2004 (10) TMI 31 - HC - Income Tax

Depreciation on bio-gas plant ITO restricted the depreciation to 50 per cent on the ground that the bio-gas plant was commissioned and put to use for less than 180 days that is only from October 9 1992. - Whether Tribunal was justified in holding that the assessee-company was entitled to depreciation on bio-gas plant for full year? - It is not in dispute that the plant was installed in May 1992 and the records clearly showed that on installation it was commissioned in May 1992 but on account of certain leakage during trial run repairs had to be carried out and regular production started in October 1992. We therefore find that no error in the findings recorded by the Tribunal and no substantial question of law arises for consideration. The appeal is therefore dismissed.

Summary

Issues:
Depreciation claim on bio-gas plant for assessment year 1993-94.

Analysis:
The respondent claimed depreciation for a bio-gas plant installed at a cost of Rs. 90,41,057 in May 1992. However, the Income-tax Officer restricted the depreciation to 50% as the plant was deemed to be in use for less than 180 days, starting only from October 9, 1992. The Commissioner of Income-tax (Appeals) upheld this decision based on a statement made by the assessee's representative. The Income-tax Appellate Tribunal later allowed the appeal, directing the Assessing Officer to consider the plant as being in use from May 1992. The Tribunal found evidence supporting the installation and use of the plant in May 1992, including correspondence with the supplier and the resolution of initial problems by October 1992.

The main question raised in the appeal was whether the assessee was entitled to depreciation for the full year on the bio-gas plant. The Department argued that the plant was operational only from October 9, 1992, based on the assessee's admission in a letter and documentary evidence. However, the Tribunal, after thorough examination of records, concluded that the plant was indeed installed and in use from May 1992. The term "use" in Section 32 of the Income-tax Act was discussed, emphasizing that it includes both passive and active usage, such as trial runs and repairs to make the machinery fully operational.

The judgment highlighted previous court decisions that supported a broad interpretation of "use" for depreciation purposes. It was noted that trial production or experimental manufacture could constitute usage for business purposes. The Gujarat High Court's ruling in a similar case emphasized that the law does not require optimal production for depreciation benefits, but rather the use of machinery for business purposes. In this case, the plant was installed in May 1992, with regular production starting in October 1992 after initial repairs during trial runs. Therefore, the Tribunal's findings were upheld, and no substantial question of law was found to consider, leading to the dismissal of the appeal.