2015 (1) TMI 101 - HC - Income Tax

Applicability of section 50 on sale proceeds on sale of assets - bottles, crates and cylinders whose individual cost did not exceed ₹ 5,000 - Whether the Tribunal was right in holding that the sale proceeds received on sale of assets, whose actual cost was allowed as a deduction under the first proviso to Section 32(1) of the Act, are taxable u/s 50 Held that - Following the decision in Nectar Beverages Pvt. Ltd. Versus Deputy Commissioner of Income Tax 2009 (7) TMI 5 - SUPREME COURT wherein it has been held that by the Finance Act, the first proviso to section 32(1)(ii) stood deleted, with effect from April 1, 1996 - the purchases were made prior to the year 1995, thus, the assessee is entitled to deduction as claimed for Decided in favour of assessee.

Summary

Issues:
Challenge to order passed by Income Tax Appellate Tribunal for the year 1996-1997 regarding revenue expenditure claimed for expansion of business.

Analysis:
1. The appellant, a Public Limited Company in the business of manufacturing ice cream and food products, filed returns showing nil income but claimed pre-operative expenditure for expanding its plant.
2. The appellant justified the expenditure as interlinked with existing business operations, management, and finance, despite being shown as pre-operative expenses in accounts.
3. Authorities disallowed the expenditure based on a judgment and partially allowed the appeal, leading to the appellant's challenge before the Income Tax Appellate Tribunal.
4. The Tribunal upheld the Assessing Officer's decision, applying Section 50 of the Income Tax Act and relying on a Madras High Court judgment.
5. The Tax Appeal raised a question on the taxation of sale proceeds under Section 50 concerning depreciation of assets.
6. Section 32(1)(ii) allows deductions for depreciation of assets, while Section 50 deals with computation of capital gains for depreciable assets.
7. The Senior Counsel cited a Supreme Court decision to support the appellant's claim, emphasizing the deletion of the first proviso to Section 32(1)(ii) and the inclusion of certain assets in the block of assets.
8. Due to the purchases being made before 1995, the Senior Counsel argued that the findings against the appellant cannot be sustained.
9. Considering the explanations and the Supreme Court decision, the appeal was allowed, granting the appellant the deduction claimed for, and the issue was resolved in favor of the appellant.