Commissioner of Income tax vs. M/sKarvey Consultants Ltd.,

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ITTA/255/2003HC TelanganaHBHC01056974200303 December 2014Bench: CHALLA KODANDA RAM,L.NARASIMHA REDDY3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the cylinders purchased by the assessee qualify for 100% depreciation irrespective of the extent of use. The Court clarified that the requirement regarding the extent of use (less than 180 days) becomes relevant only for items covered by the third proviso to Section 32 of the Income Tax Act. In this case, the items involved are gas cylinders, whose cost is less than ₹5,000. These are covered by the first proviso to Section 32 of the Act, making the requirement as to the extent of use totally irrelevant. The Court noted that this position was clarified by the CBDT vide Circular No. 591 dated 30.01.1991 and was also taken note of in CIT v. Goodlas Nerolack Paints Limited and CIT v. Soundararaja Finance Ltd. The appeal was dismissed, answering the question in favour of the assessee.

What were the facts?

The appeal by the Revenue is against the order of the Income Tax Appellate Tribunal (ITAT) dated 14.02.2003, concerning assessment year 1995-96. The dispute pertains to depreciation on assets acquired by the assessee. The Assessing Officer and Commissioner (Appeals) restricted depreciation to 50% by applying the third proviso to Section 32(1)(ii) of the Income Tax Act, 1961, due to the assets being used for less than 180 days. The ITAT, however, allowed 100% depreciation, following a previous judgment. The Revenue's appeal challenges this decision.

What were the issues?

1. Whether the Appellate Tribunal is justified in holding that an asset falling within the purview of the 1st proviso to Section 32(1) of the Income Tax Act is not subject to the restrictions covered by the 2nd proviso to the said section, and the assessee is entitled to 100% depreciation on such asset despite its use for business being less than 180 days during the relevant assessment year? Assessee's Contention: The assessee argued that the assets in question (gas cylinders costing less than ₹5,000) are covered by the first proviso to Section 32(1), which allows for 100% depreciation without any restriction on the period of use. Therefore, the 180-day rule in the second proviso is not applicable. Revenue's Contention: The Revenue contended that the restriction of 50% depreciation for assets used for less than 180 days, as stipulated in the second proviso to Section 32(1), should apply. They relied on the orders of the Assessing Officer and Commissioner (Appeals).

Which sections of the Income-tax Act were involved?

Section 32(1)

AI-generated summary — verify with the full judgment below

HON’BLE SRI JUSTICE L. NARASIMHA REDDY

AND

HON’BLE SRI JUSTICE CHALLA KODANDA RAM

I.T.T.A No.255 of 2003

JUDGMENT:- (Per Hon’ble Sri Justice L.Narasimha Reddy)

This appeal is filed against the order, dated 14.02.2003, passed by the Hyderabad Bench ‘B’ of the Income Tax Appellate Tribunal in I.T.A.No.920/Hyd/1998, raising the following question of law:-

“Whether the Appellate Tribunal is justified in holding that the asset falling within the purview of 1st proviso to Section 32(1) of the I.T. Act is not subject to the restrictions covered by the 2nd proviso to the said section and the assessee is entitled to 100% depreciation on such asset in spite of its user for business was less than 180 days during the relevant assessment year?”

Heard Sri S.R.Ashok, learned Senior Standing Counsel for the appellant and Sri P.Murali Krishna, learned counsel for the respondent.

The relevant assessment year is 1995-96 corresponding to financial year 1994-95. The only controversy is about the depreciation on the assets acquired by the respondent during the relevant period. The Assessing Officer allowed the depreciation to the extent of 50% only by applying third proviso to Section 32(1)(ii) of the Act. The Commissioner (Appeals) confirmed the same and on further appeal, the Income Tax Appellate Tribunal, allowed 100% depreciation, through common order in I.T.A.Nos.1966 and 1967/Hyd/1996 following the judgment in Gasolec Appliances (P) Ltd., v. DCIT (Assts).

As against the orders of the Tribunal, referable to I.T.A No.1967/Hyd/96, Department preferred appeals in I.T.T.A.Nos.8 and 44 of 2002 and this Court through a common judgment dated 23.07.2014 held that if the article or item which formed block of assets has been put to use for a period of less than 180 days, the deduction shall be restricted to 50% of the cost thereof. While dealing with the above appeals through a detailed order

dated 23.07.2014, we held that the cylinders purchased by the assessee qualify for 100% depreciation irrespective of the extent of use. We further clarified that the requirement as to the extent of use becomes relevant only for the items covered by the third proviso to Section 32 of the Income Tax Act (for short ‘the Act’). In the instant case, the items involved are gas cylinders, whose cost is less than 5,000/-. They are covered by the first proviso to Section 32 of the Act and the requirement as to the extent of use is totally irrelevant for such items.

We also noticed that this issue was clarified by the Central Board of Direct Taxes vide Circular No.591 dated 30.01.1991 and it was taken note of in Commissioner of Income Tax v. Goodlas Nerolack Paints Limited[1]. The relevant portion is reproduced as under:

“It is clarified that where the actual cost of any machinery or plant does not exceed five thousand rupees, the actual cost thereof shall be allowed as a deduction without any restriction, in respect of the previous year in which the machinery or plant is first put to use by the company for the purpose of its business or profession.”

This aspect was also noticed by the Madras High Court in Commissioner of Income-tax vs. Soundararaja Finance Ltd.,[2] and the same view was taken.

Therefore, we dismiss the appeal answering the question referred above, in favour of the assessee and against the revenue. There shall be no order as to costs.

Miscellaneous petitions, if any, filed in this appeal shall also stand disposed of.

____________________________ L. NARASIMHA REDDY, J

____________________________ CHALLA KODANDA RAM, J Date:03.12.2014

Gk/Kdl [1] (1991) 188 ITR (St.)1 at 6 [2] (2006) 283 ITR 559 (Mad)

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