2000 (11) TMI 20 - HC - Income Tax

Summary

Issues:
1. Validity of allowing depreciation on assets taken over by a new partnership at enhanced rates.
2. Entitlement to development rebate at a higher rate for plant and machinery in the textile industry.
3. Entitlement to initial depreciation for plant and machinery in the textile industry.

Issue 1: Validity of allowing depreciation on assets taken over by a new partnership at enhanced rates

The case involved a firm with changes in partners, where the Appellate Tribunal allowed depreciation on assets taken over by the new partnership at enhanced rates. The Income-tax Officer argued that as it was a change in the firm's constitution, depreciation should be based on the earlier written down value. Referring to a similar case, the court held that since there was no dissolution of the partnership firm, depreciation could only be claimed on the written down value, not the notional value. Therefore, the court favored the Revenue over the assessee on this issue.

Issue 2: Entitlement to development rebate at a higher rate for plant and machinery in the textile industry

The Income-tax Officer initially allowed a lower development rebate for the assessee, engaged in manufacturing yarn, as it was deemed not falling under the category of "textiles." However, the Tribunal disagreed and allowed the higher rebate. The court analyzed the definition of "textiles" and "yarn" in relevant schedules, emphasizing the inclusive nature of the term "textiles" to cover items like cotton yarn, hosiery, and rope. It noted the legislative intent to provide benefits to a wider range of goods under the textile category. Referring to a Supreme Court case, the court concluded that the higher rate of development rebate should be applicable to yarn manufacturing as well, ruling in favor of the assessee against the Revenue.

Issue 3: Entitlement to initial depreciation for plant and machinery in the textile industry

The second question raised whether the assessee was entitled to initial depreciation for plant and machinery despite being engaged in yarn manufacturing. The court's analysis of the legislative language and intent behind the inclusion of various goods under the "textiles" category led to the conclusion that even goods like cotton yarn, though a stage before textiles, should be eligible for higher depreciation rates. By interpreting the legislative provisions to achieve their intended objective of broader benefits, the court ruled in favor of the assessee, aligning with the principles established in a previous apex court case. Thus, both questions regarding development rebate and initial depreciation were decided in favor of the assessee and against the Revenue.