2002 (8) TMI 60 - HC - Income Tax

1. Whether, Tribunal is right in law in holding that the terminal allowance under section 32(1)(iii) of the Income-tax Act, 1961, in respect of the demolished building is Rs. 1,60,866 and not Rs. 1,10,867 as computed by the Income-tax Officer? - 2. Whether, Tribunal is right in law in holding that only the actually realised value of the scrap and not the value of the scrap as such, which has to be taken into account in computing the terminal allowance? - The Tribunal has only taken note of the value of the steel trusses, doors and windows and has not said anything about the correctness or otherwise of the estimate made by the Assessing Officer who had valued the scrap at Rs. 50,000. The Assessing Officer had taken a higher figure as he found that there were a number of items of steel windows and doors with the assessee, even after the building was pulled down. We, therefore, answer the question referred to us in favour of the Revenue and against the assessee.

Summary

Issues:
1. Terminal allowance calculation under section 32(1)(iii) of the Income-tax Act for a demolished building.
2. Consideration of scrap value in computing terminal allowance.

Issue 1: Terminal allowance calculation under section 32(1)(iii) of the Income-tax Act for a demolished building:
The case involved an assessment year of 1983-84 where the main issue was the calculation of terminal allowance under section 32(1)(iii) of the Income-tax Act for a building that was demolished. The assessee, a private limited company, claimed a loss on assets scrapped amounting to Rs. 1,60,866, stating that no salvage material was obtained from the demolished building. However, it was revealed that certain salvaged materials were utilized in another college, valued at Rs. 20,000. The Income-tax Officer assessed the scrap value at Rs. 50,000 and disallowed that amount from the claimed loss. The Tribunal upheld the assessee's claim, arguing that the scrap value should only include the money actually realized, not an estimated value. The High Court disagreed, emphasizing that the value of the scrap material should be considered, irrespective of whether the assessee chose to convert it into cash. The Court clarified that the provision refers to assets being discarded or demolished, and the value of the scrap must be taken into account while determining the benefit under section 32(1)(iii). The decision of the assessee not to convert the scrap into money does not diminish its inherent value.

Issue 2: Consideration of scrap value in computing terminal allowance:
The Court highlighted that when assets are discarded, demolished, or destroyed, the scrap value should be taken into account, regardless of whether the assessee chooses to sell the scrap or give it away without realizing any value. The Tribunal had only considered the value of specific salvaged materials but did not assess the correctness of the Assessing Officer's valuation of Rs. 50,000 for the scrap. The Assessing Officer had valued the scrap higher due to the presence of numerous steel doors and windows even after the building was demolished. Consequently, the Court ruled in favor of the Revenue, emphasizing the importance of considering the scrap value in determining the extent of the benefit under section 32(1)(iii).

This detailed analysis of the judgment provides a comprehensive understanding of the issues involved and the Court's reasoning behind its decision regarding the calculation of terminal allowance and the consideration of scrap value in the context of the Income-tax Act.