1997 (4) TMI 125 - AT - Income Tax

Summary

Issues Involved:

1. Disallowance of depreciation on higher written down value (WDV) of depreciating assets.
2. Depreciation rate on leased out vehicles.
3. Treatment of caution deposits as trading receipts.

Detailed Analysis:

1. Disallowance of Depreciation on Higher Written Down Value (WDV) of Depreciating Assets:

The assessee argued that the CIT(Appeals) erred in disallowing the claim for depreciation on higher WDV of depreciating assets due to assessments under section 115J. The assessee contended that when assessments are completed under section 115J, other provisions like sections 32, 71, and 72 stand suspended. The assessee referenced the Supreme Court's decision in Madeva Upendra Sinai v. Union of India [1975] 98 ITR 209 to support that WDV should be calculated after factually allowing depreciation.

The Departmental Representative countered that section 115J(1) creates a fiction limited to levying tax and does not affect other provisions. The Tribunal considered the facts, rival submissions, and previous decisions, including Shriram Investments Ltd. and Pennar Steels Ltd., concluding that section 115J(1) creates a legal fiction only for charging tax on 30% of book profit. The Tribunal emphasized that this fiction should not extend beyond its purpose, and depreciation should be deemed allowed when 30% of book profit is taxed under section 115J(1).

The Tribunal referenced the Andhra Pradesh High Court's decision in Suryalatha Spg. Mills Ltd. v. Union of India [1997] 223 ITR 713, affirming that unabsorbed losses and depreciation should be carried forward unaffected by section 115J(1). The Tribunal dismissed the assessee's claim, stating that the determination of WDV and depreciation in previous years had become final and could not be challenged in the current year.

2. Depreciation Rate on Leased Out Vehicles:

The assessee claimed higher depreciation at 40% on leased vehicles used in the business of running them on hire, arguing that Part III(2)(ii) of Appendix-I of the Income-tax Rules supports this claim. The Departmental Representative argued that the assessee is engaged in leasing, not hiring, and should only get 30% depreciation.

The Tribunal considered the rival submissions and previous decisions supporting the assessee's claim for 40% depreciation. The Tribunal directed the Assessing Officer to allow 40% depreciation after verifying that the vehicles were used for the business of running them on hire.

3. Treatment of Caution Deposits as Trading Receipts:

The assessee collected Rs. 25,000 as caution deposits from lessees towards sales tax and argued that these were refundable deposits, not trading receipts. The Assessing Officer and CIT(Appeals) treated the amount as trading receipts, as the assessee could not prove it was a deposit.

The Tribunal considered the rival submissions and referenced the Supreme Court's decision in Jonnalla Narashimharao & Co. v. CIT [1993] 200 ITR 588, which held that amounts collected as sales tax, even if disputed, are trading receipts. The Tribunal concluded that the caution money collected by the assessee was on account of sales tax and formed part of trading/business receipts, dismissing the assessee's claim.

Conclusion:

The appeal was partly allowed. The Tribunal upheld the disallowance of depreciation on higher WDV, directed the Assessing Officer to allow 40% depreciation on leased vehicles after verification, and confirmed the treatment of caution deposits as trading receipts.