1992 (7) TMI 41 - HC - Income Tax

Depreciation, Initial Depreciation, Installed Tools Or Instruments Placed In Position For Use, New Industrial Undertaking, Special Deduction

Summary

Issues:
1. Initial depreciation on tools and instruments
2. Allowability of expenditure on fixation of R.C.C. Jalies on the boundary wall
3. Deduction under section 80J

Detailed Analysis:

1. Initial Depreciation on Tools and Instruments:
The case involved a dispute over the allowance of initial depreciation on tools and instruments purchased by the assessee-company. The assessing authority rejected the claim, stating that the depreciation could only be allowed when new machinery or plant is installed. However, the Income-tax Appellate Tribunal held that the items in question, mostly electrical equipment, constituted machinery for the factory's operation. Citing the judgment of the Allahabad High Court and the Supreme Court, the Tribunal concluded that the term "installed" includes placing the apparatus in a position for service or use. The Calcutta High Court also supported this view, emphasizing that the popular meaning of "installation" should encompass various items under the term "plant." Consequently, the Tribunal's decision to allow initial depreciation on the tools and instruments was upheld.

2. Expenditure on Fixation of R.C.C. Jalies:
The dispute arose from a claim for Rs. 29,886 made by the assessee for fixing R.C.C. jalies on the boundary wall, which was initially disallowed as capital expenditure. The Commissioner of Income-tax (Appeals) held that capital expenditure cannot be treated as revenue expenditure unless specific provisions apply. However, the Income-tax Appellate Tribunal observed that the expenditure was on the replacement of fences, which did not provide any enduring benefit, making it eligible as revenue expenditure. The Tribunal's decision deviated from the earlier authorities' findings, prompting the High Court to recommend a fresh decision by the Tribunal to ascertain if the amount was related to obsolescence or replacement.

3. Deduction under Section 80J:
Regarding the deduction under section 80J, the Inspecting Assistant Commissioner (Assessment) allowed a proportionate deduction for four months, considering the unit's partial-year operation. However, the Income-tax Appellate Tribunal granted a full deduction. Citing a previous judgment of the High Court, it was established that special deductions under section 80J could be claimed for the entire year, even if the unit operated for a portion of it. Consequently, the Tribunal's decision to allow the full deduction was deemed lawful.

In conclusion, the High Court upheld the Tribunal's decision on the initial depreciation of tools and instruments and the deduction under section 80J. However, it directed the Tribunal to reconsider the expenditure on fixing R.C.C. jalies to determine if it pertained to obsolescence or replacement, emphasizing a fresh decision based on the specific circumstances of the case.