1985 (1) TMI 116 - AT - Income Tax

Summary

Issues Involved:
1. Inclusion of interest income from short-term deposits in total income.
2. Admission of new grounds for the first time before the Tribunal.
3. Depreciation on construction equipment not used during the accounting year.

Issue-wise Detailed Analysis:

1. Inclusion of Interest Income from Short-term Deposits in Total Income:
The assessee, a public sector undertaking, incorporated on 7-10-1975, engaged in developing thermal power, deposited its funds not immediately required on short-term deposits with banks. The interest received on such deposits during the previous year relevant to the assessment year 1978-79 amounted to Rs. 22,84,994. This amount was included in the total income and assessed under section 143(3) of the Income-tax Act, 1961. The inclusion of this interest income was not initially contested by the assessee before the Commissioner (Appeals) or in the original grounds of appeal filed before the Tribunal. However, the assessee later raised additional grounds challenging this inclusion, arguing that the sum should not be included in the total income as it was deducted from the 'Statement of expenditure during construction.'

2. Admission of New Grounds for the First Time Before the Tribunal:
The Tribunal considered whether the assessee could raise new grounds for the first time before it. The assessee cited conflicting views from different High Courts, with some rulings allowing new grounds to be raised at any stage, including before the Tribunal, while others restricted this. The Tribunal noted that the Delhi High Court's decision in CIT v. Anand Prasad [1981] 128 ITR 388, which was binding on it, held that new points not raised before the AAC could not be raised for the first time before the Tribunal. The Tribunal concluded that the additional grounds raised by the assessee could not be entertained as they were not part of the subject-matter of the appeal before the first appellate authority.

3. Depreciation on Construction Equipment Not Used During the Accounting Year:
The assessee claimed depreciation on construction equipment purchased to facilitate the construction/erection of its plant, which was hired out to contractors. The IAC allowed depreciation only on the equipment actually used and for which hiring charges were received. The Commissioner (Appeals) upheld this view, stating that depreciation could only be allowed on machinery or plant actually used for business purposes. The Tribunal agreed with the Commissioner (Appeals), noting that the machinery or plant must be used by the owner for business purposes and earning profit therefrom to qualify for depreciation under section 32(1)(ii) of the Act.

Conclusion:
The Tribunal refused to entertain the additional grounds regarding the inclusion of interest income from short-term deposits in the total income. It upheld the Commissioner (Appeals)'s decision that depreciation could only be allowed on construction equipment actually used for hiring purposes. The appeal was partly allowed, with the Tribunal agreeing with the Commissioner (Appeals) on the major issues contested.