The Commissioner Of Income Tax - Ltuchennai v. M/S. Lakshmi General Finance Ltd.,(Merged With Sundaram Finance Limited)

IN THE HIGH COURT OF JUDICATURE AT MADRASDATE: 01.03.2021 CORAM: THE HON'BLE MR. JUSTICE M.DURAISWAMYAND THE HON'BLE MRS.JUSTICE T.V.THAMILSELVI The Commissioner of Income Tax - LTUChennai. ... Appellant v. M/s. Lakshmi General Finance Ltd.,(Merged with Sundaram Finance Limited)21, Patullos Road, Chennai. ... Respondent Appeal preferred under Section 260A of the Income TaxAct, 1961, against the order of the Income Tax AppellateTribunal, Madras, "B" Bench, dated 03.12.2010 inI.T.A.No.1186/Mds/2010 for the Assessment Year 1999-2000,against the order of Commissioner of Income Tax (Appeals)Large Tax payer Unit, Chennai in ITA No.29/07-08/LTV(A) dated09.04.2010 preferred against the order of the DeputyCommissioner of Income Tax Company Circle/VI(4), passed in PANNo.AAA(L0502B/SU-48,dated 18.12.2006. Challenging the order passed in I.T.A.No.1186/Mds/2010in respect of the Assessment Year 1999-2000 on the file ofthe Income Tax Appellate Tribunal, Chennai, ''B'' Bench (forbrevity, the Tribunal), the Revenue has filed the aboveappeal. 2.1 The assessee company M/s. Lakshmi General FinanceLimited got merged to M/s. Sundaram Finance Limited. Theassessee filed its return of income for the assessment year1999-2000 admitting total income of Rs.12,29,89,250/-. Thereturn was processed under section 143(1a). Subsequently, ahttps://hcservices.ecourts.gov.in/hcservices/revised return was filed on 15.03.2001 reducing the total income to Rs.10,72,87,110/-, which was processed undersection 143(1a). Thereafter, the assessment was reopenedunder section 147 on 21.03.2003 in order to disallow excessdepreciation claimed by the assessee and the reassessment wascompleted on a total income of Rs.12,61,91,570/;- . Theassessment was again reopened under section 147 on the basisof fresh information about excess depreciation laid onwindmills. The reassessment was completed withdrawing theexcess depreciation of Rs.1.10 crores. 2.2 Aggrieved over the order passed by the AssessingOfficer, the assessee filed an appeal before theCommissioner of Income Tax (Appeals) and the Commissioner ofIncome Tax (Appeals) found that though the windmills weresaid to be connected with Grid at 2100 hours, on 31.03.1999,the meter reading practically showed 0.01 unit of power andthe Assessing Officer disallowed 50% depreciation claimedby the assessee on the ground that they were not actuallycommissioned during the year under consideration. 2.3 The Commissioner of Income Tax (Appeals) relied uponthe decision of the Bombay High Court in 267 ITR 768[ Dinesh Kumar Gulabchand Agarwal} wherein he Bombay HighCourt held that even if the asset was kept ready for use,it would not e sufficient to claim depreciation. The SpecialLeave Petition filed before the Hon'ble Supreme court wasalso dismissed by the Apex Court. 2.4 Subsequently, the assessee filed an appeal beforethe Income Tax Appellate Tribunal, challenging the orderpassed by the Commissioner of Income Tax (Appeals) and theTribunal rejected the case of the assessee and observed thateven though the production of electricity was negligiblysmall, the facts remained that production had started. TheTribunal held that the assessee is entitled to 50%depreciation on two windmills, but remitted the issue ofactual quantification to the Assessing Officer. Challengingthe order passed by the Income Tax Appellate Tribunal, theRevenue has filed the above appeal. 3.The appeal was admitted on the following substantialquestion of law: 2.4 Subsequently, the assessee filed an appeal beforethe Income Tax Appellate Tribunal, challenging the orderpassed by the Commissioner of Income Tax (Appeals) and theTribunal rejected the case of the assessee and observed thateven though the production of electricity was negligiblysmall, the facts remained that production had started. TheTribunal held that the assessee is entitled to 50%depreciation on two windmills, but remitted the issue ofactual quantification to the Assessing Officer. Challengingthe order passed by the Income Tax Appellate Tribunal, theRevenue has filed the above appeal. 3.The appeal was admitted on the following substantialquestion of law: “ Whether on the facts and circumstancesof the case, the Income Tax Appellate Tribunalwas right in holding that the assessee wasentitled to claim depreciation on thewindmills even though the wind mills had notgenerated any electricity during the previousyear and thus there was no user of the assetfor the purpose of the business of generationof power?"https://hcservices.ecourts.gov.in/hcservices/of the case, the Income Tax Appellate Tribunalwas right in holding that the assessee wasentitled to claim depreciation on thewindmills even though the wind mills had notgenerated any electricity during the previousyear and thus there was no user of the assetfor the purpose of the business of generationof power?"https://hcservices.ecourts.gov.in/hcservices/ 4. Mr. Venkatanarayanan, learned counsel appearing forthe respondent submitted that the issue involved in thepresent appeal is covered by the decisions of the Hon'bleDivision Bench of this court dated 11.07.2019 made in T.C.A.Nos. 655, 666 and 657 of 2009 [M/s. TenzingMatch Works, Sivakasi v. The Deputy Commissioner of IncomeTax Circle-1, Virudhunagar] wherein the Division Benchof this Court held as follows:- " ... 5. Before we consider the applicabilityof these decisions, we need to take note of thefollowing facts, which is very relevant in theinstant case. As mentioned above, the assesseeestablished a wind mill and it is the case of theassessee that electricity generation commenced from31.03.2005. The competent authority to certify thisis the Tamil Nadu Electricity Board, from whom theassessee obtained a certificate dated 02.04.2005,from the Executive Engineer (M&O)(Wind Mill),Palladam. This certificate shows that the assesseehad effected supply of electricity to the Board on31.03.2005. Further, statement was recorded fromthe Executive Engineer of the Board under Section133(b) of the Act, wherein he appears to havestated, generation not started but work is over.Armed with this statement, the assessing officerstated that production of electricity as on31.3.2005 was less than one unit and at best couldbe treated as trial production and the assesseehaving not produced electricity before 31.03.2005,cannot be stated to have put the wind mill to usefor the purpose of business. It is not in disputethat the certificate issued by the competentauthority states that electricity was generated on31.3.2005, however the amount of electricity whichwas generated was only 0.080 units. This, accordingto the assessing officer, is insufficient as it canbe considered only as a trial run, but actualgeneration of electricity took place much after31.3.2005. The Tribunal concurred with thefindings of the Assessing Officer, but had referredto the aforementioned four decisions. In ourconsidered opinion, all the four decisions cannot beapplied to the facts of the present case. 6. In the case of “B.Malini and Co., -Vs- CIT(1995) 214 ITR 192 (Bom), there was a gap of oneclear previous year between installation of machineryand its usage and hence it was held that nodepreciation can be claimed. In “The Deputy CIT-Vs- Yellamma Dasappa Hospital (2007 290 ITR 353Kar), the Court found that the machinery has not beenhttps://hcservices.ecourts.gov.in/hcservices/actually put to use. In “Dineshkumar Gulabchand Agrawal -Vs- CIT (2004) 267 ITR 768 (Bom), theassessee claimed depreciation upon the machinerybeing kept ready for use and not put to use. In “CIT-Vs- Maps Tours and Travels (2003 260 ITR 655 Mad),no evidence was placed by the assessee before theTribunal that the cars, which were purchased by themwere used. Thus, we find that all the fourdecisions are not applicable to the present case andare on different set of facts and figures. 7. The case of the assessee before usstrengthened in the light of the following decisions. In “Principal CIT -Vs- Larsen & Toubro Ltd., 403ITR 248 (Bom)” , the machinery for trial productionwas held to qualify for deduction as it would amountto using the machinery for the purpose of business.In CIT -Vs- Escorts Tractors Ltd 56 Taxmann.com333(Delhi)”, the plant and machinery kept ready foruse was held to be enough to grant depreciation. In“CIT -Vs- Southern Petrochemical IndustriesCorporation Ltd 311 ITR 202 (Mad)”, the claim fordepreciation on spare parts, which were stand-byitems, was held permissible. In “CIT -Vs- Geo TechConstruction 244 ITR 452 (Kerala)”, it was held thatan asset can be said to be in use when it is keptready for use. It is beneficial to refer to paragraph5 of the said judgment, which reads as follows. “5.Section 32 of the Act deals withdepreciation. There is no requirement thatthe assets should be used for the whole ofthe assessment year in question. The termused in Section 32(1) is "owned by assessee",but that does not bring in a requirement thatthe assessee should have remained the ownerof the asset in question for the entireprevious year in question. The object of theLegislature,ingrantingdepreciationallowance under Section 32 of the Act, is togive due allowance to the assessee for wearand tear suffered by the asset used by him inhis business so that the net income (totalincome) is duly arrived at. There is nofactual dispute that the assets in questionwere owned by the assessee. In MachineryManufacturers Cororation Ltd. v. CIT[1957] 31ITR 203 (Bom), it was observed that theexpression "used" in Section 10(2)(vi) of theIndian Income-tax Act, 1922 (hereinafterreferred to as "the old Act") correspondingto Section 32 of the Act has to be given awider meaning. The expression includespassive as well as active user. In CIT v. https://hcservices.ecourts.gov.in/hcservices/ Dalmia Cement Ltd. [1945] 13 ITR 415 (Patna)and CIT v. Viswanath Bhaskar Sathe [1937] 5ITR 621 (Bom), it was observed thatdepreciation might be allowed in certaincases even though the machinery was not inuse or was kept idle. The question whetherthe word "used" would include both passive aswell as active user was left open by the apexcourt in Liquidators of Pursa Ltd. v. CIT[1954] 25 ITR 265. The words "used for thepurposes 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 describedas a passive user of the same in thebusiness. An asset can be said to be in usewhen it is kept ready for use. “ 8. In “CIT -Vs- 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 -Vs-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. 9. The above decisions will clearly show that eventrial production machineries kept ready for useetc., were considered to be used for the purpose ofbusiness to qualify for depreciation. In “CIT -Vs-Geo Tech Construction 244 ITR 452 (Kerala)” , themachinery which was purchased by the assess fromPondicherry was yet to reach work site at Kochi andwere in transit, and the Court held that it wouldamount to passive use and would qualify fordepreciation. Thus, we are of the considered viewthat the Tribunal erred in reversing the orderpassed by the CIT (Appeals). For all the abovereasons, the substantial question of law No.1 isanswered in favour of the assessee. ..." 5. From the above Judgment it is clear that even trialproduction machineries kept ready for use etc., wereconsidered to be used for the purpose of business to qualifyfor depreciation and further held that it would amount topassive use and would qualify for depreciation. 6. The ratio laid down by the Hon'ble Division Bench ofthis Court squarely applies to the facts and circumstancesof the present case. 7. The learned counsel appearing for the appellant hasnot produced any contra judgment in support of the Revenue. 8. In these circumstances, following the ratio laid down by the Hon'ble Division Bench (cited supra), the TaxCase Appeal is liable to be dismissed. Accordingly, thesame is dismissed. No costs. Sd/- Assistant Registrar(CS IX)//True Copy// Rj Sub Assistant Registrar To 1.The Income Tax Appellate Tribunal, Chennai, ''B'' Bench. 2.The Commissioner of Income Tax (Appeals), Large Tax Payer Unit, Chennai-101. 3.The Deputy Commissioner of Income Tax, Company Circle VI(4), Chennai-34 4.The Commissioner of Income Tax-LTV, Chennai. +1cc to Mr.Subbraya Aiyar, Advocate, SR 12675. GMI(CO)CSR 22.03.2021 T.C.A.No. 269 of 2011