1977 (6) TMI 40 - AT - Income Tax

Summary

Issues:
1. Depreciation rate for fishing boats.
2. Classification of boats for development rebate.
3. Adequacy of reserve for development rebate.

Analysis:
1. The assessee, a sea-food firm, purchased three fishing boats during the accounting year, with a total cost of Rs.2,20,000 according to the books. Discrepancies were found later, with one boat costing Rs.69,342 and the other two costing Rs.75,000 each. The assessee claimed 20% depreciation and created a development rebate of Rs.22,000. The Income Tax Officer (ITO) allowed only 10% depreciation and rejected the development rebate claim due to insufficient reserve.

2. The Appellate Authority Commissioner (AAC) classified the boats as speed boats, allowing 20% depreciation, and approved the development rebate reserve. However, the Appellate Tribunal found that the boats did not meet the criteria for speed boats, which require specific characteristics related to speed and design. The Tribunal determined that the boats should be classified as ships for the purpose of development rebate, requiring a reserve of Rs.88,000 for a 40% rebate.

3. The Tribunal analyzed each boat individually for the adequacy of the reserve. It was determined that one boat valued at approximately Rs.70,000 would require a reserve of Rs.28,000 for development rebate, while the existing reserve of Rs.22,000 was deemed adequate. Consequently, the Tribunal directed the ITO to allow a depreciation of 10% and development rebate for one ship, partially allowing the departmental appeal.