tax, West Bengal-IV, Calcutta
Versus
M/s. Norplex Oak India, Calcutta
For the Appellant: Mr. M.P. Agarwal.
For the Respondent: Mr. J.P. Khaitan,
Mr. Ananda Sen,
Mr. A.K. Dey.
Heard on: 17.02.11
Judgment on: 31st March, 2011.
Bhaskar Bhattacharya, J.:
This appeal under Section 260A of the Income-tax Act, 1961 is at the instance of the Revenue and is directed against the order dated 26th June, 2000, passed by the Income-tax Appellate Tribunal, 'E' Bench, Calcutta, in ITA No.2637/Cal/1995, for the Assessment Year 1992-93 thereby setting aside the order of the CIT (Appeals) and granting the benefit of depreciation in favour of the assessee under Section 32 of the Income-tax Act.
Being dissatisfied, the Revenue has come up with the present appeal. 2 At the time of admission of the present appeal, a Division Bench of this Court admitted this appeal on the following question of law:
"Whether on the facts and in the circumstances of the case, and in law, the I.T.A.T. erred in granting depreciation in respect of the factory in which no operation was carried out during the relevant previous year?"
The facts giving rise to filing of the present appeal may be summed up thus:
a) The assessee started its business in the State of Jammu and Kashmir from 1st January, 1988 and worked up to 31st March, 1990.
However, due to serious deterioration of the law and order situation in the valley, it had to suspend its establishment during the assessment year as would appear from the Director's report for the year ending on 31st March, 1992, which is quoted below:
"The operations at Srinagar Plant continue to be suspended owing to the adverse law and order situation prevailing in Kashmir. At present there is no sign of normalcy being restored. The imported raw materials lying at Bombay, valued at Rs.63.91 lacs were sold on no profit basis, as per the guidelines of DGTD.
The Company has been in contact with the authorities to explore the possibilities of resuming operations but at present there are no concrete indications as to when this may be possible."3
b) The assessee filed its return on 30th December, 1992 showing loss for the year at Rs.88,93,265/-. In response to a notice under Section 143(2) of the Act, the assessee appeared. The assessee claimed depreciation in the computation of income to the extent of Rs.42,99,917/-. The Assessing Officer disallowed such depreciation on the ground that as the operation of the factory remained suspended during the year, the assessee was not entitled to claim depreciation.
Being dissatisfied, the assessee preferred an appeal before the CIT (Appeals). The CIT (Appeals), however, affirmed the order of the Assessing Officer disallowing the claim of depreciation on machinery and plant.
Being dissatisfied, the assessee preferred an appeal before the Income-tax Appellate Tribunal and by the order impugned in this appeal, the Tribunal has set aside the order passed by the Assessing Officer and the Appellate Authority by holding that as the plant and machinery were owned by the assessee and at the same time, the assessee was all along ready and willing to run the same, he would be entitled to get the benefit of Section 32 of the Act notwithstanding the fact that due to adverse law and order situation in the State of Jammu and Kashmir, the assessee could not actually use the plant and machinery. The Tribunal, consequently, directed the Assessing Officer to grant depreciation in accordance with the Income-tax Rules.
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Being dissatisfied, the Revenue has come up with the present appeal. Mr. Agarwal, the learned Advocate appearing on behalf of the Revenue, has strongly relied upon the decision of a Division Bench of this Court in the case of Commissioner of Income-tax vs. Oriental Coal Co. Ltd., reported in (1994) 206 ITR 682 and contended that once the factory of the assessee remained close for the relevant year, it was not entitled to get the benefit of depreciation in terms of Section 32(1) of the Act notwithstanding the fact that the assessee was the owner of the plant and machinery. Mr. Agarwal, therefore, prays for setting aside the order of the Tribunal below.
Mr. Khaitan, the learned senior advocate appearing on behalf of the assessee has, on the other hand, opposed the aforesaid contention of Mr. Agarwal and has contended that in the case of Commissioner of Income-tax vs. Oriental Coal Co. Ltd. relied upon by Mr. Agarwal, the assessee himself declared lock out of the factory indicating that he had no intention to run the business and in that context, a Division Bench of this Court held that the machinery was not open to use. Mr. Khaitan contends that in this case, the plant and machinery were ready for being used but for the law and order situation over which the assessee had no control, the machine could not be operated.
Mr. Khaitan in this connection places strong reliance upon a Division Bench decision of this Court in the case of Commissioner of Income-tax vs. Union 5 Carbide (I) Ltd. (2002) 290 ITR 353 and contends that the word "used" occurring in Section 32 of the Act should be given broad construction and even if it is not actually in use, the assessee should be entitled to the benefit of depreciation if it was otherwise ready for use. Mr. Khaitan also relied upon the another Division Bench decision of this Court in the case of Hindustan Gas & Industries Ltd. vs. Commissioner of Income-tax, reported in (1995)242 ITR page 186.
Therefore, the only question that arises for determination in this appeal is whether the assessee is entitled to get the benefit of depreciation under Section 32 of the Income-tax Act notwithstanding the fact that the plant and machinery could not be used during the assessment year for unfavourable law and order situation in the State of Jammu and Kashmir.
After hearing the learned counsel for the parties and after going through the materials on record, we find that according to the Section 32(1) the Income- tax Act, two conditions should be satisfied by an assessee for claiming any depreciation. First, the plant and machinery must be owned by the assessee and secondly, the plant and machinery must be used for the purpose of business of the assessee.
In the case before us there is no dispute that the assessee is the owner of the plant and machinery. The only dispute before us is whether the assessee should be treated to have "used" the plant and machinery for the Revenue 6 assessment year notwithstanding its admission that the machines could not be operated as would appear from the report of its Director.
In our opinion, the word "used' appearing in Section 32(1) of the Act should be given a reasonable meaning. By introducing the said provision, the legislature wanted to give the benefit of depreciation of the plant and machinery purchased by the assessee and used for the purpose of business. The word "used' should be interpreted to mean a situation where the machineries which are required for implementing the nature of business the assessee runs, have been kept ready for use for the above purpose. In other words, if the assessee purchases a machine which is not required at all having regard to the nature of the business carried on by the assessee, he will not be entitled to the benefit of depreciation because the said machinery is not meant for the use in the business of the assessee.
On the other hand, an assessee doing various manufacturing items may have purchased different machineries having regard to the diversity of the orders he gets or expects to get. In the process, a particular type of machinery may be required for finishing a particular type of a product. If in a given assessment year, the assessee did not get any order of manufacture of that particular item necessitating the use of that particular machinery, for that reason, he should not be deprived of the benefit of depreciation of that machinery although the same was ready for use whenever an order of manufacture of such item would come. 7
In the case before us, the assessee was ready for doing his business. But for the adverse law and order situation, he could not actually run the factory although all the machineries were ready for use and the valuation of such machinery also depreciated notwithstanding its non-user. Notwithstanding such adverse law and order situation, the assessee did not abandon its business but suffered loss for such a state of affairs prevailing in that State over which he had no control with an expectation of resuming the business. This is not a case where the assessee himself is embroiled in a dispute with his labourers and in the process, has decided to declare a lockout expressing its intention not to run the business. Thus, taking into consideration the circumstances of the present case, we are of the view that the Tribunal below rightly granted depreciation in favour of the assessee.
We, thus, find no merit in this appeal and the same is dismissed by answering the question formulated in the negative and against the Revenue.
In the facts and circumstances, there will be, however, no order as to costs.
(Bhaskar Bhattacharya, J.) I agree.
(Sambuddha Chakrabarti, J.) 8