Vildirect: IncomeTax-caselaws-1996-VIL-02-ITAT-JBL

1996-VIL-02-ITAT-JBL

Equivalent Citation: ITD 059, 340,

Income Tax Appellate Tribunal JABALPUR

Date: 31.05.1996

PACKWELL PRINTERS.

ASSISTANT COMMISSIONER OF INCOME-TAX.

BENCH

Member(s) : G. D. AGARWAL., P. MOHANARAJAN.

JUDGMENT

Per Shri G.D. Agrawal, A.M. -- 1. to 10. [ These paras are not reproduced here as they involve minor issues].

11. The ground No. 2 reads as under :

"That the ld. CIT(A) is not justified in law and facts in not allowing depreciation of Rs. 54,269 claimed on block of assets."

11.1 The facts of the case are that for the year under consideration, the assessee had three trucks, out of which one truck No. 8541 was not plied during the accounting year relevant to the assessment year under consideration. The Assessing Officer disallowed the depreciation of this truck as the same was not used in the year under consideration. The same is upheld by the CIT(A). Hence this appeal by the assessee.

12. At the time of hearing before us, it was submitted by the ld. counsel for the assessee that from the assessment year under consideration, i.e., assessment year 1988-89, there is thorough change in the system of allowing of depreciation. Now the depreciation is to be allowed on the block of assets and not upon the individual assets. Therefore, the individual assets had lost its identity and it has to be seen whether the assets of a particular block, were used or not. He submitted that the assessee had three trucks, which were all plied in the preceding years. However, in the year under consideration, one truck could not be plied, because it met with an accident, but when two trucks out of that particular block were used for the purpose of business, the depreciation on the W.D.V. of that block has to be allowed. In support of his contention, he relied upon the decision of ITAT, Bombay Bench, (S.M.C.) in the case of ITO v. Asian Steel Yard passed in [IT Appeal No. 188 (Bom.) of 1991].

13. The ld. Senior Departmental Representative submitted that as per provision of section 32, depreciation is allowable only if the assets are used for the purpose of business. If the assets are not used, then no depreciation thereon can be allowed. The concept of block of assets is just to facilitate the computation of depreciation, but this concept cannot be used by the assessee to claim depreciation an asset, which was admittedly not used for the purpose of business in the year under consideration.

14. We have carefully considered the arguments of both the sides. The Taxation Law (Amendment) Act, 1986, had changed thoroughly the system of allowing depreciation with effect from 1-4-1988. By these provisions, the concept of block of assets brought into statute book for the purpose of allowing depreciation. The relevant provisions as it stood after the amendment that is applicable to the year under consideration reads as under :--

"32. (1) In respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, the following deductions shall, subject to the provisions of section 34, be allowed.

(i)

(ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed :

Provided 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 in respect of the previous year in which such machinery or plant is first put to use by the assessee for the purposes of his business or profession :"

15. From the above, it is clear that depreciation is to be allowed on the written down value of the block of assets at such percentage as may be prescribed.

16. Block of assets is defined in section 2(11) as under :

"" block of assets" means a group of assets falling within a class of assets, being buildings, machinery, plant or furniture, in respect of which the same percentage of depreciation is prescribed."

16.1 Section 43(6) provides definition of W.D.V. Clause (c) of section 43(6) reads as under :--

"43(6) - "Written down value" means--

(a)

(b)

(i) in respect of any previous year relevant to the assessment year commencing on the 1st day of April, 1988, the aggregate of the written down values of all the assets falling within that block of assets at the beginning of the previous year and adjusted,--

(A) by the increase by the actual cost of any asset falling within that block, acquired during the previous year ; and

(B) by the reduction of the moneys payable in respect of any asset falling within that block, which is sold or discarded or demolished or destroyed during that previous year together with the amount of the scrap value, if any, so, however, that the amount of such reduction does not exceed the written down value as so increased ; and

(ii) in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1989, the written down value of that block of assets in the immediately preceding previous year as reduced by the depreciation actually allowed in respect of that block of assets in relation to the said preceding previous year and as further adjusted by the increase or the reduction referred to in item (i)."

17. Thus, for the assessment year 1988-89, the W.D.V. of any block of assets shall be the aggregate of the W.D.V. of all the assets falling within that block of assets at the beginning of the previous year. From this, the adjustment has to be made for the increase or reduction in the block of assets during the year under consideration. The deduction from the block of assets has to be made in respect of any asset, sold discarded or demolished or destroyed during the previous year. In the appeal under consideration before us, it is an admitted position that none of the asset within the said block was sold, or discarded or demolished or destroyed during the year under consideration. We could not find any provision for reducing W.D.V. of an asset, if it is not used in a particular year, from the W.D.V. of the said block.

17.1 In the case under consideration before us, it is an admitted position that the assessee had three trucks forming part of the same block out of which two trucks were used in the year under consideration and one was not. The question is whether the depreciation is to be allowed in respect of W.D.V. of all the three trucks or only in respect of two trucks. The claim of the assessee is that after the amendment by the Taxation Laws (Amendment) Act, 1986, the individual assets had lost its identity and it is only the block of assets has to be considered. We find that the C.B.D.T. in its Circular No. 469 dated 23rd September, 1986, has explained the amended provision reading as under :

"6.1

6.2

6.3 As mentioned by the Economic Administration Reforms Commission (Report No. 12, para 20), the existing system in this regard requires the calculation of depreciation in respect of each capital asset separately and not in respect of block of assets. This requires elaborate book-keeping and the process of checking by the Assessing Officer is time consuming. The greater differentiation in rates, according to the date of purchase, the type of asset, the intensity of use, etc., the more disaggregated has to be the record-keeping. Moreover, the practice of granting the terminal allowance as per section 32(1)(iii) or taxing the balancing charge as per section 41(2) of the Income-tax Act necessitate the keeping of records of depreciation already availed of by each asset eligible for depreciation. In order to simplify the existing cumbersome provisions, the Amending Act has introduced a system of allowing depreciation on block of assets. This will mean the calculation lump sum amount of depreciation for the entire block of depreciable assets in each of the four classes of assets, namely, buildings, machinery, plant and furniture."

18. From the above, it is apparent that the Legislature felt that keeping the details with regard to each and every depreciable assets was time consuming both for the assessee and the Assessing Officer. Therefore, they amended the law to provide for allowing of the depreciation on the entire block of assets instead of each individual asset. The block of assets has also been defined to include the group of asset falling within the same class of assets. If we accept the contention of ld. DR that for allowing the depreciation user of such and every asset is essential and if one asset within a block is not used, depreciation on that asset is not to be allowed, the assessee will be required to maintain the detail of each asset separately. That will frustrate the whole idea of the amended provision.

19. Moreover, the Legislature has deleted the provision for allowing terminal depreciation in respect of each asset, which was previously allowable under section 32(1)(iii) and also taxing of balancing charge under section 41(2) in the year of sale. Instead of these two provisions, now whatever is the sale-proceed of sale of any depreciable asset, it has to be reduced from the block of assets. This amendment was made because now the assessees are not required to maintain particulars of each asset separately and in the absence of such particular, it cannot be ascertained whether on sale of any asset, there was any profit liable to be taxed under section 41(2) or terminal loss allowable under section 32(1)(iii). This amendment also strengthen the claim that now only detail for "block of assets" has to be maintained and not separately for each asset.

20. We may clarify our views by giving example, suppose an assessee owns three trucks, the W.D.V. of which is Rs. one lakh each. Thus, at the beginning of the year, W.D.V. of all the three trucks was Rs. 3 lakhs. During the year under consideration, one truck was sold for Rs. 50,000. As per definition of W.D.V. in section 43(6)(c), the W.D.V. shall be Rs. 2.50 lakhs, i.e., Rs. 3 lakhs (-) Rs. 50,000. As per the section 32, the depreciation is allowable on the block of asset and, therefore, the assessee would be entitled to depreciation at Rs. 2.50 lakhs, while the W.D.V. of the two trucks, which are in actual use is only Rs. 2 lakhs. If you accept the submission of ld. DR, the assessee would be entitled to the depreciation on only Rs. 2 lakhs. But from the amended provisions, it is evident that the assessee would be entitled to depreciation on Rs. 2.50 lakhs and not Rs. 2 lakhs. It is logical also, because previously the assessee was allowed the terminal allowance under section 32(1)(iii) in the year of sale, ie., in the year of sale if the sale proceed was less than the W.D.V., the same was allowed as the terminal allowance. Now this clause has been omitted w.e.f. 1-4-1988. Therefore, if the contention of the ld. DR is accepted, the assessee will not be entitled to deduction in respect of Rs. 50,000 at all, which cannot be the intention of the Legislature.

20.1 Therefore, we hold that after the amendment by the Direct Tax Laws (Amendment) Act, 1986, w.e.f. 1-4-1988, the individual assets have lost its identity and for the purpose of allowing of depreciation, only the block of assets has to be considered. It has to be seen whether the particular block of assets is owned by the assessee and used for the purpose of business. If a block of assets is owned by the assessee and used for the purpose of business, depreciation will be allowed. Therefore, the test of user had to be applied upon the block as a whole instead of upon an individual asset. Now applying this test to the facts of the case under consideration, we hold that when the two trucks out of the three in the said block were admittedly used for the purpose of business, the said block of assets was used for the purpose of business and the depreciation has to be allowed on the W.D.V. of the said block of assets, as per the percentage of depreciation prescribed in respect of the said block of assets. We direct the Assessing Officer to allow depreciation as per our above direction.

21. to 23. These paras are not reproduced here as they involve minor issues

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