THE COMMISSIONER OF INCOME TAX vs. OSWAL CHEMICAL & FERTILISERS LTD

ITA - 1283 / 2008HC Delhi24 December 200820 pages

For Petitioner: SANJEEV SABHARWAL

AI SummaryDismissed

What did the High Court hold?

The High Court upheld the Tribunal's conclusion, though not entirely agreeing with its reasoning. The Court reasoned that the amendment introducing the concept of 'block of assets' in Section 32 aimed to simplify the cumbersome process of calculating depreciation for individual assets. The intention was to allow depreciation on the aggregate written down value of the block of assets. The Court noted that with the introduction of the 'block of assets' concept, individual assets lose their identity for depreciation calculation purposes. The Revenue's argument that each asset must be used would necessitate maintaining individual asset records, frustrating the legislative intent behind the 'block of assets' provision. The Court also pointed out that the Revenue suffers no loss as any sale of a non-used asset from the block would result in short-term capital gains, which are taxable. Therefore, the appeals filed by the Revenue were dismissed, upholding the Tribunal's decision to allow depreciation on the Bhopal unit as part of the block of assets.

What were the facts?

The appeals by the Commissioner of Income Tax (Revenue) challenge the orders of the Income Tax Appellate Tribunal (Tribunal) that allowed depreciation on a unit at Bhopal belonging to M/s. Oswal Agro Mills Ltd. and Oswal Chemicals & Fertilizers Ltd. (Assessee). For Assessment Year 1998-99, the Assessee claimed depreciation of ₹9.31 Crores, including ₹43,41,528 for the closed Bhopal unit. The Assessing Officer (AO) disallowed this amount, stating depreciation is not allowable on a closed unit. The Commissioner of Income Tax (Appeals) upheld the AO's decision. The Tribunal, however, reversed these orders, holding that since the Bhopal unit was part of the block of assets and not finally closed or sold, depreciation was allowable on the entire block, even if a part was temporarily not in use. The Revenue is aggrieved by this decision.

What were the issues?

1. Whether depreciation is allowable under Section 32 of the Income Tax Act, 1961, on assets forming part of a block of assets, even if a specific asset within that block was not used for business purposes during the relevant assessment year, provided the block of assets as a whole is considered. Assessee's Contention: The Assessee argued that the Bhopal unit remained dormant but was part of the block of assets. Depreciation is allowable on the entire block, and assets at the Bhopal unit could not be segregated for depreciation calculation. They relied on the principle that if any part of the block is not used but the remaining part is in continuous use, depreciation on the entire block is permissible. They also cited the Kerala High Court judgment in CIT vs. Geo Tech Construction Corporation. Revenue's Contention: The Revenue contended that depreciation under Section 32 requires assets to be owned and used for business or profession. They argued that the second condition of 'use' was not satisfied for the Bhopal unit. The concept of 'block of assets' relates to the mode of calculation, not an exemption from the pre-condition of use. They argued that the Bhopal unit remained non-functional for six years, and thus, its assets could not be considered 'put to use'.

Which sections of the Income-tax Act were involved?

Section 32

AI-generated summary — verify with the full judgment below

2008:DHC:14238-DB

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