1979 (2) TMI 88 - HC - Income Tax

Actual Cost Assessment Year Cost Of Acquisition Depreciation And Development Rebate Expenditure Incurred Textile Mill

Summary

Issues:
- Whether the assessee is entitled to get depreciation and development rebate on the sum paid for acquiring the right to install and operate additional spindles?

Analysis:
The case involved a question regarding the entitlement of the assessee to claim depreciation and development rebate on the amount paid for acquiring the right to install additional spindles. The assessee purchased surplus capacity from another mill and paid a sum of Rs. 75,760 in 1964, with the spindles being installed in 1966. The Income Tax Officer (ITO) initially rejected the claim for deduction, considering it a capital expenditure. However, the Appellate Assistant Commissioner (AAC) suggested adding the amount to the cost of spindles for claiming depreciation later. When the claim was made in 1967-68, it was again rejected. The Tribunal allowed the claim, stating that the amount was part of the installation cost. The revenue challenged this view, arguing that the amount paid for acquiring rights could not be part of the spindle cost.

The court referred to the Supreme Court's decision in Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167, emphasizing that all necessary expenditure to bring fixed assets into existence should be included in the cost. The court noted that acquiring the right to expand the mill and install spindles was essential expenditure for the extension. Therefore, the amount paid for acquiring the right should be considered part of the cost of assets. The court concluded that the assessee was entitled to claim depreciation and development rebate on the sum paid for acquiring the right to install additional spindles.

In light of the above analysis, the court answered the question in the affirmative, in favor of the assessee. The revenue was directed to bear the costs of the reference.