2012 (5) TMI 168 - HC - Income Tax

Entitlement to the bad debt written off - revenue contested it as the same was hit by the provisions of Section 36(1)(viia) Held that - The issue is covered by a decision in Catholic Syrian Bank Ltd. Vs. Commissioner of Income Tax (2012 - TMI - 210762 - SUPREME COURT OF INDIA) stated that u/s 36(1)(vii), the assessee would be entitled to general deduction upon an account having become bad debt and being written off - The proviso to Section 36(1)(vii) will relate to cases covered under Section 36(1)(viia) and has to be read with Section 36(2)(v) - Thus, the proviso would not permit benefit of double deduction, operating with reference to rural loans - therefore provisions of Sections 36(1)(vii) and 36(1)(viia) are distinct and independent items of deduction and operate in their respective fields against the Revenue. Claim for depreciation on furniture and electrical fittings as well as typewriters - Held that - Applying the decision of Commissioner of Income Tax, Madras Vs. Mir Mohammed Ali (1964 - TMI - 49371 - SUPREME Court) typewriter is a machinery entitled to depreciation at 25% and not at 33 1/3 %, as had been held by the Tribunal - as far as assessment year 1992-93 is concerned, the furniture and fittings are with reference to the bank, the assessee carrying on business in banking, sub-clause (1) would be a relevant entry and hence, the assessee would be entitled for deduction at 10% and the typewriter as machinery at 25% - in favour of revenue.

Summary

Issues:
1. Whether the assessee is entitled to bad debt written off as allowable under Section 36(1)(viia) of the Income Tax Act, 1961?
2. Whether the assessee is entitled to depreciation on electrical fittings, typewriters, and plant and machinery after the assessment year 1987-88?

Analysis:

Issue 1:
The first issue pertains to the allowance of a bad debt written off by the assessee. The Tribunal had allowed a sum as a bad debt for the assessment year 1992-93, which the Revenue contended was hit by the provisions of Section 36(1)(viia) of the Income Tax Act, 1961. The Tribunal relied on a decision against the Revenue by the Supreme Court, following which the first question was answered against the Revenue.

Issue 2:
The second issue revolves around the entitlement of the assessee to depreciation on various assets. The Tribunal granted relief to the assessee for depreciation on furniture, electrical fittings, and typewriters, even after the assessment year 1987-88. The Revenue challenged this relief, arguing that it was contrary to the Schedule on depreciation. The Tribunal had allowed the claim based on previous decisions in favor of the assessee for the assessment years 1990-91 and 1991-92. However, the High Court analyzed the rate of depreciation for furniture and fittings at 10% and machinery and plant at 25%, distinguishing typewriters as machinery entitled to depreciation at 25% instead of 33 1/3% as held by the Tribunal. The Court emphasized the need for accurate depreciation to reflect the real income of the business, ultimately ruling in favor of the Revenue for granting depreciation at 10% for furniture and fittings and 25% for typewriters.

In conclusion, the High Court partly allowed the Tax Case (Appeal) based on the issues discussed, with no costs imposed.