1992 (7) TMI 20 - HC - Income Tax

Capital Employed, Depreciation, Developement Rebate, New Industrial Undertaking, Special Deduction From Profits And Gains

Summary

Issues:
1. Inclusion of the sum relating to the railway siding in the computation of capital for deduction under section 80J.
2. Allowance of development rebate and depreciation in relation to the railway siding.

Analysis:
The case involved two key issues regarding the treatment of a sum of Rs. 2,51,350 in relation to a railway siding for the assessment year 1971-72. The Income-tax Officer initially did not include this sum in the capital computation for the fertilizer project, considering it a loss due to the transfer of land to the Railways for a nominal value. The Appellate Assistant Commissioner upheld this decision, stating that the sum represented a capital loss and could not be included in the capital. Additionally, the claim for development rebate and depreciation was denied as there was no asset owned by the assessee after the land transfer. However, the Appellate Tribunal disagreed, allowing the claim and directing the Income-tax Officer to permit development rebate and depreciation, considering the sum as part of the cost of setting up the railway siding.

Upon review, the High Court found that the sum spent by the assessee to acquire the right to use the railway siding cannot be considered a loss as it resulted in a tangible interest and an enduring advantage for the business. The court emphasized that despite surrendering ownership rights in the land, the assessee retained a valuable interest in the form of the right to use the railway siding, which constituted a capital asset for the purpose of section 80J. However, the court clarified that this interest did not equate to ownership of the railway siding and therefore was not depreciable.

Regarding the allowance of development rebate and depreciation, the court ruled that since the assessee was not the owner of the railway siding, it was not entitled to claim depreciation or development rebate on the asset. Both depreciation and development rebate are only applicable when the assessee owns the asset, as specified in sections 32 and 33 of the Income-tax Act. Consequently, the court answered the first question affirmatively in favor of the assessee and the second question negatively in favor of the Revenue.

In conclusion, the High Court decision clarified the treatment of the sum spent on acquiring the right to use a railway siding as a capital asset for deduction purposes under section 80J but emphasized that the interest acquired did not entitle the assessee to claim depreciation or development rebate due to the lack of ownership of the railway siding.