THE COMM OF INCOME TAX A.P.-II HYD V. M/S.P.K.L.LIMITED

ITTA/8/2002

AI Insights

The case involves two appeals by the Revenue against P.K.L. Limited concerning the depreciation claimed on gas cylinders purchased for business purposes. The cylinders, each valued under Rs.5,000, were claimed to be entitled to 100% depreciation under the first proviso to Section 32 of the Income Tax Act, 1961. However, the assessing authorities applied the third proviso, allowing only 50% depreciation as the cylinders were used for less than 180 days. The Tribunal's decision favored the respondents, leading to the Revenue's appeal. The core legal issue was whether the depreciation claim under the first proviso could be subjected to the conditions of the third proviso.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 680049 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 23-07-2014
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax v. Dhall Enterprises and Engineers (P) Ltd, Commissioner, Income Tax, Jabalpur v. Central India Gases (P) Ltd., Jabalpur
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: CH PUSHYAM KIRAN
• Assessee Lawyers: J V PRASAD
• Keywords: Assessment years; Depreciation; Gas cylinders; Income Tax Act; Proviso
• Section: 32

Judgement Text

"* THE HONOURABLE SRI JUSTICE L. NARASIMHA REDDY and * THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM + I.T.T.A.Nos.8 and 44 of 2002 %23.07.2014 + I.T.T.A.No.8 of 2002 # The Commissioner of Income Tax, Andhra Pradesh – II, Hyderabad. …. Appellant Vs. $ P.K.L. Limited, Plot No.48, 8-3-1087, Sri Nagar Colony, Hyderabad …. Respondent ! Counsel for the Appellant: SRI J.V. PRASAD, SC FOR INCOME TAX Counsel for Respondent: SRI Ch. PUSHYAM KIRAN Head Note: ? Cases referred: 1. (2006) 287 ITR 435 (Guj) 2. ILR (2007) MP 1830 THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A.Nos.8 and 44 of 2002 COMMON ORDER: (per the Hon’ble Sri Justice L.Narasimha Reddy) Common questions of fact and law arise in these two appeals. Hence, they are disposed of through a common judgment. The respondents are agencies involved in the supply of gas cylinders and allied activity. As part of their business, they have purchased cylinders of various descriptions. They fill gas in them and distribute to the customers. In the returns submitted by them for the Assessment Years 1993-94 (respondent in I.T.T.A.No.8 of 2002) and 1994-95 (respondent in I.T.T.A.No.44 of 2002), they claimed 100% depreciation on the value of the cylinders purchased by them. It was pleaded that the value of each cylinder is less than Rs.5,000/- and in terms of first proviso to Section 32 of the Income Tax Act, 1961 (for short ‘the Act’), they are entitled to claim depreciation. The assessing authorities, however, applied third proviso to Section 32 of the Act. On finding that the cylinders were kept to use for less than 180 days, only 50% depreciation was allowed. Aggrieved by the orders passed by the respective assessing authorities, the respondents preferred appeals before the Commissioner, but the appeals were dismissed. Thereupon, the respondents filed I.T.A.No.1967/H/96 and I.T.A.No.426/Hyd/1997 respectively. The Tribunal allowed the appeals through separate orders dated 30.04.2001 and 04.06.2001 respectively. Hence, these two appeals under Section 260-A of the Act, by the Revenue. Sri J.V.Prasad, learned counsel for the appellant submits that there is no overlapping between the first and third provisos of Section 32 of the Act and they operate in the respective fields. He submits that the extent of use, which is a relevant factor, under third proviso to Section 32 of the Act operates irrespective of the value of the goods and the view taken by the assessing authorities and the Commissioner is in accordance with law. He further submits that there is nothing in the first proviso to suggest that any article purchased by an assessee at a cost of Rs.5,000/- or less, cannot be subjected to the test under third proviso. Other contentions are also urged. Sri Ch.Pushyam Kiran, learned counsel for the respondent, on the other hand, submits that once an article acquired by an assessee is covered by the first proviso, the question of subjecting it to third proviso does not arise. According to the learned counsel, if the value of an item is less than Rs.5,000/-, the extent of duration of its use becomes totally irrelevant. The entire controversy revolves around the question as to whether the cylinders purchased by the respondents must be dealt with under the first or the third proviso, to Section 32 of the Act as they stood at relevant point of time. Section 32 of the Act deals with the grant of depreciation on the plant and machinery or other items acquired by the assessee during the previous year. The extent of depreciation is not uniform. The factors such as cost and the extent to which the item has been put to use, become irrelevant and depreciation of different percentages is permitted. The provisos 1 and 3 of Section 32 of the Act read as under: “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.” …….. (The second proviso is omitted since it is not relevant for the purpose of this lis.) “Provided also that where any asset falling within a block of assets is acquired by the assessee during the previous year and is put to use for the purpose of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under this clause in respect of such asset shall be restricted to fifty percent of the amount calculated at the percentage prescribed under this clause in the case of block of assets comprising such asset.” On a perusal of the first proviso, it becomes clear that if the cost of an item does not exceed Rs.5000/-, the actual cost thereon shall be allowed as deduction in the form of depreciation. Such allowance is not subject to any other conditions or stipulations. Third proviso, however, stipulates certain conditions. 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. The fact that the cost of the item is not mentioned in the third proviso gave rise to some doubt on the part of the Assessing Authority as well as the Commissioner. They felt that there is nothing in third proviso to suggest that an item, which is otherwise covered by the first proviso, cannot be subjected to the test of the extent of use. However, on close analysis of the relevant provisions as well as the clarifications that are issued from time to time, it becomes clear that if the cost of the item is less than Rs.5,000/-, it need not even be entered in the block of assets at all and that in turn would keep such article outside the field of taxation. The third proviso on the other hand covers the items which form part of the block of assets which obviously are the articles or items whose cost for each unit exceeds Rs.5,000/-. The Gujarat High Court in Commissioner of Income Tax v. Dhall Enterprises and Engineers (P) Ltd[1] explained the purport of these very provisions and held that an article whose cost is less than Rs.5,000/- cannot form part of the block of assets much less the depreciation thereon is subjected to any test as to extent of use. The said judgment was followed by the High Court of Madhya Pradesh (Jabalpur Bench) in Commissioner, Income Tax, Jabalpur v. Central India Gases (P) Ltd., Jabalpur[2]. The Tribunal took note of these and other relevant factors, and held that once an article or item is covered by first proviso, it cannot be subjected to any test including the one stipulated under third proviso. Therefore, we do not find any merit in the appeals. The appeals are accordingly dismissed. There shall be no order as to costs. Consequently, the Miscellaneous Petitions filed in these appeals shall stand disposed of. L.NARASIMHA REDDY, J Date: 23.07.2014 CHALLA KODANDA RAM, J Note: L.R Copy to be marked B/o va [1] (2006) 287 ITR 435 (Guj) [2] ILR (2007) MP 1830 "