Punjab Bone Mills, Jalandhar v. Commissioner Of Income Tax, Jalandhar

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. I.T.A. No. 596 of 2007DATE OF DECISION : 10.07.2008 Punjab Bone Mills, Jalandhar .... APPELLANT Versus Commissioner of Income Tax, Jalandhar ..... RESPONDENT CORAM :- HON'BLE MR. JUSTICE SATISH KUMAR MITTALHON'BLE MR. JUSTICE RAKESH KUMAR GARG Present:Mr. Prakul Khurana, Advocate,for the appellant-assessee. Mr. Sanjiv Bansal, Advocate,for the respondent-revenue. * * * SATISH KUMAR MITTAL , J. The assessee has filed this appeal under Section 260A of theIncome Tax Act, 1961 (hereinafter referred to as `the Act'), against the orderdated 20.4.2007, passed by the Income Tax Appellate Tribunal, AmritsarBench, Amritsar (hereinafter referred to as `the ITAT'), in ITA No. 343(ASR)/2004 for the assessment year 2000-01, whereby the appeal of therevenue has been partly allowed. The facts of the case are that the assessee is engaged in thebusiness of manufacturing glue flakes from bone sinews and fluff. Videorder dated 31.3.2003, the Assessing Officer completed the assessment for the assessment year 2000-01 at an amount of Rs. 99,19,480/-, by makingvarious additions. The issue before us pertains to disallowance ofdepreciation amounting to Rs. 1,76,254/-, out of the depreciation ofRs.2,59,198/-, as claimed by the assessee on account of use of boiler. TheAssessing Officer disallowed the depreciation, while recording a findingthat the said boiler was also used by M/s Protinkem and M/s P.B.M.Gelatine (P) Ltd., Jalandhar, the sister concerns of the assessee. TheAssessing Officer, while working out the percentage of the work ofproduction of Glue/TG, done by the sister concerns of the assessee, at 68%,also observed that on account of use of boiler, the assessee had sharedexpenses with its sister concerns, for use of fuel, power and generator set. On appeal, filed by the assessee, the Commissioner of IncomeTax (Appeals) [(hereinafter referred to as `the CIT (A)] deleted the saidaddition, while observing that the boiler was actually owned by the assesseeand was used by him for business purposes. It was further observed that ifthe surplus steam was sold to another concern, that could not be taken as aground for holding that the assessee had not used the boiler for businesspurposes. Rather, it was added in the income of the assessee without anyextra expenditure incurred by it. Aggrieved against the aforesaid order passed by the CIT (A),the revenue filed appeal before the ITAT. On the said issue, the appeal wasallowed and order of the CIT (A) was set aside, observing as under :- “In this regard, it is seen that the issue of supply of surplus steam was not before the Assessing Officer. The AssessingOfficer has made the disallowance in accordance with theprovisions of section 38 (2) of the Act. As per this section,wherein any building, machinery, plant or furniture is notexclusively used for the purposes of the business or profession,the deductions inter alia, under section 32 (1) (ii) shall berestricted to a fair proportionate part thereof, which theAssessing Officer may determine having regard to the user ofsuch building, machinery, plant or furniture for the purposes ofthe business or profession. The learned CIT (A), is seen, israther gone at a tangent form the findings arrived at by theAssessing Officer. The issue of disallowance under section 38(2) of the Act has not at all been able to repel the findingsarrived at by the Assessing Officer. The case is directly coveredby the provisions of section 38 (2). Therefore, we herebyuphold the findings of the Assessing Officer.” Against the aforesaid order of the ITAT, the assessee has filedthe instant appeal, raising the following two substantial questions of law forconsideration of this Court : Against the aforesaid order of the ITAT, the assessee has filedthe instant appeal, raising the following two substantial questions of law forconsideration of this Court : (1) Whether on the true and correct interpretation of provisionsof section 32, the depreciation is to be allowed to the assesseeon the user of the asset?of section 32, the depreciation is to be allowed to the assesseeon the user of the asset? (2) While granting of the depreciation u/s 32 on fulfilling the foundational condition of user the interpretation per section 38is to be proportioned related to production? We have heard counsel for the parties. Learned counsel for the assessee submits that the ITAT was notjustified in having reversed the finding of the CIT (A) by overlooking thefactum of use of the boiler by the assessee for its business purposes. Ifsurplus steam is sold by the assessee to its sister concerns, then it cannot betaken as a ground for not using the asset for business purposes. Therefore,the CIT (A) was right while holding that the assessee was entitled fordepreciation under Section 32 of the Act. In support of his contention,learned counsel for the assessee has relied upon a decision of the DelhiHigh Court in Punjab National Bankversus Commissioner of Income-Tax, Delhi, 141 ITR 886 and another decision of the Madras High Court inCommissioner of Income-TaxversusIndian Express (Madurai) Pvt. Ltd.,255 ITR 68. On the other hand, learned counsel for the revenue, while referring to the finding recorded by the Assessing Officer, submits that inthe instant case, the assessee has shared expenses with its sister concerns foruse of the boiler i.e. expenses with regard to use of fuel, power andgenerator set, but no disallowance has been made in respect of depreciationof boiler, diesel generator set and electric installation. Learned counselfurther submits that admittedly, there was no evidence before the CIT (A)that the assessee has sold the surplus steam and earned the income, therefore, he was not justified in adding the same in the income of theassessee. Hence, the issue of selling the surplus steam was not before theAssessing Officer and he made the disallowance in accordance withprovisions of Section 38 (2) of the Act and the ITAT was fully justified insetting aside the order of the CIT (A). Section 32 of the Act provides for certain depreciations inrespect of buildings, machinery, plant or furniture, being tangible assets,which are wholly or partly used by the assessee for the purpose of hisbusiness or profession. If, however, the assets are not exclusively used forbusiness purposes, but are also used for other purposes, the assessee wouldbe entitled only for a proportionate part thereof. Section 38 (2) of the Actreads as under :- 38. Building, etc., partly used for business, etc., or notexclusively so used. - ... (2) Where any building, machinery, plant or furniture isnot exclusively used for the purposes of the business orprofession, the deductions under sub-clause (ii) of clause (a)and clause (c) of section 30, clauses (i) and (ii) of section 31and clause (ii) of sub-section (1) of section 32 shall berestricted to a fair proportionate part thereof which theAssessing Officer may determine, having regard to the user ofsuch building, machinery, plant or furniture for the purposes ofthe business or profession.” 38. Building, etc., partly used for business, etc., or notexclusively so used. - ... (2) Where any building, machinery, plant or furniture isnot exclusively used for the purposes of the business orprofession, the deductions under sub-clause (ii) of clause (a)and clause (c) of section 30, clauses (i) and (ii) of section 31and clause (ii) of sub-section (1) of section 32 shall berestricted to a fair proportionate part thereof which theAssessing Officer may determine, having regard to the user ofsuch building, machinery, plant or furniture for the purposes ofthe business or profession.” In the instant case, as per the finding recorded by the AssessingOfficer, the assessee was not using the boiler exclusively. The boiler, inrespect of which the depreciation has been claimed, was also used by thesister concerns of the assessee. Not only that, on account of the said use, theassessee had shared expenses with its sister concerns for use of fuel, powerand generator set. In view of this finding of fact, in our opinion, the ITAThas rightly come to the conclusion that the deduction claimed by theassessee under section 32 (1) (ii) of the Act has to be restricted to a fairproportionate part thereof, which the Assessing Officer may determinehaving regard to the user of such building, machinery, plant or furniture forthe purposes of the business. In the instant case, the Assessing Officer hasheld that the boiler has been used by the sister concerns of the assessee tothe extent of 68%. Thus, the expenses amounting to Rs. 1,76,257/- were notallowed to the assessee. The judgments cited by learned counsel for the assessee are notapplicable to the facts and circumstances of this case. In Punjab NationalBank versus Commissioner of Income-Tax, Delhi(supra), the assesseeowned a building of 6 floors, 5 of which were occupied by the assessee forthe purpose of his business and the 6[th] floor was let out by the assessee to aparty. The whole building was fitted with air-conditioning plant and therewere also lifts operating. In those circumstances, it was held thatdepreciation had to be allowed in full on the building and the lifts and air-conditioning plant, since the same were being used by the assessee for the purpose of its business. The fact that they might also be utilised by thetenant of one of the floors or customers or visitors did not make anydifference. The facts are different in the instant case. Here, the assesseepermitted its sister concerns to partly use the boiler and on account of usethereof, the assessee had shared expenses with its sister concerns, for use offuel, power and generator set. Similarly, inCommissioner of Income-TaxversusIndian Express (Madurai) Pvt. Ltd.(supra), a tape, obtained by theuse of the machine of the assessee, for which depreciation was claimed, wassubsequently made available to its sister concern. In those facts, it was heldthat use of the machine was an exclusive use for the purpose of the businessof the assessee and making available of the tape to its sister concern was asubsequent event which might amount to a gratuitous act on the part of theassessee but would not render the user non-exclusive so far as the assesseewas concerned for the purpose of its business. In the instant case, the boilerwas directly permitted by the assessee to be partly used by its sisterconcerns. Further, in the case of Commissioner of Income-TaxversusIndian Express (Madurai) Pvt. Ltd.(supra), the assessee was incurring theexpenditure in terms of commercial expediency was an expenditure whichwas required to be incurred for its business. Such expenditure must beregarded as having been incurred exclusively for the purpose of assessee'sbusiness even though incidentally a third party may also happen to bebenefited by reason of such expenditure. However in the instant caseexpenditure was even shared by one sister concern with the assessee. Therefore, it cannot be said that the assessee has used the boiler exclusivelyfor the purpose of its business. In view of the above, we are of the opinion that in this appeal,no substantial question of law is arising from the order of the ITAT.Dismissed. ( SATISH KUMAR MITTAL )JUDGE July 10, 2008 ndj ( RAKESH KUMAR GARG )JUDGE