ACIT, Kannur V. M/s.Santhosh hospital, Thalassery

ITA 315/COCH/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68966 (ITAT-COCHIN)
• Duration Of Justice: 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 16-07-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 27-11-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: T M SREEDHARAN
• Keywords: Capital asset; Business income; Depreciation
• Section: 32; 148; 37

Judgement Text

ITA NO. 315/ COCH/ 2012 1 IN THE INCOME TAX APELALTER TIBUNAL COCHIN BENCH , COCHIN BEFORE S/SH RI N.R.S. GANESAN, JM & B. R. BASKARAN, AM ITA NO. 315 /COCH/ 2012 (ASST YEAR 2006 - 07 ) THE ASST COMMR OF INCOME TAX CIRCLE 1, KANNUR VS M/S SANTHOSH HOSPITAL NEAR NEW BUS STAND THALASSERY ( APPELLANT) (RESPONDENT) PAN NO. AAJFS3434P ASSESSEE BY SHRI T M SREEDHARAN REVENUE BY SMT S VIJAYAPRABHA, JR DR DATE OF HEARING 16 TH JULY 2013 DATE OF PRONOUNCEMENT 13 TH , SEPT 2013 OR D ER PER B.R. BASKARAN, AM: THE APPEAL FILED BY THE R EVENUE IS DIRECTED AGAINST THE ORDER DATED 5.9.2012 PASSED BY THE LD CIT(A) - II, KOZHIKODE AND IT RELATES TO THE AY 2006 - 07. THE REVENUE IS ASSAILING THE DECISION OF THE LD CIT(A) IN HOLDING THAT THE LOSS INCURRED ON SALE OF CAR IS DEDUCTIBLE AS TERMINAL D EPRECIATION U/S 32 (1)(III) OF THE ACT. 2 THE FACTS RELATING TO THE ISSUE ARE STATED IN BRIEF: IN THE PROFIT AND LOSS ACCOUNT FILED ALONG WITH THE RETURN OF INCOME FILED , THE ASSESSEE CLAIMED THE LOSS ON SALE OF CAR AMOUNTING TO RS. 11,64,149/ - AS EXPEN DITURE . THE SAIS RETURN OF INCOME WAS INITIALLY PROCESSED U/S 143(1) OF THE ACT. LATER, ON NOTICING THE ABOVE SAID CLAIM, T HE AO ISSUED NOTICE U/S 148 OF THE A CT ON 11.2.2009 AS HE FOUND THAT THE ABOVE SAID CLAIM IS NOT ALLOWABLE AS EXPENDITURE. ITA NO. 315/ COCH/ 2012 2 3 BEF ORE THE AO, THE ASSESSEE CLAIMED THAT THE LOSS ON SALE OF DEPRECIABLE ASS E T IS DEDUCTABLE U/S 37 OF THE A CT BY PLACING RELIANCE ON THE FOLLOWING CASE LAWS: I) MUKUND GLOBAL FINANCE LTD VD DCIT (2008) 20 SOT 82 (MUM) II) J K CHEMICALS VS ACIT IN ITA NO. 8 206 AND 8648/MUM/1989. IT WAS ALSO ARGUED THAT THE LOSS ON SALE OF CAR HAS TO BE CONSIDERED AS BUSINESS LOSS. THE ASSESSEE ALSO PUT AN ALTERNATIVE CONTENTION THAT THE SHORT TERM CAPITAL LOSS CAN BE SET OFF AGAINST THE BUSINESS INCOME OF THE SAME YEAR U/S 71(1) OF THE ACT. 3. 1 THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION ON C AR AND THE SAID BLOCK AS CEASED TO EXIST ON SALE OF CAR. HENCE, THE AO HELD THAT THE PROVISIONS OF SEC. 50 OF THE I T ACT BECOME APPLICABLE I N THAT CASE. ACCORDINGLY T HE AO HELD THAT THE LOSS INCURRED BY THE ASSESSEE IS SHORT TERM CAPITAL LOSS IN TERMS OF SEC. 50 OF THE ACT. THE AO FURTHER HELD THAT THE SHORT TERM LOSS CANNOT BE SET OFF AGAINST BUSINESS INCOME IN TERMS OF SEC. 71 OF THE ACT . ACCORDINGLY, HE REJECTED A LL THE CONTENTIONS OF THE ASSESSEE AND DISALLOWED THE CLAIM OF LOSS ON SALE OF CAR. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER WITH AN APPEAL BEFORE THE CIT(A) AND PLEADED BEFORE HIM THAT THE LOSS ON SALE OF CAR IS ALLOWABLE U/S 32(1)(III) OF THE A CT BY P LACING RELIANCE ON THE DECISION OF MUMBAI BENCHES OF THE TRIBUNAL IN THE CASE OF MUKUND GLOBAL FINANCE LTD (SUPRA). THE LD CIT(A) ACCEPTED THE SAID CONTENTION OF THE ASSESSEE AND DIRECTED THE AO TO DELETE THE IMPUGNED DISALLO WANCE. AGGRIEVED, THE REVEN UE HA S FILED THIS APPEAL BEFORE US. 4 THE L D DR SUBMITTED THAT THE PROVISIONS OF SECTION 32(1 ) (III) IS APPLICABLE ONLY TO UNDERTAKINGS , WHICH ARE ENGAGED IN GENERATION OR GENERATION AND DISTRIBUTION OF ELECTRICITY, WHE RE THE DEPRECIATION IS ALLOWED ON T HE A CTUAL COST OF THE ASSETS U/S 32(1)(I) OF THE ACT . THE ASSESSEE HEREIN IS CLAIMING DEPRECIATION UNDER SECTION 32(1)(II) OF THE A CT . UNDER SEC. 32(1)(II) ITA NO. 315/ COCH/ 2012 3 OF THE ACT, THE DEPRECIATION IS ALLOWED ON BLOCK OF ASSETS AT THE PRESCRIBED RATE ON WRITTEN DOWN VALUE THEREOF. THE LD DR FURTHER SUBMITTED THAT THE PROVISIONS OF SEC. 50 OF THE ACT SHALL APPLY WHETHER CAPITAL ASSETS IS AN ASSET FORMING PART OF THE BLOCK OF ASSETS IN RESPECT OF DEPRECIATION HAS BEEN ALLOWED. THE LD DR SUBMITTED THAT IN THE INSTANT CASE, THE CAR SOLD BY THE ASSESSEE WAS FORMING PART OF BLOCK OF ASSETS AND DEPRECIATION WAS ALLOWED ON IT. ACCORDINGLY, THE LD DR SUBMITTED THAT THE LD CI T(A) WAS NOT RIGHT IN INVOKING THE PROVISIONS OF SEC.32(1)(III) OF THE ACT FOR ADJUDICATING THE ISSU E , WHICH ARE NOT APPLICABLE TO THE FACTS OF THE INSTANT CASE . 4.1 THE LD AR HOWEVER, STRONGLY PLACED RELIANCE ON THE DECISION RENDERED BY THE MUMBAI BENCHES OF THE TRIBUNAL IN THE CASE OF MUKUND GLOBAL FINANCE LTD (SUPRA). 5 WE HAVE HEARD THE RIVAL CONT ENTION AND CAREFULLY PERUSED THE RECORDS. THE CONTROVERSY BEFORE US , IN OUR VIEW, REVOLVE S A ROUND SEC . 32 (1) OF THE ACT. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE PROVISIONS OF SEC. 32(1) AS APPLICABLE TO THE DISPUTE BEFORE US: SEC. 32 (1) 1) IN RESP ECT OF DEPRECIATION OF ( I ) BUILDINGS , MACHINERY, PLANT OR FURNITURE, BEING TANGIBLE ASSETS; ( II ) KNOW - HOW, PATENTS, COPYRIGHTS, TRADEMARKS , LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, BEING INTANGIBLE ASSETS ACQU IRED ON OR AFTER THE 1ST DAY OF APRIL, 1998, OWNED WHOLLY OR PARTLY, BY THE ASSESSEE AND USED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION, THE FOLLOWI NG DEDUCTIONS SHALL BE ALLOWED ( I ) IN THE CASE OF ASSETS OF AN UNDERTAKING ENGAGED IN GENERATION OR GENERATION AND DISTRIBUTION OF POWER, SUCH PERCENTAGE ON THE ACTUAL COST THEREOF TO THE ASSESSEE AS MAY BE PRESCRIBED; ( II ) IN THE CASE OF ANY BLOCK OF ASSETS, SUCH PERCENTAGE ON THE WRITTEN DOWN VALUE THEREOF AS MAY BE PRESCRIBE D. ITA NO. 315/ COCH/ 2012 4 PROVIDED.. ( III ) IN THE CASE OF ANY BUILDING, MACHINERY, PLANT OR FURNITURE IN RESPECT OF WHICH DEPRECIATION IS CLAIMED AND ALLOWED UNDER CLAUSE ( I ) AND WHICH IS SOLD, DISCARDED, DEMOLISHED OR DESTROYED IN THE PREVIOUS YEAR (OTHER THAN THE PREVIOUS YEAR IN WHICH IT IS FIRST BROUGHT INTO USE), THE AMOUNT BY WHICH THE MONEYS PAYABLE IN RESPECT OF SUCH BUILDING, MACHINERY, PLANT OR FURNITURE, TOGETHER WITH THE AMOUNT OF SCRAP VALUE, IF ANY, FALL SHORT OF THE WRITTEN DOWN VALUE THEREOF : 5.1 A PERUSAL OF PROVISIONS OF SECTION 3 2 (1) SHOW THAT IT IS DIVIDED INTO TWO PARTS. THE CLAUSE (I) AND (II) OF THE FIRST PART DESCRIBE S THE CLASS OF ASSETS ELIGIBLE FOR DEPRECIATION . AS PER THIS FIRST PART, THE CLASS OF ASSETS ELIGIBLE FOR DEPRECIATION HAS BEEN CLASSIFIED INTO CLASSIFIED INTO TWO CATEGORIES, VIZ., BUILDING, MACHINERY, PLANT OR FURNITURE, BEING TANGIBLE ASSETS, AND KNOW - HOW, PATENTS, COPYRIGHTS ETC., BEING INTANGIBLE ASSETS. T HE SECOND PART PRESCRIBES THE MANNER OF COMPUTATION OR ALLOWING THE DEPRECIATION. AS PER CLA USE (I) OF THE SECOND PART, T HE DEPRECIATION IS ALLOWABLE ON THE ASSETS OF THE UNDERTAKING ENGAGED IN GENERATION OR GENERATION AND DISTRIBUTION OF POWER, SUCH PERCENTAGE ON THE ACTUAL COST THEREOF TO THE ASSESSEE , AS MAY BE PRESCRIBED. AS PER CLAUSE (II) OF THE SECOND PART, ALL OTHER BUSINESS UNDERTAKINGS ARE COVERED AND THE DEPRECIATION IS ALLOW ED ON THE WRITTEN DOWN VALUE OF BLOCK OF ASSETS AT SUCH PERCENTAGE AS MAY BE PRESCRIBED. 5.2 A CAREFUL READING OF SECTION 32(1)(III) SHOWS THAT THE SAID CL AUSE APPLICABLE ONLY IF THE DEPRECIATION CLAIMED AND ALLOWED UNDER CLAUSE ( I ) , I.E., CLAUSE (I) OF SECOND PART, BEING THE COMPUTATION PORTION OF THE SEC. 32(1) OF THE ACT . WE HAVE ALREADY NOTED THAT THE CLAUSE ( I ) OF SECOND PART IS APPLICABLE TO AN UNDERT AKING ENGAGED IN GENERATION OR GENERATION AND DISTRIBUTION OF POWER. ITA NO. 315/ COCH/ 2012 5 5. 3 ADMITTEDLY, THE ASSESSEE HEREIN IS NOT ENGAGED IN THE BUSINESS OF GENERATION OR GENERATION AND DISTRIBUTION OF POWER AND HENCE IT HAS NOT CLAIMED DE PRECIATION U/S 32(1)(I) OF THE A CT . THE ASSESSEE HAS CLAIMED DEPR ECIATION ON ITS BLOCK OF ASSETS ONLY U/S 32(1)(II) OF THE ACT. 5.4 WE HAVE ALSO GONE THROUGH THE PROVISIONS OF SEC. 50 OF THE ACT. AS SUBMITTED BY THE LD DR, THE PROVISIONS OF SECTION 50 SHALL BE APPLICABLE , WHERE THE CAP ITAL ASSET IS AN ASSET FORMING PART OF BLOCK OF ASSETS IN RESPECT OF WHICH DEPRECIATION HAS BEEN ALLOWED. IN THE INSTANCE CASE, THERE IS NO DISPUTE WI TH REGARD TO THE FACT THAT THE C AR SOLD BY THE ASSESSEE WAS FORMING PART OF BLOCK OF ASSET AND DEPR ECIATI ON WAS ALSO ALLOWED THEREO N. IT IS ALSO AN ADMITTED FACT THAT THE CONCERNED BLOCK HAS CEASED EXIST ON SALE OF CAR. HENCE, IN OUR VIEW, THE LD DR WAS RIGHT IN LAW IN CONTENDING THAT THE AO WAS RIGHT IN LAW IN INVOKING THE PROVISIONS OF SECTION 50 OF THE ACT IN TREATING THE LOSS AS SHORT TERM CAPITAL LOSS. 5. 5 THE LD AR PLACED HEAVY RELIANCE ON THE DECISION OF THE MUMBAI BENCHES OF THE TRIBUNAL IN THE CASE OF MUKUND GLOBAL FINANCE LTD (SUPRA) . WE HAVE GONE THROUGH THE SAID DECISION AND NOTICE D THAT THE FACT THAT THE PROVISIONS OF SECTION 32(1)(III) SHALL BE APPLICABLE ONLY TO THE UNDERTAKING ENGAGED IN THE BUSINESS OF GENERATION OR GENERATION DISTRIBUTION OF ELECTRICITY WAS NOT BROUGHT TO THE NOTICE OF THE BENCH. HENCE , WE ARE NOT INCLINED TO FOLLOW TH E SA ID DECISION, AS IT WAS RENDERED WITHOUT NOTICING THAT THE PROVISIONS OF SEC. 32(1)(III) SHALL NOT BE APPLICABLE TO THE ASSESSEE THEREIN. 5.6 IN THIS REGARD, A GAINFUL REFERENCE CAN BE MADE TO THE RETURN OF INCOME PRESCRIBED U NDER INCOME TAX RULES, S AY ITR - 5 . UNDER ITEM 16 OF SCHEDULE DPM, AN ASSESSEE IS EXPECTED TO ITA NO. 315/ COCH/ 2012 6 DECLARE THE CAPITAL GAINS/LOSS UNDER SECTION 50 OF THE ACT AND THE SAME IS REQUIRED TO BE CARRIED FORWARD TO SCHEDULE DCG AND THEN TO SCHEDULE CG. THE INCOME TAX RETURN FORM PRESCRIBED I N THE INCOME TAX RULES SUPPORTS THE VIEW TAKEN BY THE AO. 6 IN VIEW OF THE FORGOING DECISION, IN OUR VIEW, THE DECISION RENDERED BY THE LD CIT(A) IS NOT IN ACCORDANCE WITH THE MANDATE OF THE PROVISIONS OF THE ACT. ACCORDINGLY, WE SET ASIDE THE ORD ER OF THE LD CIT(A) AND RESTORE THAT OF THE AO. 7 IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 13 TH , DAY OF SEPT 2013. SD/ - SD/ - (N.R.S. GANESAN) ( B.R. BASKARAN ) JUDICIAL MEM BER ACCOUNTANT MEMBER COCHIN: DATED 13 TH , SEPT 2013 RAJ* COPY TO: 1. APPELLANT - THE ASST COMMR OF INCOME TAX CIRCLE 1, KANNUR 2 RESPONDENT - M/S SANTHOSH HOSPITA L - NEAR NEW BUS STAND - THALASSERY 3 CIT(A) 4 CIT , KANNUR 5 DR 6 GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN