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TMI Blog1984 (5) TMI 141X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 claimed by the assessee on account of travelling expenses of directors abroad, the ITO disallowed Rs. 1,93,698 for the reason that the visits of the directors were not supported by any evidence to show that they were related to the company's business affairs. The Commissioner (Appeals) held that having regard to the nature of the business carried on by the assessee, such visits of the directors have been regular and had been allowed for the preceding years. The directors on a blanket permission has recognised the export house to visit abroad as per the reports submitted to the RBI. The department has challenged this allowance. 2. According to the learned counsel for the department, the assessee had a wide range of activities from exporting iron and manganese ore, manufacturing of yarn and topping up of ships. In order to claim an expenditure on travel as relevant to the business of the assessee, the assessee has to point the particular purposes for which the expenditure was incurred in the present case, this has not been shown. The assessee, according to the learned counsel, has not proved that all the expenditure was for the purpose of his business and in particular as to what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity to the assessee as well as the ITO to present their cases. (iii) Claim under section 35B in respect of the foreign travel expenses of the directors The assessee claimed relief under section 35B of the Income-tax Act, 1961 ('the Act') in respect of the foreign travel expenses of directors amounting to Rs. 1,93,698 which have also been disallowed by the ITO in working out the total income. The claim under section 35B in respect of this amount was also denied. On appeal, the Commissioner held the assessee eligible for the relief under section 35B following his decision that the travelling expenses of Rs. 1,93,698 were for the purpose of the business. 5. The challenge to this allowance will depend on the primary decision of the ITO as to whether the travelling expenses of the directors were for the business of the assessee at all. On the above point, we have already remitted the matter to the Commissioner (Appeals) for fresh consideration. He should also consider the assessee's claim for section 35B relief on this amount having regard to the nature of the expenditure especially against the export activities of the assessee which is stated to cover the turnover of Rs. 12.73 crores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce are relevant for grant of obsolescence allowance. These details being not available, the Commissioner was not justified in the first place in allowing the entire outstanding value of the barge and secondly, allowing it during the year of account since there was no information to support this. The certificate of the Captain, however, indicates that the barge is not in use. A businessman continuing his business is unlikely to keep a barge if serviceable out of the business. In the interest of justice, therefore, we remit this matter to the Commissioner (Appeals) for proper verification as to the date, if any, on which the barge was condemned and made into scrap and also for fixing the value of the scrap. In our view, to say that the entire value of the scrap of a barge which was in a running condition during the preceding year would be worth nil-not even that of scrap metal is something which cannot be prima facie accepted. (v) Claim of depreciation on barges gifted by the assessee The assessee's previous year ended on 31-3-1974. On 29-3-1974, i.e., 3 days prior to the end of the accounting year, the assessee gifted 17 barges under a revocable gift deed-2 barges to Gomantak (P.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asset throughout the year. Since the assessee did not own the assets throughout the year, he is not entitled to any depreciation at all. 10. For the assessee the learned counsel has pointed out that even if the asset is owned by the assessee for any time during the year, he should be entitled to the deduction. Reference is made in this connection to the provisions of section 28 of the Act and the concept of assessment of business income where a business carried on 'at any time during the year' is considered to be relevant. The contention of the department according to the learned counsel, is not only against the actual practice followed but is also against the basic scheme of the Act. In fact wherever the Act wanted to refer to a period throughout the year, care has been taken to indicate that in the section itself ; for instance, section 2(18)(b)(B) where the expression throughout the relevant previous year' is used. Similar expression occurs in section 79 of the Act. Whenever a condition is imposed, if it is substantially complied with, according to the learned counsel, the condition should be regarded as satisfied. This is especially so in the case of a benefit conferred on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditions should be satisfied. The provisions of section 32(1) are to be given effect to by resort to the provisions of rule 5(1) and Part I of Appendix I. The material part of rule 5(1) is as under "Subject to the provisions of sub-rules (2) and (3), the allowance under clause (i) or clause (ii) of sub-section (1) of section 32 in respect of depreciation of buildings, machinery, plant or furniture or the allowance under clause (i) of sub-section (1A) of section 32 in respect of depreciation of any structure or work referred to in that sub-section shall be calculated at the percentages, specified in the second column of the Table in Part I of Appendix I to these rules on the actual cost or, as the case may be, the written down value of such of the assets aforesaid as are used for the purposes of the business or profession of the assessee at any time during the previous year :" [Emphasis supplied] The rule provides that depreciation is to be calculated on the actual cost or written down value of the assets used for the purposes of the business or profession of the assessee 'at any time during the previous year' at the rates at which depreciation is allowable. This is allowed as a pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning of the previous year. It may even be that in such a case the asset being used even for a day during the year some ITOs have been granting depreciation as a matter of practice. But this would not set the law if the section or the rules made thereunder do not authorise it. It is true that in other sections provisions with regard to the period of the previous year have been sometimes made but the mere fact that some clauses contain such a provision would not create an ambiguity in other clauses when the wordings are clear and no such reasons are made. The tax is levied on the income of a previous year. It covers the entire previous year. The income is computed also for the entire previous year. Against this background when it is provided that an asset should be owned by the assessee without any concession as to the length of the period for which the asset is owned, it clearly means that the asset should be owned by the assessee throughout the period of the previous year. There is no inequity if depreciation is not granted in a case where an asset is purchased by a running business during the course of the year. The assessee would be entitled to depreciation in the succeeding year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he year. In our view, even if the assessee has owned the asset for 364 days out of 365 days but not for the full year, he would not be entitled to depreciation on this asset. 14. On this point, we, therefore, hold that-- (i) the section requires that the asset should be owned by the assessee and used by him for his business, (ii) while in respect of the user, a concession is granted by the rules that the user could be for any time in the year, such a concession is not granted in respect of the ownership of the asset, (iii) neither the analogous provisions in other sections of the Act nor any other judicial decisions support curtailing the period of owner ship, (iv) the analogous decisions like those for section 80J clearly support the ownership for the whole year when no particular period is provided, (v) the provision does not result in any inequity. 15. We uphold the ITO's order on this point and reverse the Commissioner's decision. 16. The appeal is partly allowed. Per Shri B. L. Shelar, Judicial Member--I have had the pleasure of going through the order written by the learned Vice President and I agree with him on other issues, except on the point of depreciation, in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year and the asset is used for business of the assessee. According to him, there is no justification not to follow the same. 5. Two things are undisputed, one that the barges were owned by the assessee for the whole year except three days when the gift was made by the assessee and two, that the assets, namely, barges, were used by the assessee for its business. There is no controversy over these facts. Since section 32 is already reproduced in the earlier part of the order, it is not reproduced here. Now, whether the interpretation given by the learned departmental representative is acceptable and to my mind, it is not because section 32 does not specifically say that the buildings or machinery or plant or furniture should be owned by the assessee 'throughout the year', i.e., from the first day to the last day of the previous year. When the section itself does not speak of such words, it is not advisable to substitute some words of our own so ,is to limit the benefit to be given to the assessee. It is pertinent to note that rule 5, which has been reproduced by the learned Vice President in his order, specifically says '. . . at any time during the previous year'. If the inten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s relate to its assessment for the assessment year 1974-75 for which the previous year is the financial year, i.e., from 1-4-1973 to 31-3-1974. During the previous year, the assessee gifted 17 barges which it owned on 28-3-1974, to two institutions. Thus, the assessee owned the barges for 362 days of the previous year as the barges were gifted three days before the end of the previous year. Though not very material for the purpose of this appeal, it may be stated for the sake of completeness, that the gifts made were revocable gifts. 3. The ITO completed the assessment under section 143(3) read with section 144B of the Act. He has disallowed the depreciation on the written down value of the abovesaid 17 barges on the ground that the assessee did not own these barges on the last date of the previous year. The Commissioner (Appeals) has considered this issue in paragraphs 11 and 12 of his order. Observing that it is not said anywhere in section 32(1) that the asset should be owned by the assessee on the last date of the accounting year, he held that the assessee was entitled to depreciation on the barges even though the same were gifted away on 28-3-1974. He also held that section 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ps have declared rule 19A ultra vires to the extent they provided for computation of capital as on the first date of the previous year without taking into account the average amount of increase or decrease in the assets and liabilities during the previous year. The ratio of the decision is that the use of the capital throughout the previous year is an important factor. Though section 34(2)(ii) is not applicable as such, Shri Sathe submitted that the fact that depreciation is not allowable in the year in which the assets are discarded, demolished, sold, etc., is indicative of the Legislature's intention that the assessee must own the asset throughout the previous year for its qualifying for allowance of depreciation. Lastly, my attention is invited to a decision of the Supreme Court in the case of Sri Ramamohan Motor Service v. CIT [1973] 89 ITR 274 for the proposition that a person who claims the benefit under the section must strictly comply with the requirements of that section. Substantial compliance will not be enough. 5. Shri S.N. Inamdar, the learned counsel for the assessee, on the other hand, strongly relied on the order of the learned Judicial Member. He contended that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the assessee for a part of the year. Lastly, the counsel has invited my attention to a decision of the Patna High Court in the case of CIT v. S.K. Sahana & Sons [1946] 14 ITR 106 where this question, it is stated, has been directly considered in favour of the assessee. 6. In reply, Shri Sathe submits that he is not asking for addition of some words in section 32(1) and the department's case is based on a pure and simple interpretation of the provisions of section 32(1), Specific mention of such expressions as 'throughout the previous year', 'at any time during the previous year', 'on any particular date or any part of the previous year' in the various sections referred to by the counsel, according to Shri Sathe, does not improve the assessee's case inasmuch as that has been done by way of abundant precaution and/or to ensure that the taxpayer does not escape. The decision of the Patna High Court in the case of S.K. Sahana & Sons is stated to be distinguishable inasmuch as the decision in that case has been that there is no scope for apportionment of depreciation proportionately with reference to the period of ownership in the previous year. That is why the department has de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with which I agree, I hold that the assessee is entitled to the depreciation under section 32(1) on the aforesaid 17 barges which were gifted by the assessee on 28-3-1974 to the two institutions. 8. Before concluding, it may be desirable to make clear that the provisions of section 34(2)(ii) are, admittedly, not applicable in this case and the provisions of section 32(2)(iii), on the other hand, indirectly support the assessee's claim. The question that one should ask himself before deciding the issue is whether the assessee owned the particular asset in the previous year. The answer to this question cannot, certainly, be in the negative. This has to be seen particularly with reference to section 28(i) which provides for computation of income under the head 'profits and gains of business or profession', if the business or profession was carried on by the assessee at any time during the previous year. The expression 'at any time during the previous year' which is used in section 28, under the scheme of the Act as I understand, would govern all the sections which provide for computation of income under section 28 after giving various allowances and/or deductions. 9. My order will n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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