2011 (8) TMI 320 - HC - Income Tax

100% depreciation on partitions and structures - Temporary in nature - the decision in (Commissioner of Income Tax Vs. Madras Auto Service P. Ltd.)(1998 -TMI - 5686 - SUPREME Court) and in (Commissioner of Income Tax Vs. Ayesha Hospitals P. Ltd.) (2006 -TMI - 13457 - MADRAS High Court ), this Court held that the assessee was entitled to 100% depreciation on the false ceiling and wooden partition inclusive of furniture, electrical wiring and interior decoration - the assessee put up temporary wooden structure and partition for running computer centres. - 100% depreciation allowed. Deduction of non performing assets - The decision of the Apex Court in VIJAYA BANK v. CIT, (2010 -TMI - 75617 - SUPREME COURT) the Apex wherein it was held that after insertion of explanation to Section 36(1)(vii), the assessee is required not only to debit the profit and loss account but simultaneously also reduce loans and advances or the debts from the assets side of the balance sheet to the extent of the corresponding amount so that, at the end of the year, the amount of loans and advances/debtors is shown as net of the provisions for the impugned bad debt - Thus, the Apex Court held that the assessee was entitled to the benefit of deduction under Section 36(1)(vii) of the Act as there was an actual write off by the assessee in its books - Decided in favour of assessee.

Summary

Issues:
1. Whether 100% depreciation on partitions and structures was rightly allowed by the Tribunal?
2. Whether the issue of deduction of non-performing assets and diminution in the value of investments was correctly remitted back to the officer by the Tribunal?

Analysis:

Issue 1:
The High Court considered the appeal against the Tribunal's order regarding the allowance of 100% depreciation on partitions and structures for the assessment year 1998-99. The Court referred to previous decisions to support the claim for depreciation, emphasizing that temporary structures like false ceilings and wooden partitions could qualify for 100% depreciation. The Court upheld the Tribunal's decision, citing that the assessee had set up temporary structures for running computer centers, making them eligible for depreciation. The Court relied on precedents and confirmed the Tribunal's order in favor of the assessee.

Issue 2:
Regarding the remand order of the Tribunal on the deduction of non-performing assets and diminishing value of investments, the Court examined the provisions made by the assessee, a Non-Banking Finance Company, for irrecoverable advances and dwindling market value of investments. The Assessing Officer had disallowed these deductions, stating that debts must be written off in the accounts to claim deductions. The Commissioner of Income Tax (Appeals) also denied the claim, emphasizing the absence of corresponding provisions under the Income Tax Act. The Tribunal remanded the matter back to the Assessing Officer following a decision of the High Court. The Court discussed conflicting decisions from the Apex Court regarding provisions for non-performing assets and deductions under Section 36(1)(vii) of the Income Tax Act. Ultimately, the Court directed the Officer to reconsider the claim in light of the Apex Court's decisions, leading to the dismissal of the Tax Case Appeal.

In conclusion, the High Court's judgment addressed the issues of depreciation on structures and partitions, as well as the deduction of non-performing assets and diminution in investment value, providing detailed analysis and referencing relevant legal precedents to support its decisions.