2019 (4) TMI 60 - HC - Income Tax

Benefit of depreciation on the plant and machinery purchased from vendor by the agreement - consideration for purchase of the plant, machinery etc. was much less than the whole consideration - HELD THAT - We are of the opinion that the facts of this case have not been properly determined by the adjudicating authority below, on the basis of the said agreement by which the undertaking plant, machinery etc. were purchased by the assessee. If by the said agreement, the consideration for the plant and machinery is shown to be ₹ 4.10 crores and that the assessee was to pay ₹ 4.10 crores as consideration for it, but under an arrangement with the vendor paid a part of it to the vendor and the other part to liquidate the workman s liability, then it can be clearly demonstrated that the entire consideration was a capital expenditure for acquisition of a capital asset. On the other hand, if it is shown that the consideration for purchase of the plant, machinery etc. was much less than the whole consideration and that payment of the statutory dues of the workman was a distinct consideration forming the other part of the whole consideration, the picture would be completely different and similar to Commissioner of Income Tax, Kolkata versus Hooghly Mills Co. Ltd. 2012 (1) TMI 319 - SUPREME COURT OF INDIA. For proper application of law, facts are very essential. For those reasons, we remand this matter back to the tribunal to determine this particular question de novo on proper evidence and by a reasoned order within six months of communication of this order.

Summary

Issues:
Interpretation of agreement for depreciation on plant and machinery, Capital expenditure vs. statutory liabilities for workers, Proper determination of facts for depreciation claim.

Analysis:
The High Court of Calcutta addressed the issue of interpreting an agreement for claiming depreciation on plant and machinery. The appellant sought to avail depreciation benefits on assets purchased under a specific agreement. The agreement highlighted clauses related to consideration, statutory liabilities, and payment for outstanding dues of workers. The appellant argued that the entire consideration amount was for the acquisition of capital assets, including plant and machinery. However, the revenue contended that the portion utilized for worker liabilities could not be classified as capital expenditure for depreciation purposes under Section 32 of the Income Tax Act.

In a previous case involving a similar scenario, the Supreme Court differentiated between obligations related to worker liabilities and the purchase of assets. The Court emphasized the importance of properly determining the facts based on the agreement. The Court noted that if the consideration for plant and machinery was part of the total amount paid, which included worker liabilities, it would constitute capital expenditure. Conversely, if the consideration for assets was separate from worker liabilities, the situation would resemble the precedent set by the Supreme Court.

The Court concluded that the facts of the case required a more thorough examination by the tribunal to determine whether the entire consideration amount was indeed for capital assets or if it included a distinct portion for worker liabilities. Therefore, the matter was remanded back to the tribunal for a fresh assessment based on proper evidence and a reasoned order within six months. The tribunal was instructed to conduct a fact-finding exercise to clarify the nature of the consideration paid and its implications on the depreciation claim. The previous tribunal order related to this issue was set aside, and the appeal was disposed of accordingly.