9911796707
TMI Blog2012 (12) TMI 891X X X X Extracts X X X X X X X X Extracts X X X X ..... fer under the statute would be inapplicable, merely because the holding company and subsidiary company are two different entities ?" 2. The assessee herein is a company engaged in the business of manufacture and sale of cotton yarn. It had two units located at two different locations viz., Unit A at Rajapalayam and Unit B at Keelarajakularaman. It is stated that each unit functions as a full-fledged unit having separate staff and management with separate funds and accounts. In order to facilitate its expansion, the assessee decided that B unit should be constituted as a separate company. Accordingly, a wholly owned subsidiary by name Sri Jayajothi Textile Mills Pvt. Ltd., was formed and the unit B was transferred to the subsidiary company with all assets and liabilities at the book value on 1.11.1996. The assessee company claimed depreciation on the basis of the opening written down value of the depreciable assets comprised in B unit proportionately for a period of seven months from 1.4.1996 to 31.10.1996. The subsidiary company claimed depreciation proportionately for the remaining period of five months from 1.11.1996 to 31.3.1997 at the rate of 50% of the full depreciation as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount of depreciation actually allowed and the sale price shall be adjusted. Taking such a view, the Tribunal set aside the order of the Commissioner of Income Tax (Appeals). Aggrieved by the order of the Tribunal, the present appeal has been filed by the assessee. 5. Learned counsel appearing for the assessee placed before this Court the depreciation statement for the year 1997-98 and submitted that the view of the Tribunal that there was a sale is not borne out by any records. Leaving that aside, going by the fourth proviso to Section 32(1) of the Income Tax Act as it then stood during the relevant year, introduced under the Finance Act 1996 with effect from 1.4.1997, in the case of succession referred to in Section 170 of the Income Tax Act or amalgamation, the depreciation has to be calculated as if the succession or the amalgamation had not taken place; after calculating the extent of depreciation, such deduction has to be apportioned between the predecessor and the successor or the amalgamating company and the amalgamated company, as the case may be, in the ratio of the number of days for which the assets were used by them. Referring to Section 43 (6)(c) and Exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 41 and in this section, unless the context otherwise requires- (6) "written down value" means- (a) in the case of assets acquired in the previous year, the actual cost to the assessee; (b) in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Act, or under the Indian Income- tax Act, 1922 (11 of 1922), or any Act repealed by that Act, or under any executive orders issued when the Indian Income- tax Act, 1886 (2 of 1886 ), was in force: [Provided that in determining the written down value in respect of buildings, machinery or plant for the purposes of clause (ii) of sub- section (1) of section 32," depreciation actually allowed" shall not include depreciation allowed under sub- clauses (a), (b) and (c) of clause (vi) of sub- section (2) of section 10 of the Indian Income- tax Act, 1922 (11 of 1922 ), where such depreciation was not deductible in determining the written down value for the purposes of the said clause (vi);] (c) in the case of any block of assets - (i) in respect of any previous year relevant to the assessment year commencing on the 1st day of April, 1988 , the aggregate o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee put to use for less than 180 days in the previous year and that in the case of succession or amalgamation, the predecessor and the successor are also entitled to claim depreciation allowance on the same assets, which, in aggregate, may exceed the depreciation allowance admissible for a previous year at the rates prescribed in Appendix I of the Income Tax Rules, the 4th proviso seeks to restrict the allowance in such cases to the amount computed at the prescribed rates by apportioning the allowance in the ratio of number of days for which the asset is put to use by the predecessor and the successor company. Given the fact that the block of assets were transferred at the written down value by the holding company to the subsidiary company, the written down value for the purpose of working out the depreciation would be as provided for in Explanation 2 viz., the actual cost of the block of assets, as reduced by the amount of depreciation actually allowed in relation to the said preceding previous year at the hands of the transferee company. 11. Contrary to the view of the Tribunal, we find that Section 170 of the Income Tax Act deals with succession to business, otherwise ..... X X X X Extracts X X X X X X X X Extracts X X X X
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