Income Tax Appellate Tribunal - Mumbai
Jcit, Sr-27 vs Essar Shipping Ltd. (South India ... on 12 August, 2005
ORDER
O.K. Narayanan, Accountant Member
1. This appeal is filed by the Revenue. The relevant assessment year is 1996-97. The appeal is directed against the order passed by the CIT(A)-I at Chennai on 20-11-1999 and arises out of the assessment completed Under Section 143(3) of the Income Tax Act, 1961.
2. The assessee is a shipping company. The assessee company had filed its return of income for the impugned assessment year declaring NIL income. The positive income was set off against the brought forward loss of the preceding assessment years. The return of income filed by the assessee company was initially processed Under Section 143(1)(a) with certain prima facie adjustments having been made. Thereafter, the case was selected for scrutiny and the assessment was completed Under Section 143(3) of the Act.
3. In the course of assessment proceedings, among other things, the assessing officer has stressed on two items. The first item is that of the incidental expenses incurred by the assessee company in selling four ships out of its fleet during the previous year relevant to the assessment year under appeal. The assessee company had sold four ships during the relevant previous year. The assessee company has incurred certain expenditure by way of commission and others in selling those ships. The assessee company reduced such incidental sales expenses from the consideration received against the sale of four ships. The net proceeds were treated as the de facto consideration received on sale of the ships and the said net amount was reduced from the block of assets for the purpose of depreciation. The assessing officer took the view that the monies payablein respect of any depreciable asset falling within the block of assets have to be reduced from the value of available block of assets for the purpose of granting the depreciation allowance. The assessing officer has placed reliance on the provisions contained in Section 43(6) read with the Explanation below Section 41(4). The assessing officer held the view that the gross amount of consideration needs to be deducted from the block of assets. While making the said adjustment in the value of block of assets relating to ships, the assessing officer further treated the incidental expenses in a different manner. He held that the incidental expenses relating to the sale of ships were in the nature of capital expenditure and, therefore, could not be allowed as a deduction in computing the income of the assessee company. An addition of Rs. 26,94,591 was made by the assessing authority on this ground.
4. The second item probed into by the assessing officer was the claim of depreciation made by the assessee company in respect of two new ships purchased by it during the previous year under consideration. The assessee company had purchased two ships, viz. M.T. KISHORE and M.T. KAMLESH. The two ships were purchased for a consideration of Rs. 329,67,94,190. The ships were acquired by the assessee company during the second half of the relevant previous year. Accordingly, the assessee company claimed depreciation @50% of the normal rate of depreciation prescribed for the ships. But, the assessing officer was of the view that even though it could be held that the ships were acquired by the assessee company before the end of the relevant previous year, i.e. on 31-03-1996, it could not be held that the assessee had become the owner of those ships as on the last date of the previous year. This observation of the assessing officer regarding the ownership of the two ships was based on the provisions of the Merchant Shipping Act, 1962. Even though, not explained in the assessment order, it must be the impression of the assessing authority that as the ownership of those two ships were not transferred and registered in the name of the assessee company as on 31-03-1996 as per the provisions of the Merchant Shipping Act, 1962, the assessee could not be treated as the dejure owner of the ships. In addition to the above observation, the assessing officer had also held a view that the assessee had not used those ships for the purpose of its business during the relevant previous year. The assessing officer relied on the directors' report and the annual report of the assessee company to come to the above observation that the ships were not actually used for the business purposes during the relevant previous year. For the two reasons stated above, the assessing officer held that the assessee company was not entitled for the depreciation for the impugned assessment year 1996-97. Accordingly he disallowed the depreciation of the new two ships acquired by the assessee company during the previous year and added back the amount to the income of the assessee company.
5. These two issues were taken before the CIT(A) at Chennai. It was the contention of the assessee company before the CIT(A) that the claim of depreciation made by the assessee company on the two tankers acquired during the relevant previous year was disallowed by the assessing authority on an arbitrary finding that the tankers would not have been put to use during the relevant previous year. On the question of depreciation, the assessee company submitted before the CIT(A) as follows:
(i) That in anticipation of acquiring the two tankers, the assessee company had executed charter party agreement for carriage of goods and the two tankers have had reported to the loading ports prior to 31st March, 1996 and the loading of cargo actually commenced before the said date;
(ii) That the assesses company has filed the particulars of the deployment of the two tankers during the relevant previous year in the course of its regular business of shipping;
(iii) The reliance placed by the assessing authority on the directors' report of the assessee company was misplaced and uncalled for. What the directors reported was that the full realisation of the freight of the two tankers for the cargos loaded during the relevant previous year would be realised and reflected only in the succeeding previous year. Apart from the above finding on the revenue aspect of the company, there is nothing in the directors' report to show that the tankers were not in fact deployed by the assessee company for its business purposes during the relevant previous year;
(iv) That the assessee company has not recognised any freight income for the relevant previous year from those two tankers because of the method of income recognition followed by the assessee company inasmuch as it is the practice of the assessee company to recognise and record the freight income only on completion of loading of the ships;
(v) That the two ships purchased by the assessee were in fact owned by the assessee company and the registration under the Merchant Shipping Act, 1962 is only a consequential and administrative formality.
(vi) That the assessee company had used the ships for the purpose of its business and the assessee was fully justified in claiming depreciation Under Section 32 of the Income-tax Act, even though no corresponding income was recorded in its books of account.
6. The assessee company has also produced the following particulars before the CIT(A) in support of its arguments:
(i) Copies of the Directors' Report where the directors have stated as follows:
Your company acquired during March '96 two young second hand modern Double Hull/Double Bottom suezmax tankers with a view to diversify its fleet. The benefits of earning from these vessels are likely to be reflected in the year 1996-97.
The assessee submitted that nowhere in the above report it has been stated by the directors that the ships were not procured during the relevant previous year, or ships were not used for the purpose of business during the relevant previous year.
(ii) Memoranda of Agreements entered into between the assessee and the other parties.
(iii) Instruments of sale executed on 29-03-1996 which were notorised on the same day.
(iv) Certificates of protocol of delivery and acceptance of vessels dated 29-03-1996.
(v) Copies of log book entries regarding the movements of the vessels on high seas. A copy of the letter filed with the insurance company received on 29-03-1996 along with the copy of cheque for the payment of insurance premium.
(vi) Copies of certificates issued by the Registrar of Indian Ships dated 30-04-1996 on the basis of the application put in by the assessee company on 29-03-1996.
7. All the above documents had been produced before the assessing authority also. The CIT(A) examined the issue in the light of the above particulars and coined the question to be considered as to whether the assessee company was exercising the right of ownership over the two ships in exclusion of others from 29-03-1996 onwards. The CIT(A) held that the ships being movable assets got transferred on sale and delivery of the ships. He found that the purchases made by the assessee company have been recognised by the Registrar of Ships by making registration entries in their official records. He held that the instrument of sales, the certificates of protocol are more important than the formality of registration under the Merchant Shipping Act, 1962, for the purpose of ascertaining the true ownership of the ships. He found that the log book entries produced before the assessing authority are the primary evidences to determine whether the assessee company was in a position to exercise its absolute right and control over the ships. He has extracted a portion of the log book entries entered by the captain of the ship on 29-03-1996. The relevant portion is as follows:
This is to place on record that on this day, 29th March, 1996 at 12.30GMT on Bayrledge Anchorage, Yew York, under advice of the vessel's owners that vessel has been sold and the ownership is being changed to South India Shipping Corporation Ltd. Madras, India.
The CIT(A) held that the above entries made in the log book of the ships made it clear that the assessee company had become the owner of the ships and used the ships for its business from 29-03-1996. In the above circumstances, the CIT(A) concluded that the ownership of the ships were in the hands of the assessee company as on 31-03-1996 and the ships were deployed for the business of the assessee company and, therefore, the claim made by the assessee company towards depreciation allowance was in order. He directed the assessing authority, therefore, to grant the depreciation allowance as claimed by the assessee company.
8. Regarding the issue of incidental expenses on sale of four ships, the CIT(A) followed the order passed by his predecessor in office, in assessee's own case for the assessment year 1993-94. Following the said order, he directed the assessing authority to allow the expenditure as it was in the nature of 'incidental to sale'.
9. The revenue is aggrieved by the order of the CIT(A) in granting the benefits of depreciation allowance to the assessee company as well as the deduction of incidental sale expenses from the sales consideration. Therefore, the second appeal before us.
10. Following are the two grounds raised by the Revenue in this appeal:
1. On the fats and circumstances of the case and in law the learned CIT(A) has erred in deleting the disallowances of the claim of depreciation @50% on purchase of two ships of value of Rs. 329,67,94,190/- claimed for the year under consideration.
2. On the facts and circumstances of the case and in law the learned CIT(A) has erred in directing the A.O to allow incidental expenses of Rs. 26,54,591/- pertaining to the sale of two ships for the purpose of W.D.V of the block of assets as against the expenses were reduced from the gross sale consideration by the A.O.
11. We heard Shri Rajendra, the learned Commissioner of Income-tax appearing for the revenue. The learned Commissioner contended that the claim of the assessee company that it had acquired two ships on 29-03-1996 and deployed the same for its business purpose before 31-03-1996 was too incredible to believe. He reiterated the point that the ownership of the ships could be held in favour of the assessee company only on registration of the transfer of the ownership of the vessels. In the present case, the Registrar of Shipping has not granted the certificate regarding the transfer of ownership to the assessee company as on 31-03-1996. The registration certificate was granted some time in the month of April, 1996. Therefore, it is very clear that those two ships were not in fact owned by the assessee company during the relevant previous year or at the end of the previous year.
12. Shri Rajendra further argued that apart from the question of the legal ownership of the two vessels, another crucial point to be looked into is whether the assessee company had in fact used the two ships to carry on its regular business. In the directors' report of the assessee company it has been clearly stated that the income from those two ships acquired by the assessee company would be generated only during the succeeding previous year 1996-97. No freight income has been credited in the books of account of the assessee company from those two ships. The loading activity of the ships was not complete by the end of the previous year. In such circumstances, it is too far fetched to make out a case that the two vessels were used for the purpose of the business of the assessee company for 2-3 days at the fag end of the relevant previous year. This circumstantial evidence clearly brings out a case that the whole case of purchase and deployment of ships during the eleventh hour of the relevant previous year was a device employed by the assessee company to get the benefit of huge amount of depreciation allowance so as to deliberately reduce its taxable income.
13. The learned Commissioner further took strong objection to the copies of the various papers filed by the counsel appearing for the respondent assessee. The learned Commissioner objected that many of the papers now filed by the counsel before the Tribunal were not available to the assessing authority for his perusal and the authenticity of many of the papers produced before the Tribunal cannot be guaranteed and, therefore, building up of a case on the basis of such late filed papers is nothing but misleading the Tribunal in adjudicating the issue. He submitted that the papers filed by the assessee's counsel at time of hearing may not be relied upon to decide the issue before the Tribunal.
14. Shri VH Patil, the learned Counsel appearing for the assessee company, on the other hand, submitted that the assessee has not produced copies of any unauthorised or fabricated documents or records before the Tribunal. Copies of the Memoranda of Agreement for purchase of the ships dated 19-02-1996, copies of instruments of sale of ships dated 29-03-1996, copies of protocol of delivery and acceptance of the ships dated 29-03-1996, registration papers of the ships, copies of the telex messages sent to the masters of the ships to proceed towards port of loading, copy of the letter sent to the United India Assurance Co Ltd. and copies of the log book of the ships were very much produced before the assessing authority for his perusal. Copies of those papers were produced before the CIT(A) also. The revenue has not raised any such ground that those vital papers were not produced before the assessing authority and if at all they were produced before the CIT(A) were, for the first time. He, therefore, submitted that regarding that core evidences, there cannot be any valid objection from the revenue. Regarding other papers, the learned Counsel submitted that it contained copies of orders passed by the Tribunal, already available annual report of the assessee company and certain other voyage details of the ships.
15. On merits of the case, the learned Counsel submitted that depreciation is allowable to an assessee, if he is the owner of the asset and has used the asset in his business. Proviso to Section 32 further provides that depreciation will be restricted to 50% of the normal depreciation if the asset was used for less than 180 days in the previous year. From the documents mentioned in the statement of facts submitted before the CIT(A) and as held by the CIT(A), the ships were purchased on 29-03-1996 and put to use on the very same date. The log book entry of the ship is the most important evidence to support this factual aspect. As the ships are movable assets, the ownership gets transferred on issue of instrument of sale and delivery of the assets. The ownership of the ships is not governed by the registration document issued under the Merchant Shipping Act, 1962.
16. The learned Counsel has further relied on the following judicial pronouncements:
1. CIT v. Dilipsingh Sardarsingh Bagga 201 ITR 995 (Bom)
2. Mysore Minerals Ltd. v. CIT 239 ITR 775 (SC)
3. RB Jodhamal Kothamal 82 ITR 570 (SC)
4. CIT v. Nitish Transport Corporation 185 ITR 669 (Ker)
5. CIT v. Sahni Steel & Press Works 168 ITR 811 (AP)
17. We heard both sides in detail and considered the rival submissions on the issue of depreciation. As the learned Commissioner appearing for the revenue has raised strong objection on certain materials placed before us in the course of argument, we are not making any reference to those papers for deciding the issue. We decide the matter only on the basis of the orders of the assessing authority and CIT(A).
18. Depreciation is a statutory allowance granted to an assessee Under Section 32 of the Income-tax Act, 1961. The proviso to Section 32 further provides that if the asset acquired by the assessee was used for a period less than 180 days during the relevant previous year, half of the normal rate of depreciation would be granted. It is on the basis of the above statutory provision that the assessee company has made its claim of depreciation at half of the normal rate on the two ships acquired by it on 29-03-1996. One important factor to be borne in mind while deciding the admissibility of depreciation allowance on one side and the other expenses on the other is that in allowing depreciation, whether it is allowed in a particular assessment year or in the year succeeding that particular assessment year, is only that of a "timing difference". In the case of other expenses, the question is either allowed or disallowed, once for all. If an expenditure pertaining to a particular assessment year is not allowed in that particular assessment year, then ordinarily, it will not be allowed in any other assessment year. Therefore, the crucial difference of timing needs to be considered while deciding the issue of depreciation. This is being reiterated by us for the reason that the assessing officer has no case that the assessee had not acquired the two ships during the relevant previous year. On page two of the assessment order, the assessing authority himself has stated as follows:
Though the assessees contention with reference to acquisition of the above ships before 31-03-1996 may be acceptable, yet the assessee does not become the owner according to the Merchant Shipping Act.
Therefore, it is evident that there is no dispute on the basic factum that the assessee company had acquired two ships during the relevant previous year. The effective question considered by the assessing officer in fact was whether depreciation should be allowed for the impugned assessment year 1996-97 or depreciation should be given for the succeeding assessment year 1997-98 onwards. Actually this is a dispute on "timing difference".
19. A shipping vessel is not like an ordinary asset on land. A ship is highly capital intensive and its operational expenses are so exorbitant that a ship cannot be allowed to remain idle even for a single day. Therefore, it is the usual practice around the world that ships are bought and sold on high seas on "as is where is" condition. Unlike other movable properties, if a Bombay company sells its ship, the ship is not first brought to Bombay port, made the documentation and handed over the ship to the buyer, because that is highly uneconomical that a fleet owner could even think of. That is why in shipping industry purchase and sale of running ships take place on high seas without affecting either its route of voyage or its port of loading or its port of destination or even the contents of cargo. The case before us has to be viewed in the above perspective of actual business realities. One of the objections raised by the assessing authority is that the registration under the Merchant Shipping Act, 1972 was not completed by 31-03-1996. But it is to be seen that agreements were entered into between the parties before 31-03-1996; sale agreements were executed; charter party agreements were executed, communications were sent to the captains of the ships; entries were made in the log books; all put together makes out a case that the ships were actually acquired by the assessee during the relevant previous year even though technically on 29-03-1996. What was missing for the legal ownership was only the transfer entries to be made in the records of Registering Authority. But for that legal formality, for all practical purposes, the assessee had acquired full dominion as a true owner over those ships.
20. While considering the question of granting depreciation allowance on motor vehicle, the Bombay High Court has held in the case of CIT v. Dilipsingh Sardarsingh Bagga 201 ITR 995 (Bom) that depreciation has to be allowed irrespective of the fact whether registration of the motor vehicle has been transferred in the name of assessee or not, if the motor vehicle is already owned by the assessee as full owner and used for assessee's business. The Supreme Court has in fact held in the case of Mysore Minerals Ltd. v. CIT 239 ITR 775 that depreciation has to be allowed in a case where the purchaser has owned the asset for all purposes, but for registration and the asset been used for business purposes. The Kerala High Court in the case of CIT v. Nitish Transport Corporation 185 ITR 669 had also considered a similar case of depreciation allowance. In the case considered by the Court, the vehicles were purchased by the assessee but the names of the owners were not transferred in the certificate of registration by end of the previous year. The vehicles were also used for the business of the assessee. The contention of the revenue was that till the transfer of ownership is effected in the certification of registration, the assessee could not be considered as the owner. Repelling the said contention of the revenue, the Court held that motor vehicle being a movable property, the transfer of ownership thereof is governed by the Sale of Goods Act, and not by the Motor Vehicles Act. As between the transferor and the transferee, the sale is complete even before the transfer is effected in the registration certificate. The failure to report the same to the registering authority may entail levy of penalty but it does not affect the passing of the title in the vehicle. The court therefore, held that the assessee, who purchased the vehicles was the owner of the vehicles and entitled to depreciation Under Section 32 of the Act if the vehicles were used for the purpose of business. In another case, the Andhra Pradesh High Court in the case of CIT v. Sahni Steel & Press Works Pvt. Ltd. 168 ITR 811 held that even in the absence of the legal title by way of registration, the assessee should be entitled for the depreciation on the ground of ownership and user of the asset in the business.
21. From the above judicial pronouncements, we find that de facto ownership is the crucial factor to be looked into. As held by the Courts, movable properties are sold and purchased under the provisions of Sale of Goods Act. The court has held that the Motor Vehicle Act is for the purpose of registration and regulation of the vehicles. The said principle is equally applicable to ships also. Registration under Merchant Shipping Act, 1962 is a must for carrying on the business of shipping. The ship must be registered with the Registrar of Shipping. But the ownership is not determined by such registration alone. Section 32 of the Income-tax Act dealing with depreciation does not prescribe "registered ownership" for the assessee to claim depreciation on assets. The law says that assessee must be the owner of the asset. What is to be looked into is the de facto ownership and not the technicality of dejure ownership alone. If the assessee is, for all practical purposes, exercising right and control over the asset as an owner of the property against the entire world, his right of ownership cannot be ignored only for the reason that the technicality of transferring the registration certificate in the name of the buyer was not complied with.
22. In the present case before us, the charter party agreements were executed on 27-03-1996 to carry crude oil. The sales agreements were executed when the ships were on high seas. The log book of the ships contained the entries regarding the transfer of ownership. The ships sailed thereafter at the instructions of the new owners. All the documents regarding the purchase of ships were complete and made available with the assessee before the close of the previous year, except for the registration certificate.
23. In the case of ships, Section 26 of Merchant Ship Act, 1962 provides that an application for registration of an Indian ship shall be made by the person requiring to register his ownership. The application is made to register the ownership of the vessel. It is clear, therefore, that in order to register oneself as an owner of a ship, the applicant must produce all the necessary documentary proof of ownership. It also comes to light that ownership of the ship is an incident which is to take place even prior to the making of application for registration. In the present case, the application for registration was made on 29-03-1996 itself. After the necessary formalities, the registration was granted in the following month itself, i.e. in April, 1996.
24. Therefore, in the facts and circumstances of the case and in the light of the law explained by various courts, we have to hold that the ownership of the ships for the purpose of depreciation cannot be denied to the assessee company for the technical reason that the ownership of the assessee was not registered as on 31-03-1996. It is a proven fact that the assessee had acquired the vessels on 29-03-1996 and the assessee remained as the de facto owner with full ownership of the vessels by the end of the previous year. The assessee need not be a titular owner of the ships to claim depreciation. Therefore, the reason pointed out by the assessing authority that the assessee could not be treated as the true owner of the ships is not sustainable in law. The contention of the assessee that it owned the two ships as on 31-03-1996 for the purpose of depreciation has to be accepted.
25. The other ground relied on by the assessing authority to deny the depreciation allowance is the observation that the ships were not used for the purpose of the business. As already explained, sailing ships are sold and purchased on high seas in the course of their voyage from port to port. In the present case also, the ships were on its way to the ports of loading when the sales were made. After loading the merchandise, the ships were sailed to the pre-determined port of destination but under the ownership of the assessee company. The ships are sold and bought without affecting earlier commitments. The same port of loading may continue; the same port of destination may continue; and the same item of cargo may continue. The change in the ownership need not bring in any change in the character of any of the above operational features of a ship on high seas. In the present case also, the ships were purchased in the course of its voyage. The ships were on loading goods from the ports of loading at the time of purchases. The change of ownership were noted in the log book while on way for loading and thereafter sailed to the pre-determined destination where goods were unloaded and then kept on sailing through in accordance with the directions given by the assessee company, While the assessee company was purchasing the two ships, the same were in fact being used for the purpose of business. It is a self speaking fact. The user is not stopped/interrupted when the ships were purchased by the assessee. The assessee company acquired those ships in the course of their being used in the shipping business. Therefore, there is no basis altogether in alleging that those ships were not used for the purpose of the business carried on by the assessee. The assessing officer has no case that the ships were idling in the ports at the time of purchase. Therefore, this ground is also not supported by any reasoning. It is to be held that the assessee had used the ships for the purpose of its business during the last 2-3 days of the relevant previous year.
26. It is also a settled position of law that the "user" of an asset need not be an "active user" of the asset. The courts have held in a number of cases that it is sufficient that the assessee makes the asset ready for putting it to use. The Delhi High Court in the case of Capital Bus Services Pvt. Ltd. v. CIT 123 ITR 404 has held that where an assessee puts assets ready for use that amounts to passive user and in such a case depreciation must be allowed, if claimed by the assessee. The Supreme Court has held in RB Jodhamal Kothamal 82 ITR 570 that the term "owner" has different meaning in different contexts and in certain circumstances, even a lessee may be considered as the owner of the property leased to him. The Kerala High Court has held in the case of Forest Industries of Travancore v. CIT 51 ITR 329 that "use" means kept ready for use and not actual use. The Court has held that allowance for normal depreciation does not depend upon the actual working of the machinery. It is sufficient that the machinery in question is employed by the assessee for the purpose of the business and for no other purpose and has kept ready for actual use of the profit making apparatus, the moment a need arises.
27. The Kerala High Court in CIT v. Geotech Construction Corporation 244 ITR 452 found that an asset which is kept ready for use is also eligible for depreciation, though after the adoption of the concept of block depreciation, the user test will be relevant only in the year of entry in the block, because once it enters the block, it is neither possible nor necessary to consider whether each asset in the block has been used during the year. Passive use is good enough for satisfaction of the user test. The fact that the ships were purchased on high seas in the course of loading of merchandise itself is a testimony to the contention that the ships were at least kept ready to use in the course of the business carried on by the assessee.
28. Therefore, in the present case, it is to be seen that at the worst and still at the best, the assessee has kept the ships ready to put to use for its business. The regular business carried on by the assessee company is nothing but shipping business. Therefore, on that ground also, the assessing authority is not justified in denying the depreciation allowance to the assessee.
29. The last point of objection raised by the assessing officer is that the assessee had not shown any revenue from the operation of the two ships during the relevant previous year. It is to support the above objection that the assessing officer has quoted from the directors report. It has already been stated by the assessee that as per its method of accounting and method of recognition of income, income from shipping business is recognised only after loading of the goods from the port of loading.
30. The assessee purchased these ships, which were loading goods from their respective ports. The loading was completed only after the end of the relevant previous year, i.e. after 31-03-1996. Therefore, the assessee could recognise income by way of freight only after completion of the loading, i.e. after 31-03-1996. Therefore, absence of any credit entry of income in the books of account of the assessee is not a ground to reject the claim of depreciation made by the assessee. Income has to be recognized on the basis of the consistent method of accounting followed by the assessee. Income is measured by units of assessment years. Otherwise income is generated every moment. But for the purpose of taxation, income is not recognised minute by minute. It is recognised by a particular point of time. Income-tax Act recognises income of assessee for an assessment year based on the relevant previous year ending on the immediately preceding financial year. In the present case, at the end of the financial year even though the assessee company had used the two ships for business, as the loading was not complete, the income could not be recognised as on that date. The assessee company had recognised the income from the initial operation in the month of April, 1996 which falls in the succeeding previous year relevant to the assessment year 1997-98.
31. The nexus between the assets used and the income earned need not be satisfied in the very same previous year of deployment of the assets. Lord Thunkerton has held in Hughs (Inspector of Taxes) v. Bank of New Zealand 6 ITR 636 that "expenditure in course of the trade which is unremunerative is nonetheless a proper deduction, if wholly and exclusively made for the purposes of the trade. It does not require the presence of a receipt on the credit side to justify the deduction of an expense..." Therefore, recognition of any income corresponding to the deployment of asset in a particular previous year is not a necessary condition for allowing the expenditure as a deduction in computing the taxable income/loss of an assessee. For that matter, statute does not speak of any such requirement that assessee should invariably earn income/receipts out of the assets deployed in the business during the very same previous year. The only conditions laid down in the statute are "the ownership" and "user of assets". Therefore, this objection regarding generation of income raised by the assessing authority is also not sustainable in law.
32. Therefore, in the facts and circumstances explained in the above paragraphs, we are of the considered view that the CIT(A) has rightly granted the benefit of depreciation allowance to the assessee company and his order is within the realm of law. The order of the CIT(A) on the point of depreciation is, therefore, confirmed.
33. Next we will consider the ground relating to incidental expenses incurred on the sale of four ships during the relevant previous year. The assessing officer has not only declined to reduce the incidental expenses from the gross sale consideration of the four ships reported by the assessee company but also disallowed the expenditure as such treating it as capital in nature. For not deducting it from the gross consideration, the assessing officer has relied on the provisions of Section 43(6) read with Explanation below Section 41(4). Section 43(6) refers to price for which an asset is sold by an assessee and when sold such price should be deducted from the gross value of assets included in the block of assets. Here, the expression "price" does not mean the gross consideration received by an assessee on sale of its assets. All expenses incidental to a sale would reduce the consideration to that extent and, therefore, permitted to deduct from the gross consideration. In fact, the incidental expenses were not capital in nature. As rightly held by the CIT(A) those expenses actually reduced the consideration to that extent. Assessee cannot account for what was not received by it. The incidental expenses were not in fact an appropriation made by the assessee from the sale consideration but in fact they were in the nature of charge against the consideration. The sales could not be taken place without incurring such incidental expenses. Therefore, the incidental expenses incurred by the assessee could not be disassociated from the sale as such. That is why in such circumstances, the incidental expenses are directly deducted from the consideration by reducing the consideration quantum-wise. The treatment adopted by the assessee company is to be seen, therefore, perfectly in accordance with the normal concept of accounting and normal concept of income. Even in a case of computing capital gains, consideration is always adjusted to incurring of any expenses incidental to the transfer. In fact, the assessee company has followed the said principle provided in the statute with reference to the computation of capital gains. That principle should apply in the present case also. Further, there is no reason in the finding of the assessing authority that those expenses were in the nature of capital expenditure. Those expenses were not incurred in the course of acquiring any capital asset. Therefore, the CIT(A) was justified in allowing the incidental expenses to be reduced from the gross consideration received by the assessee on sale of four ships.
34. This ground also, therefore, fails.
35. In result, this appeal filed by the revenue is dismissed.