2006 (3) TMI 104 - HC - Income Tax

Depreciation cost of assets ore shed extra shift allowance - (i) Whether, Tribunal is right in directing the Assessing Officer not to deduct the amount of subsidy from the cost of assets for the purpose of calculation of depreciation? Held that the direction given by the Tribunal to the Assessing Officer not to deduct the amount of subsidy from the cost of assets for the purpose of calculation of depreciation cannot be regarded as erroneous - (ii) Whether, Tribunal is right in directing the Assessing Officer to treat the ore shed as plant and allow depreciation and extra shift allowance? Held that the directions given by the Tribunal to treat the ore shed as plant and allow depreciation and extra shift allowance, cannot be regarded as erroneous

Summary

Issues:
1. Whether the Appellate Tribunal was correct in directing the Assessing Officer not to deduct the subsidy amount from the cost of assets for depreciation calculation?
2. Whether the Appellate Tribunal was correct in directing the Assessing Officer to treat the ore shed as plant and allow depreciation and extra shift allowance?

Analysis:

Issue 1:
The assessee claimed depreciation on ore shed and road to the factory at 10% during the assessment year 1985-86, asserting they were plant assets. The Assessing Officer disagreed, citing the assets were not treated as plant in the previous assessment year. Additionally, the Assessing Officer deducted the subsidy amount from the asset cost for income computation. The Commissioner of Income-tax (Appeals) directed not to deduct the subsidy from asset cost and to treat the ore shed as plant for depreciation calculation. The Tribunal upheld this decision based on a previous judgment of the Gujarat High Court. The High Court, after considering the Supreme Court's decision in CIT v. P.J. Chemicals Ltd., concluded that the subsidy should not be deducted from the asset cost for depreciation calculation, affirming the Tribunal's decision.

Issue 2:
Regarding the ore shed, the Tribunal observed it to be a unique structure integral to the plant, facilitating the smooth feeding of raw material for further processing. The Commissioner of Income-tax (Appeals) and the Tribunal agreed that the ore shed should be considered part of the plant based on the evidence presented. The High Court concurred, emphasizing that the ore shed's functions as an integral part of the plant were well-supported by the evidence. The Court noted that the ore shed's design and machinery integration enabled the efficient feeding of raw material for processing, justifying its classification as part of the plant. Consequently, the High Court upheld the Tribunal's decision to treat the ore shed as plant and allow depreciation and extra shift allowance.

In conclusion, the High Court answered both questions in the affirmative, supporting the Tribunal's decisions. The judgment disposed of the reference with no order as to costs.