Commissioner of Income Tax vs Soundararaja Finance Ltd.

P.P.S. Janarthana Raja, J.—The present appeals are filed u/s 260A of the Income Tax Act, 1961 by the Revenue, in I. T. A. No. 1724/

Mds/97, passed by the Income Tax Appellate Tribunal, Madras, ""B"" Bench raising the following substantial question of law :

Whether in the facts and circumstances of the case, the Tribunal was right in holding that the two electrical yarn cleaners by the asses-see is entitled

for depreciation at the rate of 100 per cent. ?

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 year ended on

March 31, 1992. The assessee-company filed its return of income on December 31, 1992, declaring total income of Rs. 5,21,180. The return was

processed u/s 143(1)(a) on December 8, 1993. Later, the case was taken up for scrutiny on December 6, 1993. During the year, the asses-see-

company purchased two electrical yarn cleaners in January 1992 and February 1992 and claimed 100 per cent, depreciation on those assets

valued at Rs. 13,61,704. According to the Assessing Officer, as these assets were acquired in 1992 and used for less than 180 days, the assessee

is entitled for the depreciation of 50 per cent. only.

(ii) Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). The

Commissioner of Income Tax (Appeals) dismissed the case of the appellant and confirmed the order of the Assessing Officer. Aggrieved by the

same, the assessee filed an appeal to the Income Tax Appellate Tribunal. The Income Tax Appellate Tribunal allowed the appeal and given a

direction to the Assessing Officer to allow the full depreciation in the year under consideration.

We heard the arguments of learned standing counsel for the Revenue, who submitted that if the asset is used for less than 180 days, the third

proviso to Section 32(1) would operate. Here the issue is related to the question that if the individual worth of the asset is less than Rs. 5,000,

whether restriction as contemplated in the relevant proviso to Section 32 in regard to the 50 per cent, allowability would apply in the facts of the

case. The relevant proviso to Section 32 reads as under :

Provided further that where an asset referred to in Clause (i) or Clause (ii) or Clause (iia), as the case may be, is acquired by the assessee during

the previous year and is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in that previous

year, the deduction under this Sub-section in respect of such asset shall be restricted to fifty per cent, of the amount calculated at the percentage

prescribed for an asset under Clause (i) or Clause (ii) or Clause (iia), as the case may be :

It is pertinent to refer to the Central Board of Direct Taxes Circular No. 591 dated January 30, 1991 reported in Commissioner of Income Tax

Vs. Goodlass Nerolac Paints Ltd., . The relevant portion is reproduced as under :

It is clarified 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 without any restriction, in respect of the previous year in which the machinery or plant is first put to use by the company for the

purpose of its business or profession.

It is to be noted that the first proviso to Section 32 was omitted by the Finance Act, 1995 with effect from April 1, 1996. Prior to the omission,

the first proviso as inserted by the Finance Act, 1966 with effect from April 1, 1966 and amended by the Finance Act, 1983 with effect from April

1, 1984, 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 assesses for the purposes of his business or

profession.

Hundred per cent, depreciation on the actual cost of items of machinery or plant, the cost of which did not exceed Rs. 5,000 was available to

the assessee by virtue of that proviso. The restriction put on the basis of user was not made applicable to the items of this category. This issue is

clarified by the Central Board of Direct Taxes Circular referred to above. The Supreme Court in the case of UCO Bank, Calcutta Vs.

Commissioner of Income Tax, West Bengal, , held that the circulars are binding on the Department and it is not open to the Department to raise a

contention which is contrary to the circulars and instructions validly issued by the Board. The Revenue authorities were therefore not correct in

restricting the depreciation to the extent of 50 per cent.

In view of the foregoing conclusions, we find no error in the order of the Income Tax Appellate Tribunal and requires no interference. Hence no

substantial question of law arises for consideration of this Court. Accordingly, the above tax case is dismissed. No costs.