2011 (6) TMI 233 - HC - Income Tax

Depreciation - When an asset is sold, section 43(6)(c)(i)(B) of the Act provides that the written down value of the block of assets shall be reduced by moneys payable in respect of the asset that is sold - As rightly observed by the Income-tax Appellate Tribunal, the Legislature in section 43(6)(c)(i)(B) has used a different connotation in respect of sale of assets and sale of scrap - written down value of the block of assets is to be reduced by the amount at which the asset is actually sold, whereas, in the case of sale of scrap, the value of the scrap, meaning thereby, the fair market value of the scrap and not the price at which the scrap is sold should be reduced from the written down value of the block of assets - Decided in favor of the assessee

Summary

Issues:
Calculation of depreciation based on fair market value vs. actual sale price of an asset.

Analysis:
The case involved a dispute regarding the calculation of depreciation on a flat sold by the assessee. The Departmental Valuation Officer determined the fair market value of the flat at Rs. 66,44,902, while the flat was sold by the assessee for Rs. 9,00,000. The Assessing Officer initially reduced the fair market value from the block while calculating depreciation. However, the Commissioner of Income-tax (Appeals) held that this reduction was not justified.

Upon further appeal, the Income-tax Appellate Tribunal dismissed the Department's appeal. The Tribunal's decision was based on the interpretation of relevant provisions of the Income-tax Act, specifically section 43(6)(c)(i)(B) and Explanation 4 to section 43(6). The Tribunal noted that the expression "moneys payable" in relation to the sale of an asset refers to the actual sale price and not the fair market value.

The Tribunal highlighted the distinction between the treatment of asset sales and scrap sales under section 43(6)(c)(i)(B). It emphasized that for asset sales, the written down value of the block of assets should be reduced by the actual sale price, while for scrap sales, the fair market value of the scrap should be considered. The Tribunal's interpretation aligned with the legislative intent behind the relevant provisions.

In conclusion, the High Court upheld the Tribunal's decision, stating that the interpretation adopted was in accordance with the law. The question of law raised in the appeal was answered in favor of the assessee and against the Revenue. The appeal was disposed of with no order as to costs.