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TMI Blog1984 (1) TMI 156X X X X Extracts X X X X X X X X Extracts X X X X ..... the name of Annamallais Bolts Nuts until 1-11-1976, when it was closed down. Though the assessee was maintaining separate accounts for these activities, the profit and loss of the units were consolidated and the entire business was treated as one single unit for income-tax purposes. After the closure of the bolts and nuts unit, the written down value of the plant and machinery in that section was continued to be shown in the balance sheet as on 31-3-1977, 31-3-1978, 31-3-1979 at Rs. 1,31,138.50. The furniture and fixtures were also transferred to the main account as on 31-3-1977. Later, on 23-4-1979, the assessee sold the machinery to a sister concern, Nachimuthu Polytechnic, Pollachi, for a sum of Rs. 1 lakh. Consequently, in the accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be allowed. 4. On consideration of the rival submissions, we are of the opinion that the assessee is entitled to succeed. Section 32 provides for deduction of depreciation in computing the income from the business of the assessee. Depreciation represents that part of the cost of fixed asset to its owner which is not recoverable when the asset is finally put out of use by him. The assessment of depreciation involved the consideration of three factors, the cost of the asset used which is known, the probable value realised on ultimate disposal which can generally be estimated only within fairly wide limits and the length of time during which the asset will be commercially useful to the undertaking. With regard to the third factor, the Act ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pute is with reference to the first and second conditions, namely, that the business had not been carried on by the assessee and that the machinery has not been used for the purpose of the business during the previous year. This objection of the revenue stems from the fact that the nuts and bolts unit of the business was closed down two years ago. If that part of the business had been considered as a separate business by itself, the objection of the revenue may be quite valid. But, it is not disputed by the revenue that the nuts and bolts wing was only a part of the business of the assessee which is still being carried out and, therefore, it is not possible to say that the assessee has gone out of business as such. Therefore, this is not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case where only a part of the business of the assessee is closed and thereby the assessee has to discard or sell a machinery. On these aspects, we must perhaps refer to the object of the section rather than the literal meaning of the section. The section talks of the moneys payable in respect of the manner together with scrap value where the machinery is sold, discarded, demolished or destroyed. The word ' discarded ' suggests that an asset is to be out of use not only due to obsolescence but also due to the decision of the assessee not to use that asset any longer in the business. If this is the right approach, then what is sold is a machine which is discarded and then the amount realised by the sale can be regarded as the scrap value whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned with the accounting of the value of the machinery by taking the view that the reference to the use of the machine in the business is the treatment of the asset as commercial asset and not the actual use. The period between the discarding of the machine due to the closure of the unit and the actual sale and realisation of the scrap value has to be treated as the passive user of the commercial asset in the continuing business of the assessee. In this view, which comments itself to us, we are of the considered opinion that the assessee is entitled to the deduction of Rs. 31,385.50 claimed in computing the total income of the previous year relevant to the assessment year under appeal. We, therefore, direct the ITO to recompute the total inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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