Delhi High Court
Commisioner Of Income Tax vs M/S. Oswal Agro Mills Ltd. on 24 December, 2010
Author: A.K.Sikri
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA No.161 of 2006
with
ITA No. 617 of 2006
ITA No. 998 of 2008
ITA No.1104 of 2008
ITA No. 1283 of 2008
Reserved On: OCTOBER 27, 2010.
% Pronounced On: DECEMBER 24, 2010.
1) ITA No.161 of 2006
COMMISIONER OF INCOME TAX . . . Appellant
through : Mr. N.P. Sahni, Advocate and Ms.
P.L. Bansal, Advocate.
VERSUS
M/s. OSWAL AGRO MILLS LTD. . . .Respondent
through: Mr. C.S. Aggarwal, Sr. Advocate
with Mr. Prakash Kumar,
Advocate.
2) ITA No.617 of 2006
COMMISIONER OF INCOME TAX . . . Appellant
through : Mr. N.P. Sahni, Advocate and Ms.
P.L. Bansal, Advocate.
VERSUS
M/s. OSWAL AGRO MILLS LTD. . . .Respondent
through: Mr. C.S. Aggarwal, Sr. Advocate
with Mr. Prakash Kumar,
Advocate.
3) ITA No.998 of 2008
COMMISIONER OF INCOME TAX, DELHI CENTRAL III . . . Appellant
through : Mr. N.P. Sahni, Advocate and Ms.
P.L. Bansal, Advocate.
VERSUS
OSWAL CHEMICALS & FERTILIZERS LTD. . . .Respondent
ITA Nos. 161, 617/2006, 998, 1104, 1283/2008 Page 1 of 18
through: Mr. C.S. Aggarwal, Sr. Advocate
with Mr. Prakash Kumar,
Advocate.
4) ITA No.1104 of 2008
COMMISIONER OF INCOME TAX, DELHI CENTRAL III . . . Appellant
through : Mr. N.P. Sahni, Advocate and Ms.
P.L. Bansal, Advocate.
VERSUS
OSWAL AGRO MILLS LTD. . . .Respondent
through: Mr. C.S. Aggarwal, Sr. Advocate
with Mr. Prakash Kumar,
Advocate.
5) ITA No.1283 of 2008
THE COMMISIONER OF INCOME TAX . . . Appellant
through : Mr. Mr. Sanjeev Sabharwal,
Advocate.
VERSUS
OSWAL CHEMICALS & FERTILIZERS LTD. . . .Respondent
through: Mr. C.S. Aggarwal, Sr. Advocate
with Mr. Prakash Kumar,
Advocate.
CORAM :-
HON'BLE MR. JUSTICE A.K. SIKRI
HON'BLE MR. JUSTICE SURESH KAIT
1. Whether Reporters of Local newspapers may be allowed
to see the Judgment?
2. To be referred to the Reporter or not?
3. Whether the Judgment should be reported in the Digest?
A.K. SIKRI, J.
1. In all these appeals, with the same assessee as respondent, and
pertaining to different assessment years, the issue which arises
for consideration is the same. It relates to the depreciation in
respect of the assessee‟s unit at Bhopal. The Assessing Officer
(AO) had denied the depreciation while passing different
assessment orders in respect of all these years on the ground that
unit at Bhopal was closed throughout the year(s). The orders of
the AO were confirmed by the CIT(A). The Income Tax
Appellate Tribunal (hereinafter referred to as „the Tribunal‟),
however, reversed those orders and allowed the depreciation.
The Revenue feels aggrieved by the impugned order of the
Tribunal, as according to it, depreciation was not allowable. It is
on this aspect that the matter was heard at length.
2. Since ITA No.161 of 2006 was treated as lead matter, we take
note of the facts from this appeal.
3. In this appeal, which relates to the Assessment Year 1998-99, the
assessee had claimed depreciation of `9.31 Crores on its various
assets. This included the claim of depreciation in respect of
closed unit at Bhopal. The AO asked the assessee to explain on
what basis the assessee was claiming depreciation on this unit,
which remained closed. In response, the explanation of the
assessee was that the depreciation was to be allowed as the said
assets of Bhopal unit remained part of the block of assets and
were ready for passive use, which was as good as real use. The
assessee referred to the judgment of the Kerala High Court in case
of Commissioner of Income Tax Vs. Geo Tech Construction
Corporation [(2000) 249 ITR 452]. The AO, however, was not
impressed with this position taken by the assessee and disallowed
the depreciation on Bhopal Unit which was in the sum of
`43,41,528.
4. The appeal preferred by the assessee before the CIT(A) was
rejected.
5. Before the Tribunal, in further appeal, the assessee had submitted
that the unit at Bhopal remained dormant and could not function
due to various reasons. In any case, the argument was that it was
a part of block of assets and therefore, depreciation was allowable
on the entire block and the assets at Bhopal unit could not be
segregated for the purpose of calculating the depreciation. The
Tribunal accepted this plea of the assessee in the following terms:
"27. Having carefully examined the order of the
authorities below in the light of rival submissions, we find
that the unit of the assessee at Bhopal remained closed
during the year, but the Revenue could not brought out on
record that this unit at Bhopal was finally closed or sold out
in the succeeding years. It was also not brought out by the
revenue that this unit of the assessee do not form the block
of assets. It is a settled position of law, if any of the part of
the block of assets is not used during the year, but
remaining part of the block of assets were in continuous
use, the assessee is entitled for the depreciation on the
entire block of assets. It is also a settled position of law
that even if the assessee‟s unit is temporary closed for a
year or so its commercial activities are in lull for that
period, the assessee cannot be deprived from its claim of
depreciation unless and until it is proved that the assessee
has closed its business for ever and had no intentions of its
revival. In the instant case the assessee is regularly
engaged in production activities and its unit at Bhopal was
temporary closed, but its closure for a temporary period
does not dis-entitle the assessee from claim of depreciation
thereon because it admittedly forms a part of the block of
assets and other part of the block of assets were remained
in use during the year. We, therefore, do not find any
justification in disallowance of depreciation on this unit at
Bhopal, which was temporary closed. We, accordingly
direct the assessing officer to allow depreciation on this
Bhopal unit to the assessee. We find support from the
various judgments referred to b the assessee. Accordingly,
this issue is decided in favour of the assessee."
6. Challenging the aforesaid approach of the Tribunal, the learned
counsels for the Revenue, contended that the depreciation was
allowable under Section 32 of the Income Tax Act (hereinafter
referred to as „the Act‟) only if the twin conditions stipulated
therein were fulfilled and these were:
(a) The assets should be owned, wholly or partly by the
assessee; and
(b) It should be used for the purpose of business or
profession.
7. It was a submission of the learned counsel that the second
condition in the instant case was not satisfied. They argued that
the provisions for depreciation on "block of assets" related to the
mode of calculation and merely because the assets formed the
part of the assets would not mean that the depreciation was to be
allowed on the entire block even when a particular asset from the
said block was not used for the purposes of business in the
relevant assessment year and the pre-condition stipulated under
Section 32 was not satisfied. They further submitted that the
expression „used‟ mentioned in Section 32 of the Act would
include actual use or at least kept ready for use which would
mean that non user was \for temporary period. On the other
hand, in the instant case, the Bhopal unit remained non-functional
for six years and when whole unit was non-functional, it cannot be
said that the asset of this unit were put to use.
8. Mr. C.S. Aggarwal, learned Senior counsel appearing for the
assessee, countered the aforesaid submission by arguing that
after the introduction of the concept of „block assets‟ by way of
amendment introduced with effect from 01.04.1988, the manner
in which the depreciation was allowed had undergone sea change.
In such case, it was not permissible for the Revenue to see as to
whether a particular/specific asset is put to use or not.
Collectively, the use of „blocked assets‟ was to be examined and
depreciation was to be allowed on the entire block. He also
submitted that on the facts of this case, even when the Bhopal
unit could not function for 5-6 years, it was treated as temporary
non-user in a company which was fifty years old and this unit had
been functioning earlier. It would, thus, be the case of „passive‟
use as explained in the case of Commissioner of Income Tax -
V Vs. Panacea Biotech Ltd. [(2009) 183 Taxman
212(Delhi)]. He also referred to the decision of the Rajasthan
High Court in the case of Commissioner of Income Tax Vs.
Udaipur Distillery Co. Ltd. (No.3) [268 ITR 451].
9. We have considered the submission of the learned counsel for the
both the sides. On reading the order of the Tribunal, it becomes
evident that on two grounds, viz., the depreciation is allowed viz.,
1) There was a passive user of the assets at Bhopal
Unit, which will be treated as "used for the purpose
of business."
2) As it was a case of depreciation on block
assessment, the assets of Bhopal unit could not be
segregated for the purpose of allowing depreciation
and depreciation had to be allowed on entire block
of assets.
Whereas the Revenue has challenged the justification on both the
counts, the assessee asserts that each of them is valid. We, thus,
proceed to discuss them in seriatim.
(1) Whether the assets of Bhopal unit can be treated as
'used':
10. It would be apposite to discuss the principle of law which is
relevant for deciding the liability of depreciation or otherwise in a
given case. For this purpose, we will refer to some of the
judgments underlying the relevant principle.
11. There is no quarrel about the legal position that Section 32 of the
Act deals with depreciation. It is also clear that on order to avail
this depreciation, it is to be proved that the asset was "used" for
the purpose of business. Immediate question that arises for
consideration is: What is the meaning that is to be ascribed to the
"user of asset".
12. It cannot be disputed that by catena of judgments, it stands
settled that the assessee should have used the asset for the
whole of assessment year in question to claim full depreciation.
Passive user of the asset is also recognized as „user for purpose of
business‟. This passive user is interpreted to mean that the asset
is kept ready for use. If this condition is satisfied, even when it is
not used for certain reason in the concerned assessment year, the
assessee would not be denied the depreciation. This was so
discussed and restated, after taking stock of various judgments,
by a Division Bench of this Court in Commissioner of Income
Tax Vs. Refrigeration and Allied Industries Ltd. [247 ITR 12
(Del.)] In that case, the assessee owned a cold storage at Karnal.
The machinery installed, was not put to use during the whole of
the previous year. The non-user was on account of the fact that
there was very weak crop of potatoes available in the season and
potatoes did not come from the hirers in the cold storage.
Therefore, there was no business from cold storage. Accordingly
claim for depreciation on cold storage machinery was disallowed.
In appeal, Appellate Assistant Commissioner (in short the AAC)
observed that the plant was kept in operational condition so that
the facility can be availed of by any one as and when necessity
arises. It was observed that the word "user" embraces passive as
well as active user and depreciation was allowable even though
machinery had not actually worked during the accounting period.
It was noted that the case was not one where it was the first year
of operation of company's business and it was a case where the
business was only inactive or dormant because of circumstances
prevailing in the year in question on account of fact situation
indicated above
13. The Tribunal accorded the aforesaid decision and this Court while
answering the question in favour of the assessee and upholding
the order of the Tribunal, inter alia, held as under:
"4.............The object of the Legislature, in granting
depreciation allowance under Section 32 of the Act, is to
give due allowance to the assessed for wear and tear
suffered by the asset used by him in his business so that
the net income (total income) is duly arrived at. There is no
factual dispute that the assets in question were owned by
the assessee. In Machinery Manufacturers Corporation Ltd.
Vs. CIT [1957]31ITR203(Bom) , it was observed that the
expression "used" in section 10(2)(vi) of the Indian Income-
tax Act, 1922 (hereinafter referred to as "the old Act")
corresponding to Section 32 of the Act has to be given a
wider meaning. The expression includes passive as well as
active user. In CIT Vs. Dalmia Cement Ltd.
[1945]13ITR415(Patna) and CIT Vs . Viswanath Bhaskar
Sathe [1937]5ITR621(Bom) , it was observed that
depreciation might be allowed in certain cases even though
the machinery was not in use or was kept idle. The question
whether the word "used" would include both passive as well
as active user was left open by the Apex Court in
Liquidators of Pursa Ltd. Vs. CIT, [1954]25ITR265(SC) . The
words "used for the purposes of the business" are capable
of a larger and a narrower interpretation. If the expression
"used" is construed strictly, it can be taken as connoting or
requiring the active employment or the actual working of a
machinery, plant or building in the business. On the other
hand, the wider meaning will include not only cases where
the machinery, plant etc., are actively employed but also
cases where there is what may be described as a passive
user of the same in the business. An asset can be said to be
in use when it is kept ready for use."
14. The Court gave the rationale for providing depreciation in the
following words:
"5. Like every other animate and inanimate object,
business premises, machinery, plant or furniture employed
by an assessed in the course of his business, profession,
etc. have a limited effective life. The vigour, strength,
capability, etc., of every such object gradually exhausts by
the factors of use and time. These have undoubtedly aided
the assessed to earn "income" from such business or
profession which is subjected to the levy of tax. Unless
provision was made for proper recompense of such
diminution in the vigour, strength, capability, etc. the
apparent profits from the business, profession, etc. would
not give a correct picture. Allowance for depreciation is
borne out of necessity for such recompense.
"Depreciation", according to Webster's New World
Dictionary, means "a decrease in value of property through
wear, deterioration or obsolescence: the allowance made
for this in book-keeping, accounting, etc.,". Depreciation is
the inherent decline in the value of an asset from any cause
whatsoever (as observed by William Pickles in Accountancy,
page 74). Depreciation is the diminution which takes place
in the value of a wasting asset despite the amount ex-
pended on it in repairs (as stated in The Business
Encyclopedia, Volume II, page 365). Depreciation is the
measure of the effective life of an asset owing to use or
obsolescence during a given period. The object of providing
for depreciation is to spread the expenditure incurred on
the asset over its effective life-time, and the amount
written off during an accounting period is intended to
represent the proportion of such expenditure which has
expired during the period (as stated by Spicer and Pegler in
Book-Keeping and Accounts, 14th edition, page 47)."
15. The Court also observed that for the purpose of determining the
true profits in the commercial sense or under the proper principles
of accountancy, the wear and tear of the assets utilized by the
assessee for the purpose of earning his profit will have to be
considered and allowance will have to be made for wear and tear,
which is understood as depreciation. The Court also enumerated
the principal factors responsible for reduction in value of a capital
asset and therefore, responsible for depreciation are: (i) ordinary
wear and tear; (ii) unusual damage; (iii) inadequacy; and (iv)
obsolescence. These factors include not only those relating to
physical deterioration, but also those referring to the suitability of
the asset as an economically productive unit after a period of
time. The depreciation allowance under section 32 is, however, a
statutory allowance not confined expressly to diminution in value
of the asset by reason of wear and tear. The allowance can be
claimed, if the asset in question is shown to be capable of
diminishing in value on account of any factor known to the
prevailing accounting or commercial practice [See CIT Vs . Elecon
Engineering Co. Ltd. [1974]96ITR672(Guj) .
16. In the case of Capital Bus Services Pvt. Ltd. Vs.
Commissioner of Income Tax [123 ITR 404 (Delhi)], this
Court remarked that the words "used for the business" are
capable of larger and a narrower interpretation. If the expression
"used" is to be construed strictly, it can be taken as connoting or
requiring the active employment or the actual working of a
machinery, plant or building in the business, etc. On the other
hand, wider meaning would include passive user of the same in
the business. After taking note of the various judgments, the
Court opined that survey of those decisions clearly shows that the
consensus of judicial opinion is in favour of adopting the liberal
interpretation was provided as under:
"18. Though it is true that a machinery generally
depreciates with actual user, the decision indicate that it is
not necessary to import this concept in interpreting the
expression "used" is the statute. In the first place, a
machinery may well depreciate even where it is not used in
the business and even due to non-user or being kept idle.
Secondly, a very strict correlation between the actual use
of machinery and the concept of depreciation would lead to
several anomalies and difficulties, for a machinery cannot
be used throughout the day and night or even throughout
the working hours or even during the days when the
business is in full scale operation. Thirdly, there will be no
strain on the statutory language by interpreting it widely
and not limiting it to the actual working or actual
employment of the machinery in the business. On the other
hand, it would be more appropriate to envisage the
expression as comprehending cases where the machinery
is kept ready by the owner for its use in the business and
the failure to use it actively in the business is not on
account of its incapacity for being used for that purpose of
its non-availability............................................................."
17. In the facts of that case, while allowing depreciation on four
buses, the Court held the view that these buses were in working
order and were kept ready for being operated upon if and when
some tourist contract materialized. Reason because of which the
same could not ply on the road is that they were under repair or
were unfit, but there were not enough contracts for the year. The
Court, thus, held that depreciation was allowable.
18. In the case of Commissioner of Income Tax Vs. Panacea
Biotech Ltd. [183 Taxman 212 (Delhi)], after taking note of
various judgments including the aforesaid two judgments, the
principle that the expression "used for the purpose of business"
was reiterated.
19. What follows from the above is that actual user of the asset in a
particular year may not be necessary. Even passive user qualifies
for deduction. Passive user is to be understood in the sense that
the asset is ready for used, but could not be used for part of a
year or even whole year.
20. The learned counsels appearing for the Revenue, however,
articulated their plea on altogether different level. Their
submission was that if the property is not put to use for number of
years, the assessee should be allowed the benefit of depreciation
on the purported ground that it was „passive user'. In other
words, it was argued that in the instant case the entire Bhopal
Unit and not a part of the said unit, was non-functional and assets
of that unit were not put to use for number of years. A fervent
plea was, thus, made that in case like this, principle of „passive
user‟ cannot be extended.
21. We feel that counsel for the Revenue is right in their submission.
In the instant case, the entire Bhopal Unit came to a standstill and
there was a complete halt in its functioning from the Assessment
Year 1997-98. In that year, the AO still allowed the depreciation
treating it to be a „passive user‟. However, when it was found that
even in subsequent year, the Bhopal Unit remained non-
functional, AO(s) disallowed the depreciation. Present appeals
relate to the Assessment Years from 1998-99. In the process six
years passed till the last assessment year before us, but there
was no sign of this unit becoming functional. The „passive user‟,
in these circumstances, cannot be extended to absurd limits.
Otherwise, the words "used for the purpose of business" will lose
their total sanctity. It cannot be the intention of the Legislature
that the words „used‟ when it is to be interpreted in a wider sense
to mean, „ready to use‟, the same is stretched to the limits of non-
user for number of years.
22. We may point out at this stage that some of the High Courts have
taken the view that the expression „used‟ should mean actual user
(see CIT Vs. JK Transport [231 ITR 798 (MP)], CIT Vs. Suhrid
Gelgy Ltd. [133 ITR 884 (Guj.)], Malabar Agricultural Co.
Ltd. Vs. CIT [229 ITR 548 (Kar).], Dineshkumar Gulabchand
Agrawal Vs. CIT [267 ITR 768 (Bom.)]). Though we are
subscribing in view of the judgments of our own High Court, at the
same time we would not like to give the expression a meaning
which would make the provision superfluous.
23. Mr. C.S. Aggarwal, learned Senior counsel appearing for the
assessee, had highlighted that the assessee was a 50 year old
company and non user of the Bhopal Unit for six years or so
should be treated as temporary non-user. It is difficult to accept
such a plea. As per Mr. Aggarwal himself, the assessee company
had closed its Bombay unit, as it was not viable. If it was striving
to make Bhopal unit viable and making efforts in that behalf, that
may not provide justification to claim depreciation when actual
non-user remained for number of years.
(2) Depreciation on Block of Assets:
24. We now proceed on the basis that particular assets, viz., assets of
Bhopal Unit were not „used for the purpose of business‟ in the
concerned Assessment Years. Whether the assessee would still
be entitled to depreciation as it has been claiming depreciation on
entire „block of assets‟. Counsel for the Revenue had argued that
conditions laid down in Section 32 of the Act are to be necessarily
satisfied and it has to be shown that asset is used for business.
Insofar as concept of „block of assets‟ is concerned, it is only a
mode of calculation. On the other hand, the learned counsel for
the assessee had argued that after the introduction of „block of
assets‟ concept in Section 2(11) by amendment made with effect
from 01.04.1988, the assessee was entitled to claim depreciation
on the entire block of assets and it was no more open to the
Revenue as to whether particular asset is put to use or not.
25. We have considered these submissions of the learned counsel for
the parties and are of the opinion that the arguments of the
learned counsel for the assessee have to prevail. Mr. Aggarwal,
learned Senior counsel for the assessee is right in his submission
that the position concerning the manner in which the depreciation
is to be allowed, has gone a sea change after the amendment of
Section 32 by the Taxation Laws (Amendment) Act, 1986. Section
32(1) of the Act allows the depreciation on the written down value
of the assets.
26. Section 2 (11) of the Act defines the term „block of assets‟ as
under:
"2(11) "Block of assets" means a group of assets falling
within a class of assets comprising - (a) Tangible assets,
being buildings, machinery, plant or furniture;
(b) Intangible assets, being know-how, patents, copyrights,
trade-marks, licences, franchises or any other business or
commercial rights of similar nature, in respect of which the
same percentage of depreciation is prescribed;"
27. Along with the aforesaid amendment, definition of written down
value as contained in Section 43(6) has also been amended and
the amended provisions read as under:
""43(6) - "Written down value" means -
(a) ** ** **
(b) ** ** **
(c) In the case of any block of assets, -
(i) In respect of any previous year relevant to the assessment
year commencing on the 1st day of April, 1988, the
aggregate of the written down values of all the assets
falling within that block of assets at the beginning of the
previous year and adjusted, -
(A) by the increase by the actual cost of any asset falling
within that block, acquired during the previous year;
and
(B) by the reduction of the moneys payable in respect of
any asset falling within that block, which is sold or
discarded or demolished or destroyed during that
previous year together with the amount of the scrap
value, if any, so, however, that the amount of such
reduction does not exceed the written down value as so
increased; and
(ii) in respect of any previous year relevant to the assessment
year commencing on or after the 1st day of April, 1989, the
written down value of that block of asses in the
immediately preceding previous year as reduced by the
depreciation actually allowed in respect of that block of
assets in relation to the said preceding previous year and
as further adjusted by the increase or the reduction
referred to in item (i)."
28. Thus, for the assessment year 1998-99, the W.D.V. of any block of
assets shall be the aggregate of the W.D.V. of all the assets falling
within that block of assets at the beginning of the previous year.
From this, the adjustment has to be made for the increase or
reduction in the block of assets during the year under
consideration. The deduction from the block of assets has to be
made in respect of any asset, sold discarded or demolished or
destroyed during the previous year.
29. As per amended Section 32, deduction is to be allowed - "In the
case of any block of assets, such percentage on the written down
value thereof as may be prescribed". Thus, the depreciation is
allowed on block of assets, and the Revenue cannot segregate a
particular asset therefrom on the ground that it was not put to
use.
30. With the aforesaid amendment, the depreciation is now to be
allowed on the written down value of the „block of assets‟ at such
percentage as may be prescribed. With this amendment,
individual assets have lost their identity and concept of „block of
assets‟ has been introduced, which is relevant for calculating the
deprecation. It would be of benefit to take note of the Circular
issued by the Revenue itself explaining the purpose behind the
amended provision. The same is contained in CBDT Circular
No.469 dated 23.09.1986, wherein the rationale behind the
aforesaid amendment is described as under:
"6.3 As mentioned by the Economic Administration Reforms
Commission (Report No. 12, para 20), the existing system
in this regard requires the calculation of depreciation in
respect of each capital asset separately and not in respect
of block of assets. This requires elaborate book-keeping and
the process of checking by the Assessing Officer is time
consuming. The greater differentiation in rates, according
to the date of purchase, the type of asset, the intensity of
use, etc., the more disaggregated has to be the record-
keeping. Moreover, the practice of granting the terminal
allowance as per section 32(1)(iii) or taxing the balancing
charge as per section 41(2) of the Income-tax Act
necessitate the keeping of records of depreciation already
availed of by each asset eligible for depreciation. In order to
simplify the existing cumbersome provisions, the Amending
Act has introduced a system of allowing depreciation on
block of assets. This will mean the calculation lump sum
amount of depreciation for the entire block of depreciable
assets in each of the four classes of assets, namely,
buildings, machinery, plant and furniture."
31. It becomes manifest from the reading of the aforesaid Circular
that the Legislature felt that keeping the details with regard to
each and every depreciable assets was time consuming both for
the assessee and the Assessing Officer. Therefore, they amended
the law to provide for allowing of the depreciation on the entire
block of assets instead of each individual asset. The block of
assets has also been defined to include the group of asset falling
within the same class of assets.
32. Another significant and contemporaneous development, which
needs to be noticed is that the Legislature has also deleted the
provision for allowing terminal depreciation in respect of each
asset, which was previously allowable under section 32(1)(iii) and
also taxing of balancing charge under section 41(2) in the year of
sale. Instead of these two provisions, now whatever is the sale-
proceed of sale of any depreciable asset, it has to be reduced
from the block of assets. This amendment was made because now
the assessees are not required to maintain particulars of each
asset separately and in the absence of such particular, it cannot
be ascertained whether on sale of any asset, there was any profit
liable to be taxed under section 41(2) or terminal loss allowable
under section 32(1)(iii). This amendment also strengthen the
claim that now only detail for "block of assets" has to be
maintained and not separately for each asset.
33. Having regard to this legislative intent contained in the aforesaid
amendment, it is difficult to accept the submission of the learned
counsel for the Revenue that for allowing the depreciation, user of
each and every asset is essential even when a particular asset
forms part of „block of assets‟. Acceptance of this contention
would mean that the assessee is to be directed to maintain the
details of each asset separately and that would frustrate the very
purpose for which the amendment was brought about. It is also
essential to point out that the Revenue is not put to any loss by
adopting such method and allowing depreciation on a particular
asset, forming part of the „block of assets‟ even when that
particular asset is not used in the relevant assessment year.
Whenever such an asset is sold, it would result in short term
capital gain, which would be exigible to tax and for this reason, we
say that there is no loss to Revenue either.
34. The upshot of the aforesaid discussion is that though we are not
entirely agreeing with the reasoning of the Tribunal contained in
the impugned judgment, we are upholding the conclusion of the
Tribunal based on the „block of assets‟ as discussed above. The
consequence would be to dismiss these appeals. However, there
will be no order as to costs.
( A.K. SIKRI )
JUDGE
( SURESH KATI )
JUDGE
DECEMBER 24, 2010
pmc
