2015 (1) TMI 970 - HC - Income Tax

Rate of depreciation - 100% on the centering material or normal rate of depreciation at 33.1/3% for plant and machinery - Held that - Tribunal was justified in confirming the order of the CIT(A), allowing 100 per cent depreciation to the assessee as placing reliance on the decision of the Delhi High Court in CIT VS. NATIONAL AIR PRODUCTS LTD. 1980 (4) TMI 72 - DELHI High Court - Decided against revenue.

Summary

Issues:
1. Interpretation of depreciation rules under the Income-tax Act, 1961.
2. Allowability of 100% depreciation on centering material compared to normal depreciation rates.

Issue 1: Interpretation of depreciation rules under the Income-tax Act, 1961

The case involved an appeal by the Revenue challenging the order of the ITAT, Ahmedabad Bench, where the Tribunal dismissed the Revenue's appeal against the assessee's income tax assessment for the A.Y. 1991-92. The questions of law framed by the Court pertained to whether centering material should be considered a "block of assets" for depreciation purposes under section 32(1)(ii) of the Income-tax Act, 1961, and whether 100% depreciation was allowable on centering material as opposed to the standard rate for plant and machinery.

Analysis for Issue 1:

The appellant- Revenue argued that the Tribunal erred in not appreciating the material on record correctly and should have upheld the AO's disallowance of the claim for 100% depreciation. The appellant relied on a decision of the Andhra Pradesh High Court to support their case, emphasizing that each item of shuttering material did not constitute a plant, thereby not entitling the assessee to 100% depreciation under the Income Tax Act, 1961. On the other hand, the respondent-assessee, supported by decisions from various High Courts, including Madras, Rajasthan, and Delhi, contended that the Tribunal's confirmation of the CIT(A)'s order allowing 100% depreciation was justified. The respondent particularly highlighted a decision of the Gujarat High Court, which emphasized the legislative intent behind the provisos related to depreciation under section 32(1)(ii) of the Act.

Issue 2: Allowability of 100% depreciation on centering material compared to normal depreciation rates

The Tribunal, while dismissing the Revenue's appeal, noted that the CIT(A) had allowed 100% depreciation based on precedents from the Delhi High Court and ITAT, Delhi Bench. The Tribunal found the facts of the case and the decisions relied upon by the CIT(A) to be identical and upheld the order allowing 100% depreciation. The Court, in line with its decision in a previous case, held that the Tribunal was correct in confirming the CIT(A)'s order, thereby rejecting the Revenue's appeal.

Analysis for Issue 2:

The Tribunal's decision to allow 100% depreciation on centering material was based on the similarity of facts with previous decisions and the correctness of the CIT(A)'s interpretation. The Court agreed with the Tribunal's reasoning and held that the decision relied upon by the Revenue did not support their case. The Court referred to its earlier judgment to support the conclusion that the Tribunal's decision to allow 100% depreciation was appropriate. Consequently, the Court dismissed the appeal by the Revenue, answering the questions of law against the appellant and in favor of the respondent.

In conclusion, the High Court of Gujarat upheld the Tribunal's decision to allow 100% depreciation on centering material, emphasizing the importance of legislative intent and consistency with previous decisions. The judgment provides clarity on the interpretation of depreciation rules under the Income-tax Act, 1961, and sets a precedent for similar cases in the future.