2005 (12) TMI 79 - HC - Income Tax

Section 32(1) - Whether Tribunal was right in holding that the third proviso to section 32(1), would not be applicable in respect of the plant and machinery which cost below Rs. 5,000 since such assets are covered specifically under the first proviso, and that the entire cost is to be allowed by way of deduction? - in the absence of any infirmity in the impugned order of the Tribunal, the question has to be answered in the affirmative namely, in the case of plant and machinery whose cost does not exceed Rs. 5,000, the third proviso to section 32(1)(ii) of the Act would not be applicable since such assets are covered specifically under the first proviso to the said section and the entire actual cost has to be allowed as a deduction, subject to the assessee fulfilling all other requisite conditions - The question is accordingly answered in the affirmative, i.e., in favour of the assessee

Summary

Issues:
Interpretation of section 32(1) of the Income-tax Act, 1961 regarding deduction for plant and machinery costing below Rs. 5,000.

Detailed Analysis:

1. Interpretation of Section 32(1) of the Income-tax Act, 1961:
The issue revolved around the applicability of the third proviso to section 32(1) of the Income-tax Act, 1961 in cases where plant and machinery cost below Rs. 5,000. The court analyzed the legislative intent behind the first and third provisos. The first proviso allows full deduction for machinery or plant costing below the specified amount when first put to use for business purposes. On the other hand, the third proviso restricts depreciation allowance to 50% in certain cases. The court emphasized that the third proviso cannot be applied to assets covered under the first proviso, as it would go against the legislative intent and the scheme of the Act.

2. Legislative Intent and Interpretation of Provisos:
The court delved into the historical context of the provisos, citing Departmental Circulars to explain the evolution of the provisions. It highlighted that the first proviso aimed to simplify depreciation calculation for assets with small costs, while the third proviso was introduced to prevent excessive depreciation claims for assets acquired at the end of the year and used for a short period. The court emphasized that the provisos should be read harmoniously to achieve the legislative intent, and projecting the third proviso as overriding the first proviso was unwarranted.

3. Application of Provisos to Assets Costing Below Rs. 5,000:
The court clarified that for plant and machinery costing below Rs. 5,000, the third proviso should not be invoked. Since such assets are specifically covered under the first proviso, the entire actual cost should be allowed as a deduction, subject to fulfilling other conditions. The court held that the third proviso does not talk about restricting the value at 50% of the actual cost when assets do not enter the block of assets, further supporting its interpretation.

4. Conclusion and Judgment:
In conclusion, the court answered the question in favor of the assessee and against the Revenue. The appeal was dismissed with no order as to costs, affirming that for plant and machinery costing below Rs. 5,000, the third proviso to section 32(1)(ii) of the Act would not be applicable, and the entire actual cost should be allowed as a deduction. The judgment provided a detailed analysis of the legislative provisions and their application to the specific case, ensuring clarity on the interpretation of the law in question.