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TMI Blog2004 (12) TMI 634X X X X Extracts X X X X X X X X Extracts X X X X ..... r capital in nature ?" 2. Let us first deal with question No. 1, which reads as under :- "Whether in the facts and circumstances of the case, the bottles costing less than Rs. 5,000 constitute part of block of assets as contemplated under section 2( 11 ) of the Income-tax Act, 1961 and thereby attracting the provisions of section 50 of the Act ?" 3. At the outset, the relevant facts having bearing on this issue may be set out. The assessee-company is a bottling company and is bottling products of Parle under the brand names of Thumsup, Limca, etc. The Assessing Officer, while framing the assessment under section 143(3) of the Act, noticed from the schedule of fixed assets as at 31-3-1991 (Annexure A) that under the head "Plant and machinery" costing below Rs. 5,000, balance as at 31-3-1989 was shown at Rs. 1,06,05,250 and that additions during the year had been shown at Rs. 88,86,690 and deduction during the year shown at Rs. 7,82,388. It was noticed that the assessee had claimed depreciation of Rs. 81,04,302 [ i.e., additions during the year of Rs. 88,86,690 minus deduction during the year Rs. 7,82,388 (Sale proceeds) = Rs. 81,04,302] which was 100% of the net cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets, is not found correct. I, therefore, consider such machinery and plant as block of assets under section 2( 11 ) read with section 32(1)( ii ) - proviso one. For the further application of section 50, there ought to be W.D.V. of the block of asset at the beginning of the previous year. Section 43 deals with the definition of certain terms relevant to income from profits and gains of business or profession; the relevant extracts from which are reproduced below : Section 43 :- In sections 28 to 41 and in this section, unless the context otherwise requires : ** ** ** (6) written down value means . . . ( c )in the case of any block of assets . . . ( ii )in respect of any previous year relevant to the assessment year commencing on or after the first day of April, 1989, the written down value of that block of assets in the immediately preceding previous year as reduced by the depreciation actually allowed in respect of that block of assets in relation to the said preceding previous year and as further adjusted by the increase or the reduction referred to in item ( i ). (7) ( vi ) In view of the above definition, for the application of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entioned. On going through Appendix I [pages 9 to 14 of PB], it can be seen that there are various items mentioned therein which are entitled for 100% depreciation. If it was the intention of the Legislature to include items costing less than Rs. 5,000 also in the Appendix I, the Legislature would have provided for the same in the Appendix I itself. Since the same is not provided for in the Appendix I and it is [plant or machinery costing less than Rs. 5000] allowed as a deduction in view of the first proviso to section 32(1) of the Act, the bottles costing less than Rs. 5,000 cannot be considered to fall under "block of assets". In other words, since the cost of the bottles purchased were allowed as deduction under the first proviso to section 32(1) itself, the same did not fall under the I.T. Rules/Appendix-I. It can also be seen that certain items cost of which is even less than Rs. 5,000 has been included in the Appendix I, for example : cylinders, valves and regulators and are stated to entitled for 100% depreciation as per Appendix I. Hence, it is to be construed that even if the cost of each such items is less than Rs. 5,000, Legislature intended such items to fall under bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on at the specified rate in accordance with the rule 5 of the Income-tax Rules. From the reading of the above circular, it is clear that only after amendment with effect from 1-4-1996, the items costing less than Rs. 5,000 each would fall under Appendix-I. The following extracts of budget speech incorporated in the departmental circular No. 469, dated 23-9-1986 are more relevant : "96. As promised in the Long-term Fiscal Policy Statement, I propose to introduce a system of allowing depreciation on individual assets. Simultaneously, I propose to rationalise the rate structure by reducing the number of rate as also by providing for depreciation at higher rates so as to ensure that more than 80% of the cost of the plant and machinery is written off in a period of 4 years or less. This will render replacement easier and help modernisation. Apart from those items, which are eligible for 100% depreciation in their initial year itself, there are at present different rates for plant and machinery. I propose to have only two rates of depreciation at 33 1 / 3 % 50%. Plant and machinery used as anti-pollution devices and those using indigenous know-how are proposed to be placed in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmoniously. The first proviso speaks of 100% depreciation in the first year itself, whereas other provisos speak of 75% of total depreciation allowable only for assessment year 1991-92. In this connection, the headnote of the decision of the Tribunal (Jabalpur) in the case of Central India Gases (P.) Ltd. v. Asstt. CIT [1998] 66 ITD 571 is relied upon, which reads as under : "The third proviso to section 32(1)( ii ) is applicable in respect of the assets forming part of the block of the assets on which depreciation is allowed at such percentage on WDV. But actual cost of such plant and machinery is allowed as a deduction by virtue of first proviso. Third proviso, which restricts the deduction in respect of asset falling within a block of assets in case of its user for less than 180 days, would have no application upon the assets, which are not forming part of block. Therefore, third proviso would not be applicable in respect of plant and machinery, cost of which was below Rs. 5,000 and actual cost thereof was allowed as deduction by virtue of first proviso. The Finance Act, 1995 has since deleted the first proviso and by virtue thereof all items of plant and machinery cos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected." In assessee s own case, in ITA No. 6838/Mum/96 by order dated 3-3-2003, on similar facts and circumstances, the revenue s appeal was dismissed. In the case of Ulka Advertising (P.) Ltd. v. Dy. CIT [IT Appeal No. 2389 (Bom.) of 1994, dated 8-8-2002], the Tribunal has not attempted re-conciliation of the provisos (1), (3) (4) of section 32(1)( ii ). Further, the definition under section 2( 33 ) of the Act for "prescribed" should not be applied as if there was different intention for the Legislature. For the preposition that the words used in the statute to be given meaning assigned in the statute, the decision of Hon ble Allahabad High Court in the case of CIT v. J.K. Cotton Wvg. Mills Co. Ltd. [1987] 164 ITR 18 1 is relied upon. For the proposition that the definition given in the section should not be interpreted in a manner which is inconsistent with the use therein, the decision of Hon ble Gujarat High Court in the case of Smt. Sanatkumar Jayantilal v. CIT [1995] 211 ITR 755 is relied upon. For the proposition that the definition of expression should prevail for all the provisions in the Act unless the context requires otherwise, the decision of H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... phrases mentioned in the respective sub-sections as it is, unless the context otherwise requires. In other words, if the context requires otherwise, the definition given in the sub-sections to section 2 may be given a different meaning. In this case on hand, this exception to the general rules is to be noticed and kept in mind while giving effect to the sub-sections (11) (33) of section 2. Therefore, it is not that only if the rates of depreciation are prescribed in the relevant schedule to rule 5 of the Income-tax Rules that the assets falling under sub-clauses therein would be considered as block of assets but even if the rate is prescribed in section itself, such assets falling under such class of assets mentioned in the proviso to section 32(1)( ii ) would also form block of assets. The Hon ble Madras High Court in the case of M. Raghavan v. Asstt. CIT [2004] 266 ITR 145 1 had an occasion to deal with similar issue in the case of books on which 100% depreciation had been allowed under section 32(1)( ii ) and in that case, the Hon ble Madras High Court had held that the whole amount received by sale of such assets (books) was to be treated as capital gain arising from tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciation of such assets costing less than Rs. 5,000 each has been prescribed in the section itself and what was allowed to the assessee in the years of purchase of such items at 100% deduction was only depreciation because the same was allowed under section 32(1)( ii ) of the Act. Once, the entire cost of the asset has been allowed as depreciation, the written down value left over would be nil . As regards, the arguments of the assessee s counsel that such items would not fall under the block of assets as defined under section 2( 11 ) of the Act, we are unable to accept his contentions for the simple reason that, section of the Act starts with the phrase " In this Act unless context otherwise requires ". In the present facts and circumstances, we are of the view that " the context otherwise requires " was to be read in interpreting the sub-sections to section 2 including sub-sections (11) and (33) in the way in which the Assessing Officer had read, i.e., since the rate of depreciation had been prescribed in the Act itself, the meaning of the word "prescribed" in section 2( 33 ) of the Act is to be construed to include not only the rate prescribed in Schedule I to Rule 5 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceived by the assessee from that sale was therefore was required to be treated as and has rightly been treated as capital gain arising from the transfer of short- term capital asset". Since, the facts and circumstances are identical except that in this case on hand the assessee had sold bottles in place of books, in our considered view, the ratio of the decision of the Hon ble Madras High Court cited supra squarely applies to the facts of the case on hand. Hence, respectfully following the decision of Hon ble Madras High Court cited supra , we are inclined to hold that the sale proceeds of old bottles amounting to Rs. 7,82,388 is taxable as short-term capital gains under section 50 of the Income-tax Act, 1961. Accordingly, we are holding that the bottles costing less than Rs. 5,000 constitute part of "block of assets" as contemplated under section 2( 11 ) of the Act and attracts the provisions of the section 50 of the Act. Thus, our answer to question No. 1 is positive/affirmative. 7. Since the question No. 1 has been answered in positive, there is no need for us to deal with the question No. 2 since it is to be answered only when the answer to question No. 1 is in the negat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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