Tc/88/2006 Of Commissioner Of Income Tax v. Soundararaja Finance Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HONOURABLE MR.JUSTICE P.D.DINAKARAN THE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA The Commissioner of Income Tax ,Chennai...Appellant/Respondent M/s.Soundararaja Finance Ltd.,19, Kasturi Rangan Road,Alwarpet, Chennai-18. ..Respondent/Appellant Appeals under Section 260A of the Income Tax Act, 1961 againstthe order of the Income Tax Appellate Tribunal, Madras, 'B' Bench inI.T.A. Nos.1724/Mds/97 for the assessment year 1992-93. The present appeals are filed under Section 260A of the IncomeTax Act, 1961 by the Revenue, in I.T.A. No.1724/Mds/97, passed by theIncome Tax Appellate Tribunal, Madras, 'B' Bench raising the followingsubstantial question of law. "Whether in the facts and circumstances of thecase, the Tribunal was right in holding that thetwo Electrical Yarn Cleaners by the assessee isentitled for depreciation at the rate of 100%?" 2.The facts leading to the above question of law are as under: i)The assessee is a Hire Purchase and Lease Finance Company.The Assessment Year is 1992-93 and the corresponding Accounting Yearended on 31.03.1992. The assessee company filed its Return of income https://hcservices.ecourts.gov.in/hcservices/ on 31.12.1992, declaring total income of Rs.5,21,180/-. The Returnwas processed under Section 143(1)(a) on 08.12.1993. Later, the casewas taken up for scrutiny on 06.12.1993. During the year, theassessee company purchased two Electrical Yarn Cleaners in January1992 and February 1992 and claimed 100% depreciation on those assetsvalued at Rs.13,61,704/-. According to the Assessing Officer, asthese assets were acquired in 1992 and used for less than 180 days,the assessee is entitled for the depreciation of 50% only. ii)Aggrieved by the order of the Assessing Officer, theassessee filed an appeal before the Commissioner of Income Tax(Appeals). The Commissioner of Income Tax (Appeals) dismissed thecase of the appellant and confirmed the order of the AssessingOfficer. Aggrieved by the same, the assessee filed an appeal to theIncome Tax Appellate Tribunal. The Income Tax Appellate Tribunalallowed the appeal and given a direction to the Assessing Officer toallow the full depreciation in the year under consideration. 3.We heard the arguments of the learned standing counsel forthe Revenue, who submitted that if the asset is used for less than 180days, the third proviso to Section 32(1) would operate. Here theissue is related to the question that if the individual worth of theasset is less than Rs.5,000/-, whether restriction as contemplated inthe relevant proviso to Section 32 in regard to the 50% allowabilitywould apply in the facts of the case. The relevant proviso of Section32 reads as under: "Provided further that where an asset referred toin clause (i) or clause (ii) or clause (iia), asthe case may be, is acquired by the assesseeduring the previous year and is put to use for thepurposes of business or profession for a period ofless than one hundred and eighty days in thatprevious year, the deduction under this sub-section in respect of such asset shall berestricted to fifty per cent of the amountcalculated at the percentage precribed for anasset under clause (i) or clause (ii) or clause(iia), as the case may be:" It is pertinent to refer to C.B.D.T. Circular No.591 dated 30.01.1991reported in 188 ITR 1 at Page No.6 (Statute). The relevant portionare reproduced as under: "It is clarified that where the actual cost of anymachinery or plant does not exceed five thousandrupees, the actual cost thereof shall be allowedas a deduction without any restriction, in respectof the previous year in which the machinery or plant is first put to use by the company for thepurpose of its business or profession" It is pertinent to refer to C.B.D.T. Circular No.591 dated 30.01.1991reported in 188 ITR 1 at Page No.6 (Statute). The relevant portionare reproduced as under: "It is clarified that where the actual cost of anymachinery or plant does not exceed five thousandrupees, the actual cost thereof shall be allowedas a deduction without any restriction, in respectof the previous year in which the machinery or plant is first put to use by the company for thepurpose of its business or profession" It is to be noted that the first proviso to Section 32 was omitted bythe Finance Act, 1995 with effect from 01.04.1996. Prior to theomission, the first proviso as inserted by the Finance Act, 1996 witheffect from 01.04.1966 and amended by the Finance Act, 1983 witheffect from 01.04.1984, read as under: "Provided that where the actual cost of anymachinery or plant does not exceed five thousandrupees, the actual cost thereof shall be allowedas a deduction in respect of the previous year inwhich such machinery or plant is first put to useby the assessee for the purposes of its businessor profession." 100% depreciation on the actual cost of items of machinery or plant,the cost of which not exceeded Rs.5,000/- was available to theassessee by virtue of that proviso. The restriction put on the basisof user was not made applicable to the items of this category. Thisissue is clarified by the C.B.D.T. Circular referred above. TheSupreme Court in the case of UCO Bank Vs. Commissioner of Income Tax,reported in 237 ITR 889, held that the circulars are binding on thedepartment and it is not open to the department to raise a contentionwhich is contrary to the circulars and instructions validly issued bythe Board. The Revenue authorities were therefore not correct inrestricting the depreciation to the extent of 50%. 4.In view of the foregoing conclusions, we find no error inthe order of the Income Tax Appellate Tribunal and requires nointerference. Hence no substantial question of law arises forconsideration of this Court. Accordingly, the above tax case isdismissed. No costs. Sd/Asst.Registrar /true copy/ Sub Asst.Registrar km To1.THE ASST. REGISTRARINCOME TAX-APPELLATE TRIBUNALMADRAS 'B' BENCH BESANT NAGAR III FLOOR,CHENNAI 600 090. 2. THE SECRETARYCENTRAL BOARD OF COMMERCIAL TAXESNEW DELHI.3. THE COMMISSIONER OF INCOMETAX (APPEALS)-IV CHENNAI.4. THE COMMISSIONER OF INCOMETAX,CHENNAI.5. THE DEPUTY COMMISSIONEROF INCOME TAX SPECIAL RANGE XI, CHENNAI.+1cc to Mrs. Pushya Sitaraman, Senior Standing Counsel Income TaxDepartment Sr 5113MS (CO)km/20.2. Tax Case (Appeal) No.88 of 2006