2015 (2) TMI 366 - HC - Income Tax

Depreciation on cost of the shuttering material - AO allowed depreciation only to the extent of 25%. - Held that - A legally binding precedent has its own strength and it does not depend upon the views of the Authors of Books and other persons connected with law. However, the view expressed in an otherwise respected Treatise cannot be ignored altogether. Though it may not effect the binding nature of the precedent, it may appeal in its own way to the Courts, wherever such a precedent is cited. Though we concede to the authors the right to express their reservation about the correctness of a Judgment, with due respect to them, we are of the view that the disagreement could have been expressed in more delicate manner, notwithstanding their concern about uncertainty in law. On our part, we are only making an effort to recognize certain aspects of law, which have already been propounded, than pointing out mistakes. On merits also, we are convinced that the irreducible minimum for the shuttering material is the individual plates, for providing support to the reinforced concrete and cement or the poles and bars that are used at the time of formation. We choose to fall in line not only with the judgment of this Court in Sri Krishna Bottlers Pvt. Ltd.s case (1988 (4)TMI 10 - ANDHRA PRADESH High Court), which in turn has drawn its conclusion based upon the judgment of the Supreme Court in Commissioner of Income Tax vs. Taj Mahal Hotel 1971 (8) TMI 2 - SUPREME Court , but also the judgments rendered by the other High Courts to allow 100% depreciation - Decided in favour of assessee.

Summary

Issues Involved:
1. Eligibility of shuttering material for 100% depreciation under Section 32(1)(ii) of the Income Tax Act, 1961.
2. Interpretation of "unit" in the context of depreciation for shuttering material.
3. Conflict between judicial precedents regarding the treatment of shuttering material as a single unit or individual units.

Detailed Analysis:

1. Eligibility of Shuttering Material for 100% Depreciation:
The central issue in this case was whether the shuttering material acquired by the respondent for the assessment year 1995-96 qualified for 100% depreciation under Section 32(1)(ii) of the Income Tax Act, 1961. The respondent claimed 100% depreciation on the shuttering material, arguing that each item cost less than Rs. 5,000. The Assessing Officer allowed only 25% depreciation, which was later overturned by the Commissioner of Income Tax (Appeals) and upheld by the Income Tax Appellate Tribunal.

Section 32(1)(ii) of the Act provides that if the cost of any machinery or plant does not exceed Rs. 5,000, the actual cost shall be allowed as a deduction for the year it is first put to use. The court noted that shuttering material qualifies as "plant" under this provision.

2. Interpretation of "Unit" in the Context of Depreciation:
The court had to determine what constitutes a "unit" of shuttering material for the purpose of applying the Rs. 5,000 threshold for 100% depreciation. The respondent argued that each piece of shuttering material should be considered an independent unit, while the appellant contended that the entire set of shuttering material should be treated as a single unit.

The court emphasized that shuttering material is used in small, independent units, which can be reused multiple times and in different projects. It stated that the safest way to identify a unit of plant or machinery is to consider the irreducible minimum that can be put to independent use. Thus, individual plates or poles used in shuttering should be treated as separate units.

3. Conflict Between Judicial Precedents:
The court addressed the conflict between its own precedents and those of other High Courts. In particular, it compared the judgments in "Commissioner of Income Tax vs. Raghavendra Constructions" and "Commissioner of Income Tax vs. Sri Krishna Bottlers Pvt. Ltd." The former held that the entire shuttering material should be treated as a single unit, while the latter treated each bottle and shell as independent units qualifying for 100% depreciation.

The court noted that the judgment in "Sri Krishna Bottlers Pvt. Ltd." was more aligned with the predominant judicial opinion and the principles laid down by the Supreme Court in "Commissioner of Income Tax vs. Taj Mahal Hotel." It criticized the judgment in "Raghavendra Constructions" for not considering the detailed analysis in "Sri Krishna Bottlers Pvt. Ltd." and other relevant precedents.

The court also referred to judgments from other High Courts, such as the Allahabad High Court in "Harijan Evam Nirbal Varg Avas Nigam Ltd. vs. Commissioner of Income Tax" and the Punjab and Haryana High Court in "Commissioner of Income Tax vs. Akal Construction and Engineering Co," which supported the view that each piece of shuttering material should be treated as an independent unit.

Conclusion:
The court concluded that the individual plates and poles used in shuttering should be treated as separate units for the purpose of applying the Rs. 5,000 threshold under Section 32(1)(ii) of the Income Tax Act. It preferred to follow the judgment in "Sri Krishna Bottlers Pvt. Ltd." over "Raghavendra Constructions," thereby allowing the respondent's claim for 100% depreciation on the shuttering material. The appeal was dismissed, and the court emphasized the importance of consistency in judicial decisions to avoid legal uncertainty.