1990 (12) TMI 184 - AT - Income Tax

Summary

Issues:
1. Disallowance of a sum from the claim of the assessee for terminal allowance under section 32 of the IT Act.

Comprehensive Analysis:
The appeal involved the disallowance of Rs. 50,000 from the claim of the assessee for terminal allowance under section 32 of the IT Act. The assessee, a private limited company, had demolished a building and claimed a deduction based on the written down value of the building. The Income Tax Officer (ITO) disallowed Rs. 50,000 as scrap value estimated by the contractor, which was confirmed on appeal. The main contention was whether the scrap value should be included in the deduction calculation if not realized by the assessee.

The Tribunal analyzed section 32(1)(iii) of the IT Act, which allows deductions for buildings discarded or destroyed. The provision mentions "moneys payable" and "scrap value," raising the question of whether estimated scrap value should be considered in the absence of actual realization. The Tribunal noted the absence of a direct decision on this issue and relied on accounting principles to interpret the provision.

The Tribunal highlighted that the estimated scrap value is a factor in determining depreciation under accounting standards. It emphasized that the actual realized value should be considered when an asset is retired due to demolition or destruction. The Tribunal reasoned that the expression "if any" in the provision accounts for different scenarios where scrap value may or may not exist. It concluded that the written down value should be written off based on the realized value, not estimated value.

In the specific case, the Tribunal found that the salvaged materials from the demolished building were donated to a college. The Revenue argued that the scrap had value not realized by the assessee. However, the Tribunal held that the assessee's decision not to realize the value does not warrant adding an estimated value. It emphasized that the law does not require the assessee to make a profit and upheld the assessee's right to decide the asset's fate. The Tribunal directed the ITO to recompute the total income without considering the estimated value of the salvaged materials.

Ultimately, the Tribunal allowed the appeal, ruling in favor of the assessee and deleting the disallowance of the claimed amount.