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TMI Blog2001 (11) TMI 248X X X X Extracts X X X X X X X X Extracts X X X X ..... omputation was incorrect. As such the addition on this count was sustained by CIT(A). 4. The learned Authorised Representative submitted that the AO had computed income chargeable under s. 41(2) of the IT Act, 1961, at Rs. 5,98,458 which includes a sum of Rs. 5,89,055. The letter sum pertains to profit on account of recovery from insurance companies on the claim of machinery lost through fire. It was submitted that the views taken by both the lower authorities are erroneous. The issue is purely legal. It is a well-established principle, upheld by the Hon ble Supreme Court, that no transfer is involved in the destruction of an asset through fire. A transfer ensues essentially through an inter vivos arrangement. Any force majoure catastrophe, therefore, cannot be loosely labelled a transfer. The learned Authorised Representative relied upon the judgment of the Hon ble Supreme Court in the case of Vania Silk Mills (P) Ltd. vs. CIT (1991) 98 CTR (SC) 153 : (1991) 191 ITR 647 (SC). Sec. 41(2), which deals with the matter, refers to an eventuality arising when an asset is sold, discarded, demolished, or destroyed. The appellant s case cannot, by any thread of thought, be said to fall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the extinguishment of the rights therein or the compulsory acquisition of the asset under any law. It may be of the asset itself or of any rights in it. It may further be the result of a voluntary act or a compulsory operation. Whatever the mode by which it is brought about, the existence of the asset during the process of transfer is a precondition. Unless the asset exists in fact, there cannot be a transfer of it. When an asset is destroyed, there is no question of transferring it to others. The destruction or loss of the asset, no doubt, brings about the destruction of the right of the owner or possessor of the asset, in it. But, it is not on account of transfer. It is on account of the disappearance of the asset itself. The extinguishment of right in the asset on account of extinguishment of the asset itself is not a transfer of the right but its destruction. By no stretch of imagination can the destruction of the right on account of the destruction of the asset be equated with the extinguishment of right on account of its transfer. Sec. 45 speaks about capital gains arising out of "transfer of asset" and not on account of "extinguishment of right" itself. Capital gains tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employed in the business, or where the building is used solely for the welfare of such persons as a hospital, creche, school, canteen, library, recreation centre, shelter, rest room or lunch room. The learned CIT(A) observed that since none of the assets referred to above fall under any of the categories listed in the section, the initial depreciation has been disallowed. The AO has discussed this issue at p. 4, para 11. 9. The learned Authorised Representative submitted that in terms of cl. (iv) of sub-s. (1) of s. 32 for buildings newly erected after 31st March, 1961, where such building is used solely for the residence of employees whose income is less than Rs. 10,000, or is used solely or mainly for the welfare of such persons in terms of a hospital, creche, school, canteen, library, etc., a sum equal to 40 per cent of the actual cost is permissible in the previous year of erection of such building as initial depreciation. The claim as made conforms to the letter of law. The CIT(A) failed to note that the description as given in the section is merely illustrative in nature. A prudent reading of the provision would convey that benefit was intended to be provided to an employe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led to a deduction of an amount equal to one-tenth of the amount of expenditure incurred by him. The expenditure has to be incurred at any time during the year of commercial production and any one or more of the four years immediately preceding that year. This section was inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1st April, 1971. Since the section refers to the expenditure incurred after the 31st day of March, 1970, where the stipulated four years immediately preceding the year of production falls prior to 31st day of March, 1970, such expenditure cannot be allowed as deduction. The learned CIT(A) has discussed this issue on pp. 8 and 9 of the order. As per the learned Authorised Representative assessee s claim is with regard to Matoon Mines. The admitted facts are that essential expenditure qualifying under this head was incurred prior to 1st April, 1970. Deduction was not allowed and impliedly carried over. From 1st April, 1970 set off is available in the four preceding years from the date of commissioning. Accordingly, this claim is pressed for consideration. Alternatively, it is submitted that the expenses have been incurred for the purpose of business of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure is neither allowable under s. 35E nor s. 37(1) of the Act. We decline to interfere with the order of the CIT(A) on this score. 16. Ground No. 4 is regarding the assessee s claim for higher depreciation on plant-buildings. The CIT(A) observed that during the year under consideration additions were made in the various buildings which are eligible or higher rate of depreciation as they are special buildings designed for those plants. Therefore, in view of the decision of the Delhi High Court in the case of R.C. Chemical Industries vs. CIT (1981) 25 CTR (Del) 244 : (1982) 134 ITR 330 (Del), the appellant s claim for higher depreciation by treating the building as plant may be allowed. 17. It was submitted by the learned Authorised Representative that the plant building in question has been specifically envisaged, designed, and constructed to form an integral part of the machinery. Existing at various levels, with interconnecting passages and structures that are specifically provided to ensure conformity to production and processing logistics, the plant building can serve no purpose other than for what in exists. The assessee s claim for depreciation is made with regard to expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for in spite of the fact that specific claim was put-forth. In the case of CIT vs. Dr. B. Venkata Rao it was held that the assessee s nursing home is equipped to enable the sterilisation of surgical instruments and bandages to be carried on and the nursing home was also equipped with an operation theatre. Therefore, the nursing home was entitled to depreciation holding it as a plant. In the case of CIT vs. Karnataka Power Corporation it was held that where it is found as a fact that a building has been so planned and constructed as to serve an assessee s special technical requirements, it will qualify to be treated as a plant and it was held that the assessee s generating station building is constructed as to be an integral part of its generating system. Therefore, it was plant entitled to investment allowance. It was held in the case of CIT vs. Anand Theatres that hotel and cinema theatre are not entitled to depreciation as this building will not be considered as plant and this building was designed and constructed with some special features. 19. A characteristic of plant is that it is an adjunct to the carrying on of a business and not the essential site or core of the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X
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