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TMI Blog2005 (4) TMI 514X X X X Extracts X X X X X X X X Extracts X X X X ..... nt company. During the year under consideration, the assessee entered into a contract with Hollandsche Aaneming Mattschappij B.V. (HAM) for leasing the Jack-up Drilling Rig 'Enforcer' and related equipments for carrying out dredging work in India. The lease rental were shown by the assessee at Rs. 31,45,990 against which, depreciation of Rs. 67,32,442 was claimed in respect of the equipments leased by the assessee. Thus, the assessee reported a loss of Rs. 35,86,452. In the course of assessment proceedings, it was found by the Assessing Officer from the details furnished that the equipments leased by the assessee were used in India only for a period of 33 days, i.e., from 2-4-1994 to 4-5-1994. The Assessing Officer was of the view that in view of the provisions of section 38(2) of the Income-tax Act, 1961 (the Act), the assessee was entitled to propor-tionate depreciation on the basis of the period of user. Accordingly, he computed the allowable depreciation at Rs. 6,08,686 by applying the following formula : Rs. 67,32,442 × 33 = Rs. 6,08,686 365 3. The matter was carried in appeal before the Learned CIT (Appeals), before whom, it was contended on behalf of the assessee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts should be deemed to have acquired in the year under consideration on the date when it is brought to India and should be deemed to have taken out of the block of assets when such equipment was sent back from India to the foreign country; (iii)When the equipment was brought into Indian territorial waters, the assessee must have paid Customs Duty on them and the same should be treated as deemed acquisition and when the equipment was sent back, it must be deemed to have been sold and, accordingly, the value of machinery should have been shown as amounts receivable and resultantly the capital gain should be brought to tax under section 50 of the Act; (iv)That as per Explanation 11 to section 43(1) of the Act, the actual cost should be reckoned at the original cost of acquisition as reduced by the deemed depreciation that would have been allowed in India, had it been used for all these years since the date of acquisition. This Explanation, though introduced by the Finance Act, 1999, with effect from 1-4-2000, it should be applied retrospectively in view of the following judgments : u K. Govindan & Sons v. CIT [2001] 247 ITR 192 (SC). u Allied Motors (P.) Ltd. v. CIT [1997] 224 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is allowable despite the fact that such equipment or asset has been used for a lesser period of the previous year. Reliance has been placed on the judgment of the Hon'ble Madras High Court rendered in the case of Waterfall Estates Ltd. v. CIT [1981] 131 ITR 223, on the judgment of the Hon'ble Patna High Court in the case of CIT v. Dalmia Cement Ltd. [1945] 13 ITR 415 and also on the decision of the Tribunal in the case of ETPM [IT Appeal Nos. 5177 and 5178 (Bom.) of 1991, dated 13-8-1997]. 8. Regarding the cost of acquisition, it was contended by him that the Explanation 11 to section 43(1) of the Act on which, the reliance have been placed by the Learned Departmental Representative, was inserted by the Finance Act, 1999, with effect from 1-4-2000 and, therefore, the same cannot be applied to the assessment year in question. According to him, this Explanation is neither declaratory nor procedural and, therefore, its effect cannot be given retrospectively. Regarding application of section 14A of the Act, it was contended by him that the entire income of the assessee is taxable under the Act and, therefore, the question of applying the provisions of this section simply does not aris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he view that there cannot be two years of acquisition, i.e., one for the purpose of global taxation and another for the purpose of Indian taxation. Therefore, on the facts of the case, we hold that the asset was not acquired in the year under consideration and consequently, the second proviso cannot be applied to the present case. Hence, the depreciation cannot be restricted to 50 per cent of the normal depreciation. 11. The next question for our consideration is, whether invoking the provisions of section 38(2) of the Act can make any disallowance. A perusal of section 38(2) read with sub-section (1) of section 38 of the Act shows that disallowance can be made only when the asset is partly used for the purpose of business and partly used for non-business purposes. No disallowance can be made where the asset is exclusively used for the purpose of business though such assets might have been used for a lesser period in the accounting year. This view is fortified by the decision of the Hon'ble Madras High Court in the case of Waterfall Estates Ltd. (supra) and also the decision of the Tribunal in the case of ETPM (supra). The decision of the Hon'ble Bombay High Court in the case of P ..... X X X X Extracts X X X X X X X X Extracts X X X X
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