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Issues Involved:
1. Disallowance of depreciation claim on two newly purchased ships. 2. Treatment of incidental expenses incurred on the sale of four ships. Issue-wise Detailed Analysis: 1. Disallowance of Depreciation Claim on Two Newly Purchased Ships: The assessee, a shipping company, purchased two ships during the second half of the relevant previous year and claimed depreciation at 50% of the normal rate. The Assessing Officer (AO) disallowed the claim, arguing that the ownership was not transferred and registered under the Merchant Shipping Act, 1962, and that the ships were not used for business purposes during the relevant previous year. The assessee contended that the ships were acquired and used for business before 31-3-1996, supported by various documents including charter party agreements, log book entries, and certificates of delivery. The CIT(A) examined the evidence and concluded that the assessee exercised ownership and control over the ships from 29-3-1996, making them eligible for depreciation. The CIT(A) emphasized that the ships being movable assets were transferred on sale and delivery, and registration under the Merchant Shipping Act was a formality. The Tribunal upheld the CIT(A)'s decision, citing several judicial precedents. It was noted that depreciation under section 32 of the Income-tax Act does not require registered ownership but de facto ownership and use for business purposes. The Tribunal also acknowledged that ships are often bought and sold on high seas, and the absence of income recognition in the books was due to the method of accounting followed by the assessee. The Tribunal concluded that the assessee was entitled to depreciation as the ships were acquired and used for business before the end of the previous year. 2. Treatment of Incidental Expenses Incurred on the Sale of Four Ships: The AO disallowed the deduction of incidental expenses incurred on the sale of four ships, treating them as capital expenditure and not reducing them from the gross sale consideration. The CIT(A) followed the precedent set in the assessee's own case for the assessment year 1993-94 and allowed the deduction, considering the expenses as incidental to the sale. The Tribunal agreed with the CIT(A), stating that incidental expenses reduce the consideration received and are not capital in nature. The expenses were necessary for the sale and should be deducted from the gross consideration to arrive at the net proceeds. The Tribunal emphasized that the treatment adopted by the assessee was in line with normal accounting principles and the concept of income. Conclusion: The appeal filed by the revenue was dismissed. The Tribunal confirmed the CIT(A)'s order, allowing the depreciation claim on the two newly purchased ships and the deduction of incidental expenses from the gross sale consideration of the four ships.
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