1996 (5) TMI 115 - AT - Income Tax

Assessing Officer Assessment Order Assessment Year Business Income Higher Rate Rate Of Depreciation Total Income

Summary

Issues Involved:
1. Investment Allowance on Plant and Machinery
2. Quantification of Depreciation under Section 115J
3. Disallowance of Debenture Issue Expenses
4. Depreciation Rate on Leased Motor Lorries

Issue-wise Detailed Analysis:

1. Investment Allowance on Plant and Machinery:
The assessee, a company engaged in leasing, claimed an investment allowance of Rs. 4,01,846 for plant and machinery installed before 31-3-1987. The Assessing Officer denied the deduction, arguing that the machinery was used by lessees, not the assessee itself. The CIT(A) upheld the assessee's claim, following the ITAT's decision in ITO v. First Leasing Co. of India Ltd. The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision based on the Madras High Court's approval of the First Leasing Co. case.

2. Quantification of Depreciation under Section 115J:
The assessee argued that depreciation calculated under the Income-tax Rules was not allowed during the years 1988-89 to 1990-91 due to the operation of Section 115J, which taxed 30% of book profits. The CIT disagreed, stating that normal computation included depreciation. The Tribunal analyzed the definitions of "actual cost" and "Written Down Value" (WDV) under Sections 43(1) and 43(6), respectively. It concluded that only the depreciation debited in the books was actually allowed, not the higher depreciation calculated under Income-tax Rules. Thus, the WDV for 1991-92 should be reduced only by the book depreciation. The Tribunal rejected the Revenue's argument, emphasizing the absence of a legislative fiction deeming depreciation allowed under Section 115J.

3. Disallowance of Debenture Issue Expenses:
The CIT invoked Section 263, arguing that the Assessing Officer erred in allowing debenture issue expenses claimed in a revised return filed after the time limit prescribed under Section 80. The Tribunal found that the provisions of Section 80 did not apply as the loss was due to depreciation claims, not business loss. It upheld the assessee's claim for debenture expenses based on the Supreme Court's decision in India Cements Ltd. v. CIT.

4. Depreciation Rate on Leased Motor Lorries:
The assessee claimed a higher depreciation rate of 40% on motor lorries leased to truck operators. The Assessing Officer allowed only 25%, arguing the assets were used by lessees. The CIT(A) upheld this view, relying on certain case laws. The Tribunal, however, distinguished these cases, noting that the assessee's business was leasing, which includes letting assets on hire. It cited the ITAT's decision in First Leasing Co. of India Ltd., upheld by the Madras High Court, to support the higher depreciation rate. The Tribunal set aside the CIT(A)'s order, granting the higher depreciation rate.

Conclusion:
The Tribunal dismissed the Revenue's appeal on investment allowance, partly allowed the assessee's appeal on depreciation quantification, fully allowed the appeal on debenture issue expenses, and granted the higher depreciation rate on leased motor lorries. The orders of the CIT(A) and CIT were modified accordingly.