Madras High Court
Principal Commissioner Of Income ... vs M/S.Sakthi Sugars Ltd on 13 June, 2022
TCA.No. 622 of 2017
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 13.06.2022
CORAM
THE HONOURABLE MR. JUSTICE R. MAHADEVAN
AND
THE HONOURABLE MR. JUSTICE MOHAMMED SHAFFIQ
T.C.A. No.622 of 2017
Principal Commissioner of Income Tax I,
No.63, Race Course Road,
Coimbatore. .. Appellant
Versus
M/s.Sakthi Sugars Ltd.,
180, Course Road,
Coimbatore-641 018.
PAN: AAD CS 0651 B .. Respondent
Appeal filed under Section 260 (A) of the the Income Tax Act, 1961
against the order dated 13.01.2017 passed by the Income Tax Appellate Tribunal
“D” Bench, Chennai, in I.T.A.No.430/Mds/2015.
For Appellant : Mr.M.Swaminathan and
Mrs.V.Pushpa
Standing Counsel
For Respondent : Mr.Subbaraya Aiyar
https://www.mhc.tn.gov.in/judis JUDGMENT
TCA.No. 622 of 2017
(Judgment of the Court was delivered by R.MAHADEVAN, J.)
This tax case appeal has been filed by the appellant challenging the
order dated 13.01.2017 passed by the Income Tax Appellate Tribunal, 'D' Bench,
Chennai, in I.T.A.No.430/Mds/2015, relating to the assessment year 2009-10.
2. By order dated 13.12.2017, this court admitted the aforesaid tax case
appeal on the following substantial question of law:
“Whether the Appellate Tribunal is right in allowing
depreciation on the plant and machinery of the Sivagangai
Beverages Unit of the assessee when that unit never
commenced commercial production and the assets were not
'put to use' for production?"
3.When the matter was taken up for consideration, the learned counsel
appearing on both sides jointly submitted that the identical question of law
raised herein was already decided against the Revenue, in the following
decisions:-
(i) Principal Commissioner of Income Tax v. Larsen and Toubro Ltd.,
[403 ITR 248 (Bombay)], in which, it was held by the Bombay High Court as
follows:
"5. The Tribunal found that there was no merit in the action of the
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TCA.No. 622 of 2017
authorities below in denying the claim of depreciation and the Tribunal
relied upon an order of this Court in CIT v. Industrial Solvents &
Chemicals (P) Ltd. (1979) 119 ITR 608. In the facts of that case it was
found that in respect of assessment year 1962-63, construction of the
Assessee's building and erection of the plant and machinery were completed
by end of December, 1960/January, 1961. The plant was initially charged
with raw material in February 1961, but the finished product was not in
marketable state. The question before the Court was, on the aforesaid facts
whether the assessee could have "set up" business by August, 1961 and
therefore entitled to expenses incurred thereafter, as expenses incurred in the
course of business. The Assessing Officer found that the erection of the
plant was completed in the month of March 1961 and trials commenced
which continued upto September, 1961 and expenses claimed came to be
disallowed on the basis that this was expenditure only on experiments
preparatory to the commencement of the business and not for carrying on
the business. This Court thereafter considering various decisions held in
favour of the assessee came to the conclusion that by installation and
erection of machinery in that case the assessee had set up his business by
19th August, 1961 was entitled to the expenses incurred thereafter as
expenses incurred in the course of its business.
6. In the present case the Tribunal, after having considered the
orders passed by the Assessing Officer and the CIT (Appeals) was of the
view that there was no merit in the denial of depreciation in respect of plant
and machinery and that even if the same was to be used for trial production
business of manufacture of Çlinker', the assessee would be entitled to claim
depreciation. The Tribunal also relied upon the decision of the Gujarat
High Court in Asstt. CIT v. Ashima Syntex Ltd. [2002] 122 Taxman 230
which held that even trial production would fall within the ambit of "used for
the purpose of business"and once used the assess could not be deprived of
the benefit of a claim for depreciation merely on the basis that the period of
use was very short.
7. The Tribunal followed the decision of this Court in Industrial
Solvents & Chemicals (P) Ltd.'s case (supra) and held that once the plant
commenced operations and a reasonable quantity of product is produced,
the business is set up even if product was sub-standard and not marketable.
In the case of Industrial Solvents & Chemicals (P) Ltd. (supra), the
Company was new and depreciation was allowed. Following the aforesaid
decision the Tribunal directed the Assessing Officer to verify the period of
use and restrict depreciation to 50% if the Assessing Officer found that the
machinery was used for less then 180 days during the year under
consideration."
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TCA.No. 622 of 2017
(ii) Commissioner of Income-tax, Chennai v. Lakshmi General
Finance Ltd., [433 ITR 94 (Madras)] , wherein, it was held by this Court as
follows:
"7. The case of the assessee before us strengthened in the light of
the following decisions. In "Principal CIT v. Larsen & Toubro Ltd., 403 ITR
248 (Bom)", the machinery for trial production was held to qualify for
deduction as it would amount to using the machinery for the purpose of
business. In CIT v. Escorts Tractors Ltd. 56 Taxmann.com 333 (Delhi)", the
plant and machinery kept ready for use was held to be enough to grant
depreciation. In "CIT v. Southern Petrochemical Industries Corporation Ltd.
311 ITR 202 (Mad)", the claim for depreciation on spare parts, which were
stand-by items, was held permissible. In "CIT v. Geo Tech Construction 244
ITR 452 (Kerala)", it was held that an asset can be said to be in use when it
is kept ready for use. It is beneficial to refer to paragraph 5 of the said
judgement, which reads as follows.
"5. Section 32 of the Act deals with depreciation. There is
no requirement that the assets should be used for the whole of the
assessment year in question. The term used in Section 32(1) is
"owned by assessee", but that does not bring in a requirement that
the assessee should have remained the owner of the asset in
question for the entire previous year in question. The object of the
Legislature, in granting depreciation allowance under section 32 of
the Act, is to give due allowance to the assessee 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 Cororation Ltd. v. CIT (1957) 31 ITR
203 (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 v.Dalmia Cement Ltd. (1945) 13 ITR 415
(Patna) and CIT v. Viswanath Bhaskar Sathe (1937) 5 ITR 621
(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. v. CIT (1954) 25 ITR 265. 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
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TCA.No. 622 of 2017
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."
8. In "CIT v. Refrigeration & Allied Industries Ltd. 323 ITR 672",
the machineries were kept under good working condition so that it could be
used at any moment, all expenses relating to the said machinery (cold
storage) were allowed to be claimed as depreciation. In "CIT v. Shahbad
Co-op Sugar Mills Ltd. 12 Taxmann.com 421 (Punjab & Haryana)", the
machinery which was kept ready for use was held to qualify for depreciation
under section 32 of the Act.
4. Following the aforesaid decisions, the substantial question of law
raised in this appeal is answered in favour of the assessee. Accordingly, the
present tax case appeal filed by the Revenue, stands dismissed. No costs.
[R.M.D., J.] [M.S.Q., J.]
13.06.2022
Index : yes/no
Internet : yes/no
av
To
1. The Income Tax Appellate Tribunal “D” Bench,
Chennai.
2. Principal Commissioner of Income Tax I,
No.63, Race Course Road,
Coimbatore.
https://www.mhc.tn.gov.in/judis
TCA.No. 622 of 2017
R. MAHADEVAN, J.
and
MOHAMMED SHAFFIQ, J.
av
TCA No.622 of 2017
13.06.2022
https://www.mhc.tn.gov.in/judis
