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TMI Blog2005 (12) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... ically under the first proviso, and that the entire cost is to be allowed by way of deduction?" In a similar matter involving identical issue being Tax Appeal No. 166 of 2005, on October 3/4, 2005 this court passed the following order: "The following question has been proposed by the appellant-Revenue: 'Whether the Appellate Tribunal was right in law and on facts in holding that the third proviso to section 32(1) of the Income-tax Act, 1961 would not be applicable in respect of the plant and machinery which cost below Rs. 5,000 since such assets are covered specifically under the first proviso, and that the entire cost is to be allowed by way of deduction?' The assessment year is 1995-96. It is an accepted fact that the assessee purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehalf of the appellant submitted that section 32(1) of the Income-tax Act, 1961 ("the Act") requires that a deduction in respect of depreciation of buildings, machinery, plant or furniture is to be granted. That the concept of depreciation in the circumstances means wear and tear of the asset upon its user. That the said sub-section further requires that the assets in question should not only be owned by the assessee, but should also be used for the purposes of business or profession. Thereafter, referring to the first proviso it was submitted that even therein the Legislature has used the phrasg "put to use" showing the legislative intent of use of the assets being a necessity. According to him, similarly under the third proviso, the word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 96-97 and subsequent years. According to him, this goes to indicate that the benefit under the first proviso had to be granted up to and for the assessment year 1995-96. The controversy between the parties pertains to allowability of deduction of a sum of Rs. 10,00,000 (rupees ten lakhs) which was the purchase price of gas cylinders. The Assessing Officer granted deduction of only Rs. 5,00,000 (rupees five lakhs) by invoking the third proviso. The Commissioner (Appeals) accepted the claim of the assessee on the basis of the first proviso and the Tribunal concurred with the view expressed by the Commissioner (Appeals) in its impugned order dated February 15, 2002. Section 32(1) of the Act lays down as to what deduction should be granted in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us year in which such machinery or plant is first put to use by the taxpayer for the purpose of his business or profession." In 1983, the amendment carried out by the Finance Act, 1983, came to be explained by the Departmental Circular No. 372, dated December 8, 1983 and paragraph 22.2 of the said circular reads as under: "Under the first proviso to section 32(1), the whole of the actual cost of any machinery or plant is deducted in the computation of taxable profits in cases where the actual cost of such machinery or plant does not exceed Rs. 750. The Finance Act, 1983, has amended this proviso and increased the monetary ceiling of Rs. 750 to Rs. 5,000." As against that, the second and the third proviso came to be inserted in the statut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessment year 1992-93 and subsequent years." Thus, it is apparent that the legislative intent in introducing the first proviso was to ensure that a taxpayer is not put to the hassle of detailed calculation and accounting of depreciation allowance in respect of machinery or plant having small cost. As against that, the legislative intent in introducing the third proviso was to obviate the practice adopted by the taxpayers to claim full depreciation on an asset even if the asset is acquired towards the end of the year and used for only one day during the previous year resulting in excessive allowance of depreciation in the year in which the asset is first put to use, thereby depleting the taxable profits of that year by an amount wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, on this count also the third proviso cannot be invoked and applied because it does not talk of restricting the value at 50 per cent. of the actual cost. In the circumstances, in the absence of any infirmity in the impugned order of the Tribunal, the question has to be answered in the affirmative namely, in the case of plant and machinery whose cost does not exceed Rs. 5,000, the third proviso to section 32(1)(ii) of the Act would not be applicable since such assets are covered specifically under the first proviso to the said section and the entire actual cost has to be allowed as a deduction, subject to the assessee fulfilling all other requisite conditions. The question is accordingly answered in the affirmative, i.e., in favour of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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