2013 (9) TMI 974 - HC - Income Tax

Allowability of depreciation on shuttering material - Assessee, a State Corporation, is engaged in the business of Civil Construction work specially for the constructing the bridges in India as well as abroad Held that - Construction of the bridge is the main business activity of assessee for which the shuttering is an essential item. The assessee is the complete owner of the shuttering. Without shuttering, no building or bridge can be erected. Shuttering material was treated as a plant on which 100% depreciation is allowable as per the ratio laid down in the case of Harijan Awam Nirbal Varg Avas Nigam Vs. CIT 1995 (12) TMI 2 - ALLAHABAD High Court Decided in favor of Assessee. Shuttering was not used, it was kept unused, therefore no depreciation allowance Held that - Reliance has been placed upon the judgment in the case of Dinesh Kumar Gulabchand Agarwal Vs. CIT 2003 (1) TMI 19 - BOMBAY High Court , wherein it has been held that The word used in section 32 of the Income-tax Act, 1961, denotes that the asset has been actually used and not that it is merely ready for use. The expression used means actually used for the purpose of the business - In the instant case, the assessee was the owner of the shuttering which was ready to use - Assessee is entitled for 100% depreciation Decided against the Revenue.

Summary

Issues:
- Appeal filed by the department under Section 260 A of the Income Tax Act against the judgment and order of the Income Tax Appellate Tribunal regarding depreciation claimed on shuttering material.

Analysis:
The appeal before the High Court stemmed from the department's challenge against the Income Tax Appellate Tribunal's decision to allow the depreciation claimed by the assessee on the closing balance of shuttering material. The core issue revolved around whether the Tribunal erred in law and facts by permitting the depreciation on the shuttering material valued at Rs.65,61,623. The department contended that the shuttering material, being a consumable item in bridge construction, should not be eligible for depreciation if not entirely used. The department argued that the assessee's accounting treatment, claiming depreciation on the unused balance of shuttering material, was incorrect as it had never been put to use to warrant depreciation benefits.

In contrast, the assessee, a State Corporation engaged in civil construction work, defended its position by relying on the Tribunal's earlier order for the assessment year 1988-89, where 100% depreciation was allowed on similar grounds. The High Court noted that the construction of bridges was the primary business activity of the assessee, emphasizing the essentiality of shuttering material in such projects. Citing legal precedents, including the case of Harijan Awam Nirbal Varg Avas Nigam Vs. CIT and CIT Vs. Mohta Construction Company, the Court highlighted that shuttering material was considered a plant eligible for 100% depreciation.

Moreover, the Court referenced the case of Dinesh Kumar Gulabchand Agarwal Vs. CIT, which clarified that the term "used" in Section 32 of the Income-tax Act implied actual utilization for business purposes, not just readiness for use. Given that the assessee was the rightful owner of the shuttering material, deemed ready for use in construction activities, the Court upheld the Tribunal's decision to allow 100% depreciation. Consequently, the High Court ruled in favor of the assessee, dismissing the department's appeal and affirming the Tribunal's order on the grounds that the shuttering material qualified for depreciation benefits as per the applicable legal principles.

This comprehensive analysis underscores the legal intricacies surrounding the depreciation claim on shuttering material, elucidating the contrasting arguments presented by the department and the assessee, and ultimately, the High Court's reasoned decision based on precedents and statutory provisions.