2004 (11) TMI 67 - HC - Income Tax

Depreciation on plant and machinery use of machinery - Whether Tribunal was legally justified in allowing the claim of depreciation of Rs. 1, 91, 917 on the plant and machinery of vegetable ghee unit as these were not actually used for the full year relevant to the assessment year 1977-78? - held that the asset ready for use but not actually used is also entitled for depreciation under section 32 - we find that the view taken by the Tribunal is legally justified.

Summary

Issues:
1. Claim of depreciation on plant and machinery not actually used for the full year.
2. Interpretation of section 32 of the Income-tax Act, 1961 regarding the claim of depreciation.
3. Precedents and judgments related to the claim of depreciation on assets not actively used.

Detailed Analysis:
Issue 1: The primary issue in this case was whether the Income-tax Appellate Tribunal was legally justified in allowing the claim of depreciation on plant and machinery of a vegetable ghee unit, even though it was not actually used for the full year relevant to the assessment year 1977-78. The assessee, a limited company operating various units, including a vegetable ghee unit, did not operate the plant during the relevant accounting year but claimed depreciation on the plant and machinery. The Income-tax Officer rejected the claim, but the Commissioner of Income-tax (Appeals) and subsequently the Tribunal upheld the claim.

Issue 2: The interpretation of section 32 of the Income-tax Act, 1961 was crucial in determining the validity of the depreciation claim. The court referred to the Supreme Court's decision in Mysore Minerals Ltd. v. CIT, emphasizing that section 32 confers a benefit on the assessee, and any interpretation should favor the assessee to secure the intended legislative benefit. The court highlighted that to claim depreciation under section 32, two requirements must be met: ownership of the asset by the assessee and its use for business or professional purposes.

Issue 3: Various precedents and judgments were cited to support the allowance of depreciation on assets not actively used but kept ready for use. The court referenced the Bombay High Court's decision in Machinery Manufacturers Corporation Ltd. v. CIT, which defined "used" in a broader sense to include passive as well as active use. Additionally, the court mentioned the Delhi High Court's ruling in CIT v. Refrigeration and Allied Industries Ltd., where depreciation was allowed even when machinery was not actively working. The Punjab and Haryana High Court's decision in CIT v. Pepsu Road Transport Corporation was also cited to support depreciation on assets kept for emergent situations.

In conclusion, the court found that the view taken by the Tribunal in allowing depreciation on the plant and machinery of the vegetable ghee unit, despite not being actively used, was legally justified. The judgment favored the assessee, emphasizing the broader interpretation of "used for the purposes of business" to include assets kept ready for use.