2007 (6) TMI 552 - HC - Income Tax

Summary

Issues involved:
The issues involved in this case are:
- Whether depreciation on Plant & Machinery is allowable when the Appellant company had suspended its manufacturing activity?
- Whether depreciation on Plant & Machinery is allowable when assets merged in the block of assets in the earlier year?
- Whether depreciation on Plant & Machinery is allowable when the trucks continued to be part of the block of assets used by the company?
- Whether depreciation on Plant & Machinery is allowable based on passive use of the assets?

Issue A:
The Income tax Appellate Tribunal held that depreciation on Plant & Machinery is not allowable because the Appellant company had suspended its manufacturing activity. The Tribunal reasoned that once the business of manufacturing was stopped, the plant and machinery would go out of the block of assets and as they were not used for business purposes, no depreciation could be allowed. This decision was supported by Section 38(2) of the Act, which allows the disallowance of depreciation if the asset is not used for business purposes. The Tribunal also highlighted that there was no evidence that the machinery was intended to be used or kept ready for use, leading to the conclusion that depreciation on plant and machinery would not be allowed.

Issue B:
Regarding the merger of assets in the block of assets, the Tribunal found that depreciation on Plant & Machinery was not allowable when assets merged in the block of assets in the earlier year. However, depreciation related to trucks used for earning income was deemed allowable as they were part of a different block of assets and were used for business purposes.

Issue C:
The Tribunal also addressed the disallowance of depreciation on Plant & Machinery when the trucks continued to be part of the block of assets used by the company. It was determined that depreciation on the trucks would be allowable as they were used for earning income, unlike the plant and machinery which were not utilized for business purposes.

Issue D:
The Tribunal considered whether depreciation on Plant & Machinery is allowable based on passive use of the assets. It was concluded that passive use of the machinery does not warrant depreciation allowance, especially when there is no indication of the intention to resume manufacturing activity. The Tribunal dismissed the appeals, stating that no substantial question of law arose in these cases, and therefore, the appeals were dismissed at the admission stage.