2011 (12) TMI 51 - HC - Income Tax

Collection of contingency deposit against payment of sales tax would form part of the income - Held That - In view of COMMISSIONER OF INCOME-TAX .vs. SOUTHERN EXPLOSIVES CO. (1999 - TMI - 15363 - MADRAS High Court ) wherein it has been held that the receipt of the amount for payment of sales tax and keeping it in deposit would amount to a revenue receipt and it would form part of the assessee s income . - Decided against assessee. Depreciation on leased assets can be allowed in a year when the assets had not yet been put to use by the lessee - Assessee relied on COMMISSIONER OF INCOME TAX vs. KOTAK MAHINDRA FINANCE LTD (2009 - TMI - 33331 - BOMBAY HIGH COURT) where it was held The assessee admittedly had supplied the machinery before the end of the financial year and the assessee had received the lease rentals for the same. Whether the lessee had put to use the leased equipment would be irrelevant as long as the machinery in fact had been given on lease before the end of the financial year as then it could be said that the assessee for the purpose of business had used the leased equipment. The assessee was entitled to depreciation . and COMMISSIONER OF INCOME-TAX .vs. REETU FINLEASE P.LTD (2006 - TMI - 9924 - DELHI High Court) In the absence of any evidence to the contrary once the machines were installed at the place of the lessee it could be presumed that they had been utilised even assuming that such actual user was a condition precedent for the lessee to claim depreciation. The assessee was entitled to the depreciation - Held That - We are unable to appreciate the contentions made by the Revenue that actual date on which the asset was put to use alone has to be taken into consideration. Decided in favour of assessee.

Summary

Issues:
1. Whether collection of contingency deposit against payment of sales tax forms part of income?
2. Whether depreciation on leased assets can be allowed in a year when assets are not yet put to use by lessee?

Issue 1 - Collection of Contingency Deposit:
The judgment addresses the question of whether the collection of 'contingency deposit' against payment of sales tax should be considered as part of the income. The court refers to a previous decision by a Division Bench, where it was held that such receipts constitute a "revenue receipt" forming part of the assessee's income. Consequently, the Appellate Tribunal's finding is set aside, and the question is answered in favor of the revenue.

Issue 2 - Depreciation on Leased Assets:
The case involves a claim for depreciation on a boiler leased to a company. The revenue argues that the boiler was put to use only on a specific date, making the depreciation claim for the previous year invalid. They also highlight that the lease rental accrued was not accounted for as per Income Tax Act provisions. The court examines the evidence presented, including installation certificates and inspection reports, to determine the eligibility for depreciation. The revenue contends that the asset was put to use much later than claimed by the assessee. However, the court cites precedents where the actual installation of assets at the lessee's premises is considered sufficient for claiming depreciation, irrespective of the exact date of use. Therefore, the court rejects the revenue's arguments and allows the claim of depreciation on leased assets, ruling against the revenue.

In conclusion, the High Court of Madras, in a common judgment by Mr. Justice ELIPE DHARMA RAO and Mr. Justice R.SUBBIAH, addresses the issues related to the collection of contingency deposits and depreciation on leased assets. The court rules in favor of the revenue regarding the collection of contingency deposits but rules against the revenue on the matter of depreciation on leased assets. The judgment provides detailed analysis and references to legal precedents to support the decisions on each issue, ultimately allowing the appeals in part.