I) Principal Commissioner Of Income Tax v. Larsen Andtoubro Ltd., [403 Itr 248 (Bombay)], In Which, It Was Held Bythe Bombay High Court As Follows

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 13.06.2022 CORAM THE HONOURABLE MR. JUSTICE R. MAHADEVANAND THE HONOURABLE MR. JUSTICE MOHAMMED SHAFFIQ T.C.A. No.622 of 2017 Principal Commissioner of Income Tax I,No.63, Race Course Road,Coimbatore. .. Appellant / RespondentVersus M/s.Sakthi Sugars Ltd.,180, Course Road,Coimbatore-641 018.PAN: AAD CS 0651 B .. Respondent / Appellant Appeal filed under Section 260 (A) of the the Income TaxAct, 1961 against the order dated 13.01.2017 passed by theIncome Tax Appellate Tribunal “D” Bench, Chennai, inI.T.A.No.430/Mds/2015 against the order of the Commissioner ofIncome Tax (Appeals)–1, Coimbatore in Appeal No.366/11-12 of CIR(A) dated 30.12.2014, for the Assessment year 2009-10, asagainst the order of the Assistant Commissioner of Income Tax,Company Circle – I(1), Coimbatore in Assessment order videPAN.No / GIR No.AADCS0651B, dated 30.12.2011 for the Assessmentyear 2009-10. JUDGMENT (Judgment of the Court was delivered by R.MAHADEVAN, J.) This tax case appeal has been filed by the appellantchallenging the order dated 13.01.2017 passed by the Income TaxAppellateTribunal,'D'Bench,Chennai,inI.T.A.No.430/Mds/2015, relating to the assessment year 2009-10. https://hcservices.ecourts.gov.in/hcservices/ 2. By order dated 13.12.2017, this court admitted theaforesaid tax case appeal on the following substantial questionof law: “Whether the Appellate Tribunal is right inallowing depreciation on the plant and machineryof the Sivagangai Beverages Unit of the assesseewhen that unit never commenced commercialproduction and the assets were not 'put to use'for production?" 3.When the matter was taken up for consideration, thelearned counsel appearing on both sides jointly submitted thatthe identical question of law raised herein was alreadydecided against the Revenue, in the following decisions:- (i) Principal Commissioner of Income Tax v. Larsen andToubro Ltd., [403 ITR 248 (Bombay)], in which, it was held bythe Bombay High Court as follows: "5. The Tribunal found that there was no meritin the action of the authorities below in denyingthe claim of depreciation and the Tribunal reliedupon an order of this Court in CIT v. IndustrialSolvents & Chemicals (P) Ltd. (1979) 119 ITR 608.In the facts of that case it was found that inrespect of assessment year 1962-63, construction ofthe Assessee's building and erection of the plantand machinery were completed by end of December,1960/January, 1961. The plant was initially chargedwith raw material in February 1961, but the finishedproduct was not in marketable state. The questionbefore the Court was, on the aforesaid facts whetherthe assessee could have "set up" business by August,1961 and therefore entitled to expenses incurredthereafter, as expenses incurred in the course ofbusiness. The Assessing Officer found that theerection of the plant was completed in the month ofMarch 1961 and trials commenced which continued uptoSeptember, 1961 and expenses claimed came to bedisallowed on the basis that this was expenditureonly on experiments preparatory to the commencementof the business and not for carrying on thebusiness. This Court thereafter considering variousdecisions held in favour of the assessee came to theconclusion that by installation and erection ofmachinery in that case the assessee had set up hisbusiness by 19th August, 1961 was entitled to theexpenses incurred thereafter as expenses incurred inthe course of its business. 6. In the present case the Tribunal, afterhaving considered the orders passed by the AssessingOfficer and the CIT (Appeals) was of the view thatthere was no merit in the denial of depreciation inrespect of plant and machinery and that even if thesame was to be used for trial production business ofmanufacture of Çlinker', the assessee would beentitled to claim depreciation. The Tribunal alsorelied upon the decision of the Gujarat High Courtin Asstt. CIT v. Ashima Syntex Ltd. [2002] 122Taxman 230 which held that even trial productionwould fall within the ambit of "used for the purposeof business"and once used the assess could not bedeprived of the benefit of a claim for depreciationmerely on the basis that the period of use was veryshort. 7. The Tribunal followed the decision of thisCourt in Industrial Solvents & Chemicals (P) Ltd.'scase (supra) and held that once the plant commencedoperations and a reasonable quantity of product isproduced, the business is set up even if product wassub-standard and not marketable. In the case ofIndustrial Solvents & Chemicals (P) Ltd. (supra),the Company was new and depreciation was allowed.Following the aforesaid decision the Tribunaldirected the Assessing Officer to verify the periodof use and restrict depreciation to 50% if theAssessing Officer found that the machinery was usedfor less then 180 days during the year underconsideration." (ii) Commissioner of Income-tax, Chennai v. LakshmiGeneral Finance Ltd., [433 ITR 94 (Madras)] , wherein, it washeld by this Court as follows: "7. The case of the assessee before usstrengthened in the light of the followingdecisions. In "Principal CIT v. Larsen & ToubroLtd., 403 ITR 248 (Bom)", the machinery for trialproduction was held to qualify for deduction as itwould amount to using the machinery for the purposeof business. In CIT v. Escorts Tractors Ltd. 56Taxmann.com 333 (Delhi)", the plant and machinerykept ready for use was held to be enough to grantdepreciation. In "CIT v. Southern PetrochemicalIndustries Corporation Ltd. 311 ITR 202 (Mad)", theclaim for depreciation on spare parts, which werestand-by items, was held permissible. In "CIT v.Geo Tech Construction 244 ITR 452 (Kerala)", it washeld that an asset can be said to be in use when it is kept ready for use. It is beneficial to refer toparagraph 5 of the said judgement, which reads asfollows. is kept ready for use. It is beneficial to refer toparagraph 5 of the said judgement, which reads asfollows. "5. Section 32 of the Act deals withdepreciation. There is no requirement thatthe assets should be used for the whole of theassessment year in question. The term used inSection 32(1) is "owned by assessee", but thatdoes not bring in a requirement that theassessee should have remained the owner of theasset in question for the entire previous yearin question. The object of the Legislature,in granting depreciation allowance undersection 32 of the Act, is to give dueallowance to the assessee for wear and tearsuffered by the asset used by him in hisbusiness so that the net income (total income)is duly arrived at. There is no factualdispute that the assets in question were ownedby the assessee. In Machinery ManufacturersCororation Ltd. v. CIT (1957) 31 ITR 203(Bom), it was observed that the expression"used" in Section 10(2) (vi) of the IndianIncome-tax Act, 1922 (hereinafter referred toas "the old Act") corresponding to Section 32of the Act has to be given a wider meaning.The expression includes passive as well asactive user. In CIT v.Dalmia Cement Ltd.(1945) 13 ITR 415 (Patna) and CIT v. ViswanathBhaskar Sathe (1937) 5 ITR 621 (Bom), it wasobserved that depreciation might be allowed incertain cases even though the machinery wasnot in use or was kept idle. The questionwhether the word "used" would include bothpassive as well as active user was left openby the apex court in Liquidators of Pursa Ltd.v. CIT (1954) 25 ITR 265. The words "used forthe purposes of the business" are capable of alarger and a narrower interpretation. If theexpression "used" is construed strictly, itcan be taken as connoting or requiring theactive employment or the actual working of amachinery, plant or building in the business.On the other hand, the wider meaning willinclude not only cases where the machinery,plant, etc., are actively employed but alsocases where there is, what may be described asa passive user of the same in the business. An asset can be said to be in use when it iskept ready for use."8. In "CIT v. Refrigeration & AlliedIndustries Ltd. 323 ITR 672", the machineries werekept under good working condition so that it couldbe used at any moment, all expenses relating to thesaid machinery (cold storage) were allowed to beclaimed as depreciation. In "CIT v. Shahbad Co-opSugar Mills Ltd. 12 Taxmann.com 421 (Punjab &Haryana)", the machinery which was kept ready foruse was held to qualify for depreciation undersection 32 of the Act. 4. Following the aforesaid decisions, the substantialquestion of law raised in this appeal is answered in favour ofthe assessee. Accordingly, the present tax case appeal filed bythe Revenue, stands dismissed. No costs. Sd/- Assistant Registrar(CS IV) True Copy// Sub Assistant Registrar av To1. The Income Tax Appellate Tribunal “D” Bench, Chennai.2. The Principal Commissioner of Income Tax I, No.63, Race Course Road, Coimbatore.3. The Assistant Commissioner of Income Tax, Company Circle – I(1), Coimbatore.Copy to The Section Officer, VR Section, High Court, Madras – 104.+1cc to Mr.M.Swaminathan, Advocate, S.R.No.35437+1cc to Mr.Subbaraya Aiyar, Advocate, S.R.No.34442 AK-II[co]NSK/04/07/2022 TCA No.622 of 2017