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TMI Blog2017 (10) TMI 596X X X X Extracts X X X X X X X X Extracts X X X X ..... business operations were not carried out therefrom, merely at the convenience of the assessee, it does not cease to be a business asset. The understanding of this provision and the concept, to our mind, conforms with the consistent view taken by the Tribunal earlier, and which has been upheld by this Court. We do not see how the provisions can be construed otherwise. To our mind, the Kerala High Court in case of Commissioner of Income Tax Vs. Sakthi Metal Depot (2010 (1) TMI 659 - Kerala High Court ), with respect, has rightly understood this concept and in the backdrop of the facts which are more or less identical. Section 50 has to be understood with reference to the general scheme of assessment on sale of capital assets. The Kerala High Court referred to the fact that the assets covered by Section 50 are depreciable assets forming part of block of assets, as defined in Section 2(11) of the I.T.Act. The components of Section 50 have also been, with respect, rightly understood in that decision. The Kerala High Court on reading of these provisions took the view that once the building was acquired by the assessee and in respect of which depreciation was allowed to it as a busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anjali Silk Mills and four each in other concerns. It is her case that the looms of M/s. Gitanjali Silk Mills were operated from gala No.210 and other looms of the sister concerns were operating from gala no.211. 3. These two galas being gala nos.210 and 211 were purchased by the assessee on 30th June 1977 for ₹ 1,39,500/ . Of these two galas, the assessee sold gala no.210 on 16th August 1990 for ₹ 6,60,000/ and earned profit of ₹ 6,23,645/ . The assessee treated this gain as long term capital gain and claimed deduction under Section 48(2) of the Income Tax Act, 1961 ( I.T.Act ). The assessing officer noted that the assessee had not only claimed depreciation on the above gala for the assessment years 1981 82 to 1986 87 but also claimed deduction under Section 80(J) for the assessment years ( A.Y. for short) 1981 82 to 1985 86. 4. According to the assessee, Section 50 is applicable when the assets sold is forming part of Block of Assets which is not applicable to her case. It was further stated that the concept of block of assets was incorporated in the I.T.Act and came into effect from 1st April 1988. That is why Section 50 of I.T.Act was not applicable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdance with law. Mr.Deshpande would submit that gala no.210 never became a part of the assessee s block of assets and therefore, Section 50 of the I.T.Act 1961 (as amended by Taxation Laws [Amendment and Miscellaneous] Provisions Act 1986]) is not attracted. Mr.Deshpande would submit that from the A.Y. 1987 88 onwards, when gala no.210 was vacated and all machinery and looms were moved to gala no.211, the assessee never used gala no.210 for the purposes of her business. Consequently, no depreciation was claimed thereupon as it had ceased to be the business asset/depreciable asset . The nature of gala no.210 as a business asset was not revived up to its date of sale which is 16th August 1990 and relevant to A.Y. 1991 92 i.e. the assessment year under consideration. It was during the period namely A.Y. 1987 88 to A.Y. 1991 92, when gala no.210 was not being used by the assessee for the purpose of business, that this concept of depreciation on block of assets was introduced vide Taxation Laws (Amendment and Miscellaneous) Act, 1986 with effect from 1st April 1988 i.e. from A.Y. 1988 89 onwards. It is in these circumstances that this gala no.210 never became a part of the assessee s b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld continue to be treated as such. Once it is treated on its initial introduction in the block as block of asset , then, that treatment continues and that is how the law has been understood throughout. Therefore, there is no merit in the argument that assessing officer or the first appellate authority or the Tribunal have acted contrary to law. In these circumstances, he would submit that all the questions proposed by the assessee should be answered against her. 11. It is common ground that there is a concurrent finding that the assessee has originally purchased gala nos.210 and 211 together. She claimed depreciation of the cost of galas together and the written down value was also shown together. The Tribunal has observed that even though the depreciation has been allowed in the past on gala no.210 and plant and machinery therein was shifted to gala no.21, no depreciation has been claimed thereon subsequently still the definition of block of assets, as appearing in Section 2(11) of the I.T.Act was in force. That is because both the galas are identical in nature. These galas constituted one class of assets. Once the depreciation has been granted on gala no.210, but subsequentl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the transfer of the capital asset. Section 49 deals with the cost with reference to certain modes of acquisition. Where the capital asset became the property of the assessee on distribution of assets of a HUF, or under gift or will or by succession/inheritance or devolution and/or on distribution of assets on liquidation of a company or under a transfer to a revocable or an irrevocable trust etc., the cost of such acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it. Both these provisions are subject to modifications set out in Section 50, where capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed. 15. Mr.Deshpande has placed heavy reliance on the judgment of Hon ble Supreme Court in the case of Liquidators of Pursa Limited Vs. Commissioner of Income Tax reported in (1954) 25 ITR 265 (SC) (supra). In that case the facts relevant for our purpose have to be noted. There, the business of the assessee was that of growing up of sugar cane, manufacturing of sugar and dealing in the same. In the middle of 1943, the directors of the company commenced negotiations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idea is implicit in the words carried on by him occurring in Section 10(1) of the Act of 1922 and those crucial words are an essential constituent of that which is to produce the taxable income. Therefore, it is clear that the tax is payable only in respect of the profits or gains of the business which is carried on by the assessee. 16. Mr.Deshpande would rely upon these observations and particularly the portion where the Hon ble Supreme Court has held that the words used for the purpose of business obviously means use for the purpose of enabling the owner to carry on the business and earn profits in the business. In other words, the machinery or plant must be used for the purpose of that business which is actually carried on and the profits of which are assessable under Section 10(1). The Hon ble Supreme Court did not deem it fit and proper to express any opinion on the employment of word used and whether it should be so interpreted so as to include a passive user. The Hon ble Supreme Court held that in order to attract operation of clauses (vi), (vi) and (vii) of Section 10(1) of the Income Tax Act, 1922, the machinery and plant must be such as were used, in whatever se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal that individual asset looses its identity for the purposes of depreciation and the user test is to be satisfied at the time the purchased machinery becomes a part of the block of assets for the first time, has been confirmed by this Court. The revenue tried to distinguish this judgment, but this Court found no merit in the argument. 18. Mr.Deshpande would submit that the view taken by this Court ought to be confined to the peculiar facts and should not be understood as a general proposition. 19. Mr.Deshpande also brought to our notice a judgment of Division Bench of Kerala High Court in case of Commissioner of Income Tax Vs. Sakthi Metal Depot reported in (2011) 333 ITR492 (Ker) , but attempted to distinguish that as well. There, the assessee had purchased a flat for business purpose in 1974 and depreciation was allowed thereon upto the A.Y. 1995 96. However, the assessee discontinued claiming depreciation for the flat for the A.Y.s 1996 97 and 1997 98. The flat was sold during the year 199798. That was in the previous year relevant to assessment year under consideration namely 1998 99. The expenses towards brokerage and legal expenses were deducted and the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of capital gains and covered by sections 48 and 49 of the Act. Here again section 50 provides an exception for deduction of cost of acquisition and other items of expenditure otherwise allowable in the computation of capital gains under sections 48 and 49 of the Act. In other words, section 50 provides for assessment of a depreciable asset in respect of which depreciation has been allowed as short term capital gains and the deductions available under sections 48 and 49 should be allowed subject to the provisions provided in sub sections (1) and (2) of section 50. Section 50A also deals with assessment of depreciable asset that too as short term capital gains and it actually supplements section 50. In our view, the purpose of section 50A is to enable the assessee to claim deduction of the written down value of the asset in respect of which depreciation was claimed in any year as defined under section 43(6) of the Act towards cost of acquisition within the meaning of sections 48 and 49 of the Act. The condition for computation of short term capital gains in the way it is stated in section 50A is that the assessee should have been allowed depreciation in respect of a depreciable a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han one reason. The consistent view taken is that the initial introduction was the material part. We are of the opinion that the Tribunal correctly understood this concept of block of assets . The argument has been and throughout that the expression block of assets means a group of assets falling within the assets enumerated in Section 2(11) of the I.T.Act. That section does not make any distinction between different units or different types of businesses, which may be carried out by the assessee. Only requirement in respect of an asset which forms part of assets, is that same percentage of depreciation should be prescribed. The relevant rule has been referred to and through out. Once the law enables claiming of depreciation on the block of assets, as stated by the Tribunal, then, it is not possible to agree with the assessee that between A.Y.1986 87 to A.Y.1991 92, when gala no.210 was not being used by her for the purpose of business, and the concept of depreciation of block of assets was introduced vide 1986 amendment with effect from 1st April 1988, that cannot be applied. The argument is that from A.Y.1988 89, this amendment would apply. However, it is not an accurate readi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions can be construed otherwise. 23. To our mind, the Kerala High Court, with respect, has rightly understood this concept and in the backdrop of the facts which are more or less identical. Section 50 has to be understood with reference to the general scheme of assessment on sale of capital assets. The Kerala High Court referred to the fact that the assets covered by Section 50 are depreciable assets forming part of block of assets, as defined in Section 2(11) of the I.T.Act. The components of Section 50 have also been, with respect, rightly understood in that decision. The Kerala High Court on reading of these provisions took the view that once the building was acquired by the assessee and in respect of which depreciation was allowed to it as a business asset, no matter the non user dis entitles the assessee for depreciation for two years prior to the date of sale, still, this asset does not cease to be a part of block of assets. The character of such asset is not lost, according to Kerala High Court. 24. In our view, therefore, the questions proposed by the assessee and forwarded for our opinion, have to be answered in favour of the revenue and against the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. On further appeal, the Tribunal allowed the claim on the ground that it was a case of depreciation on block of assets, and the assets of Bhopal unit could not be segregated for the purpose of allowing depreciation and depreciation had to be allowed on entire block of assets. 27. Thus, the view taken by this Court in the decision which was brought to our notice fairly by Mr.Deshande in Income Tax Appeal No.2088 of 2013, dated 17th November 2015 (supra), conforms with opinions of Kerala High Court and High Court at Delhi. 28. We do not think that this view can be differed or distinguished by us, (once we have agreed with the revenue on the applicability of the definition of the term block of assets ). We do not think that we should go into other aspects and highlighted by Mr.Deshpande. He would submit that the user test apart, there is a further aspect of the matter. That further aspect is with regard to the introduction or insertion of explanation 5 in Section 32 of the I.T. Act and by this method the revenue is forcing or thrusting the claim of depreciation on the assessee. In that regard our attention was invited to the case of Commissioner of Income Tax Vs. Mahen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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