Income Tax Appellate Tribunal - Ahmedabad
Deputy Commissioner Of Income Tax vs Sodium Metal (P) Ltd. (Sodium Metal (P) ... on 28 September, 1995
Equivalent citations: (1996)55TTJ(AHD)643
ORDER
PHOOL SINGH, J. M. :
The appeal of the Revenue is directed against order dt. 20th Sept., 1990 recorded by CIT(A)-I-Baroda by which she allowed the claim of assessee for depreciation @ 40% on all the ten tankers and 100% on gas cylinders/tankers. The assessee has filed C. O. in support of the order of learned CIT(A).
2. The above ground of Revenue consists of two parts. The first part relates to the 100% depreciation allowed by CIT(A) on gas cylinders/tankers which initially was disallowed by Assessing Officer (hereinafter referred to as AO) and the other part relates to the @ 40% depreciation disallowed by AO in respect of 8 trucks and allowed by learned CIT(A). We are taking up the first part of the ground and for this, the relevant facts are that the assessee is a company in which public are not substantially interested and it was engaged in the year under consideration in the manufacture and sale of Sodium Metal Chlorina and Chemicals. During the year under consideration the AO observed that assessee had claimed depreciation @ 100% on ammonia gas transportation tankers on the basis of Item No. III F(4) of the depreciation schedule. The AO called upon the assessee and assessee filed written submission dt. 25th March, 1989 asserting that gas cylinders used by the assessee company were meant for transportation of ammonia gas and were of specialised nature. Ammonia is highly poisonous, taxic and pungent gas and it has to be transported with due care as LPG. The cylinder is constructed under special process duly fitted with various types of safety devices. It was also mentioned that these tankers/cylinders like LPG cylinders are entitled for the same depreciation as allowed to LPG Cylinders. The AO was not satisfied with this contention of the assessee as he was of the opinion that in the relevant bill dt. 24th Jan., 1985 by which assessee company purchased these assets, it was transpired that only ammonia tanker and no gas cylinders were purchased. He accordingly disallowed the claim of the assessee. The learned CIT(A) allowed this claim of assessee against which Revenue is in appeal.
3. It is relevant to point out that the learned representative of the assessee placed before us the copy of decision of the Tribunal, Ahmedabad Bench "A" in IT A No. 1131/Ahd/1989, asst. yr. 1984-85 in the case of Mysore Ammonia Supply Corpn. vs. ITO, the case of Ammonia Supply Corpn. has also been relied upon by AO in para 11.2 of his order in disallowing the claim of assessee and argued that claim of assessee in the case of Mysore Ammonia Supply Corpn., for @ 100% depreciation on same type of gas cylinders/tankers transporting hazardous ammonia gas had been allowed. This has been conceded by the learned Departmental Representative who has simply relied on the order of learned AO.
4. As the decision of Tribunal is squarely covering the matter in issue in favour of assessee, we respectfully follow the same and conclude that learned CIT(A) has rightly allowed 100% depreciation on gas cylinders/tankers in favour of assessee.
5. The other part of the ground is in respect of 40% depreciation in respect of 10 trucks.
6. In the year under consideration, the AO observed that assessee had claimed 40% depreciation in respect of 10(ten) trucks. It was further asserted by assessee that these trucks were purchased during the year under consideration. The AO processed the matter in detail and called upon the assessee to show whether these tankers had been used in the year under consideration or not. The assessee submitted its reply vide letter dt. 10th March, 1989 and 23rd March, 1989 and the AO reproduced the relevant extracts of those letters in para 10-3 of his order. The AO further observed that for all the ten trucks fitness certificate and registration was granted by concerned RTO on 14th March, 1986 and temporary permit was granted under Motor Vehicles Act on 21st March, 1986. As these trucks were expected to transport some explosives then licence was to be obtained under the Indian Explosives Act. The AO observed that out of ten trucks purchased by assessee 7 trucks were issued licences under Indian Explosives Act on 25th March, 1986 and 3 were issued licences on 27th March, 1986. The AO scrutinised the actual use of the trucks by assessee during the period 25th/27th March, 1986 to 31st March, 1986, the date of grant of licences under Indian Explosives Act and the date of close of the accounting year. He found that only two trucks/tankers viz. MCT 1695 and MCT 1685 alone were found used on 31st March 1986, as loaded on that date and rests were not put to use. He accordingly allowed the depreciation in respect of two trucks which were loaded on 31st March, 1986, treating them as used for business in the year under consideration and rejected the claim of assessee for depreciation in respect of remaining 8 trucks on the ground that these had not been put to use.
7. The assessee took the matter before CIT(A) and same pleas were raised before her. It also contended that assessee was in possession of all the trucks in the year under consideration which were granted fitness certificate and registration by RTO and licence under Indian Explosives Act prior to the end of the accounting year and those trucks were ready for use. It was further mentioned that the vehicles were fitted with gas cylinders of specialised nature and were ready on 14th March, 1986. The assessee company entered into an agreement with Mehta Carriers, Bombay in the first week of February, 1986 and these vehicles were handed over to them from 16th Feb., 1986 on the terms and conditions of the agreement. This again shows that these trucks were put to actual use. No doubt only two trucks were actually loaded and rest of the trucks remained unutilised on account of unavoidable circumstances even though all the tankers were ready for utilisation. The CIT(A) after considering all the facts decided the claim of assessee in the following para :
"I have considered the submissions of the representative and also seen the file containing the telex messages sent and received by the appellant on this subject. I have also perused the case laws relied upon by the appellant in the case of CIT vs. Plantation Ltd. (1981) 128 ITR 675 (Mad). The fact that these tankers were used in the same condition thereafter goes to establish that they were ready for use even at the end of the accounting year. In view thereof, I would agree that the appellant is entitled to depreciation on all the 10 tankers alongwith the gas cylinders as claimed."
8. The Revenue has come in appeal against this finding.
9. The learned Departmental Representative has pointed out that AO had dealt the matter in details and concluded that remaining 8 trucks had not been put to use in the year under consideration and thus question of allowing depreciation to the assessee company in the year under consideration does not arise. Virtually he has placed reliance on the order of AO and further that it is a case of assessee itself that remaining 8 trucks had not actually been put to use. The plea of the learned Departmental Representative is that words used in s. 32(1) of the Act are "used for the purpose of business" and those words indicate that asset(s) had been actually used and not merely capable of use or "generally used". He has placed reliance on the decision of Honble Supreme Court in the case of Liquidators of Pursa Ltd. vs. CIT (1954) 25 ITR 265 (SC) in which their Lordships while dealing with the words used for the purposes of business" appearing in s. 10(2)(iv) of the Indian IT Act, 1922 held that these words mean used for the purpose of enabling the owner to carry on the business and earn profits in the business. The contention of the learned Departmental Representative is that no profits had been earned by the assessee out of those 8 trucks as the same had not been actually put to use. He also relied upon the decision of Honble Gujarat High Court in the case of CIT vs. Suhrid Geigy Ltd. (1982) 133 ITR 884 (Guj) in which question was about depreciation allowable to building and their Lordships held that there must be actual, effective and real user in the commercial sense and the user must be so linked with the business that it can be said that there is an immediate nexus between the user and the business, that is, the real business of the assessee. Their Lordships also held further that preparation for user will not amount to user and depreciation was not allowed. Summing up the arguments, learned Departmental Representative concluded that in the absence of actual user of the 8 trucks, as well as absence of any profits earned by those trucks in the accounting year relevant to the year under consideration, depreciation was rightly disallowed by the AO and the learned CIT(A) wrongly placed reliance on the decision of CIT vs. Vayithri Plantations Ltd. (supra) as in that case machines could not be used for labour unrest and those were quite different facts.
10. As against it, the learned counsel for the assessee pointed out that as observed by AO the licences were granted to all the ten trucks under Indian Explosives Act, on 25th/27th March, 1986 and they were allowed registration by RTO in the month of February then after 27th March, 1986 all the trucks/tankers should be treated as ready for use and definition of word used is not to be read in narrow sense but the judicial pronouncements from the very beginning are going to show that liberal and wide meaning of word used should be taken and once the asset is ready to be used then it becomes entitled for depreciation regardless of the fact that it was or was not put to actual use. The learned counsel has also placed reliance on the decision of Bombay High Court in the case of CIT vs. Vishwanath Bhaskar Sathe (1937) 5 ITR 621 (Bom) in which word used was interpreted by their Lordships to the effect that machinery not used but kept ready for use under pooling agreement to be treated as used for the business in s. 10(2)(vi) of the old Act and depreciation was held allowable. This decision was also followed by Honble Bombay High Court in the case of Whittle Anderson Ltd. vs. CIT (1971) 79 ITR 613 (Bom) and the definition of word used was widened by observing that it should be understood in a wide sense so as to embrace passive as well as active user as held in the case of CIT vs. Vishwanath Bhaskar Sathe (supra). Reliance was also placed on the decision of Honble Delhi High Court in the case of Capital Bus Service (P) Ltd. vs. CIT (1980) 123 ITR 404 (Del) in which their Lordships placing reliance on the decision of Bombay High Court in the case of Vishwanath Bhasker Sathe (supra) concluded that allowance for normal depreciation does not depend upon the actual work of the machinery and it is sufficient if the machinery in question is employed by the assessee for the purpose of the business and for not other business and it is kept by him ready for actual use. The other case law is that of Madras High Court in the case of CIT vs. Vayithri Plantations Ltd. (supra) referred by CIT(A) and the decision of the CIT(A) Bombay "C" Bench in the case of Mulraj Dwarkadas Gokuldas vs. Dy. CIT (1994) 48 TTJ 531 (Bom) in which it was laid down that in a leasing business, what is required before depreciation could be allowed is that the asset must have been formally introduced in the business of lease and it would be immaterial the lessee has not put to use the leased out asset. Getting support from this, the learned counsel argued that in this case assessee had entered into an agreement with M/s Mehta Carriers, Bombay on 1st March, 1986 and placed all the 8 trucks at the disposal of M/s Mehta Carriers for operational purpose and that was sufficient to infer that all the trucks were put to use. On the basis of this case law, the contention of the learned counsel is that depreciation has rightly been allowed by the CIT(A) and her order requires no interference.
11. At the very outset it is relevant to point out that the earlier case giving out the interpretation of word used is the case of Bhikaji Venkatesh vs. CIT (1937) 5 ITR 626 (Nag) in which their Lordships held that word used appearing under s. 10(2)(iv) and in relation to (vi) of Old Act must mean "actually used" and not "generally used" or as being capable of use. No doubt in the case of CIT vs. Vishwanath Bhaskar Sathe (supra) while widening the definition of word used by laying down that it not only embraces the actual user but it embraced passive as well as active user, their Lordships also took note of the earlier decision reported in the same ITR in the case of Bhikaji Venkatesh vs. CIT (supra) and distinguished the same on the pretext that in the case before them they had one covenant by which assessee was getting benefit out of these assets which might not have been used in the year under consideration and obligation of the assessee was to keep machines ready to be used. Relevant facts in the latter case of Vishwanath Bhaskar Sathe is that there was an agreement between assessee who owned a ginning factory and other owners of ginning factories and all owners constituted a pool. During the year under consideration, the factory of the assessee was not employed in the working of ginning in accordance with the pooling agreement, though he received a share of the profits and on the basis of these facts and on the basis of clause of the agreement which bound the assessee to keep his gins and other working plant and machinery in good repaired condition and working order even when his factory was not working so that it may be ready for actual use at any moment, their Lordships held that the assessee was to be treated as used the machines for purposes of business. In all other cases referred to by the learned counsel for the assessee these two cases have been referred and one salient feature was that all assessees of these cases had derived profits out of those machines and offered the same for taxation even though machines were not used and in some cases some of the assets were used for particular period and in that context, the wide meaning of word and used as given out by their Lordships was pressed into service to allow the claim of depreciation but the facts remain that assessee has to show that it had received some profits by active or passive use of the plants and machinery and offered the same for taxation. Their Lordships of Honble Supreme Court in the case of Liquidators of Pursa Ltd. vs. CIT (supra) have clearly interpreted the words used for the purpose of business in the sense that it means used for the purpose of enabling the owner to carry on the business and earn profits in the business. Assessee was to show that it had earned any profit. No such plea of the assessee is their that any profit was earned by those 8 trucks or any amount was offered for taxation. The decision of Honble Gujarat High Court in the case of CIT vs. Suhrid Geigy Ltd. (supra) requires the same thing that actual effective and real user in the extreme sense must be understood for the word user.
12. We have perused the copy of agreement dt. 1st March, 1986 executed by assessee and M/s Mehta Carriers. The copy of the same was provided by the learned counsel at our request. No doubt in para-2 the assessee placed all the 10 trucks for operation with M/s Mehta Carriers but that appears to be a recital alone. Clause-18 provides that assessee shall get certificate from the Chief Controller of Explosives and admittedly those certificates were obtained on 25th/27th March, 1986 and question of transporting ammonia prior to these certificates does not arise and this clause of para-2 is meaningless as trucks were not to be treated at the command of M/s Mehta Carriers before they were possessing requisite certificates under Indian Explosives Act, Further cl. 14 provides the mode of calculation of operation of a truck. A minimum of 940 trips in a period of 365 days were to be plied and the same shall be counted from the date of first trip loaded by the operators i.e. M/s Mehta Carriers. Once it has come on record that none of the 8 trucks were loaded the trips shall not start counting nor the assessee will be entitled to get any payment. Accordingly the assessee cannot be allowed to get any benefit out of the case law, relied upon by the learned counsel and by CIT(A) even though howsoever wide interpretation of used for business may be there, the decision of Honble Supreme Court in the case of Liquidators of Pursa Ltd. (supra) remains and machinery or plants must be shown to have been used for the purpose of that business which is actually carried on and the profits of which are assessable under s. 10(1) of Old Act as observed by their Lordships. It has not been done in the case in hand and in the absence of any actual use of these 8 trucks and actual earning of any profits taxable under the Act, no depreciation can be extended.
13. On the basis of our above discussions, we are of the opinion that it was a case where the AO has rightly disallowed the claim of the assessee for depreciation of 8 trucks which could not ply for business in the relevant period of year under consideration. We confirm the order of AO and the order of CIT(A) stands reversed. This part of ground of Revenue succeeds.
14. The result is that Revenues appeal is partly allowed and the cross-objection of assessee which is in support of the order of CIT(A) stands partly allowed.