Revenue appeals against ITAT order allowing computation of income under Section 10(29) excluding depreciation. The Bench held that depreciation is an allowance, not an expense, dismissing the appeals.
Appeals dismissed; no substantial question of law arises; cost applications allowed and delay in refiling condoned.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
$~26,27,29,30,32.
PR. COMMISSIONER OF INCOME TAX DELHI-2, NEW DELHI ..... Appellant Through: Mr. P. Roychaudhuri, Sr. Standing Counsel.
versus
CENTRAL WAREHOUSING CORPORATION ..... Respondent Through: Mr. Mayank Nagi, Advocate with Mr. Tarun Singh, Advocate.
CORAM: JUSTICE S. MURALIDHAR JUSTICE PRATHIBA M. SINGH
O R D E R
% 01.08.2017
Dr. S. Muralidhar, J. :
ITA Nos.584/2017, 585/2017, 587/2017, 588/2017, 589/2017
Page 1 of 5
the ITAT erred in confirming the order of the Commissioner of Income Tax (Appeals) [‘CIT (A)’] whereby it was held that the deductible income under Section 10 (29) of the Act is to be computed after excluding depreciation as part of the expenditure and taking gross receipts from warehousing and Inland Container Depot/ Container Freight Station (‘ICD/CFS’).
“11. The entire controversy, therefore, stands resolved if one
ITA Nos.584/2017, 585/2017, 587/2017, 588/2017, 589/2017
Page 2 of 5
understands the meaning of “balancing charge”. Where any allowance or deduction had earlier been made in respect of any loss, expenditure or trading liability and subsequently the assessee has obtained or realized any amount towards such loss, expenditure or trading liability, Section 41(1) deems such realization/recoupment as assessee’s income for the year in which it is realized. Section 41(2) as it stood at the material time stated that if in respect of any plant and machinery, any depreciation had been allowed and subsequently such plant and machinery was sold, discarded or destroyed, the assessee might get some value either as a result of sale or insurance or from salvage or compensation thereabout. The necessity to keep Section 41(2) as a provision in addition to Section 41(1) arose from the fact that, in its very nature, depreciation is neither a loss, nor an expenditure, nor a trading liability, referred to in Section 41(1). The depreciation recovered on sale of the capital asset was includible in the total income as balancing charge only under Section 41(2). That concept was foreign to the scheme of Section 41(1). The balancing charge under Section 41(2) arose only where any depreciable asset (building, machinery, plant or furniture) was sold. In fact, when the concept of “block of assets” stood introduced w.e.f. 1.4.1988, Section 41(2) stood deleted. However, even after 1.4.1988, the proviso to Section 32(1)(ii) continued till 1.4.1996 when by the Finance (No. 2) Act, 1995 the bottles and crates even below Rs. 5,000/- came within the “block of assets” as defined under Section 2(11) of the 1961 Act. As stated, this judgment is confined to depreciable assets costing less than Rs. 5,000/which did not enter the block of assets during the assessment years in question (when Section 41(2) stood deleted).” (emphasis in original)
Page 3 of 5
ITA Nos.584/2017, 585/2017, 587/2017, 588/2017, 589/2017
41(1) of the Act, is neither loss, nor expenditure, nor trading liability’. In other words, irrespective of the provision in which the word ‘depreciation’ is used, owing to the very nature of the word, it is not a loss or an expenditure or a trading liability.
C.M.No.27321/2017 (Exemptions) in ITA No.584/2017 C.M.No.27323/2017 (Exemptions) in ITA No.585/2017 C.M.No.27327/2017 (Exemptions) in ITA No.587/2017 C.M.No.27331/2017 (Exemptions) in ITA No.588/2017 C.M.No.27339/2017 (Exemptions) in ITA No.589/2017
ITA Nos.584/2017, 585/2017, 587/2017, 588/2017, 589/2017
Page 4 of 5
C.M.No. 27322/2017 (delay in refiling) in ITA No.584/2017 C.M.No. 27324/2017 (delay in refiling) in ITA No.585/2017 C.M.No. 27328/2017 (delay in refiling) in ITA No.587/2017 C.M.No. 27332/2017 (delay in refiling) in ITA No.588/2017 C.M.No. 27340/2017 (delay in refiling) in ITA No.589/2017
S. MURALIDHAR, J. PRATHIBA M. SINGH, J. AUGUST 01, 2017 ‘anb’
Page 5 of 5
ITA Nos.584/2017, 585/2017, 587/2017, 588/2017, 589/2017
2 issues framed by the court
Whether depreciation is an expense or an allowance for the purpose of computing deductible income under Section 10(29) of the Income Tax Act, 1961?
Whether the ITAT committed any legal error in relying on the Supreme Court decision in Nectar Beverages Pvt. Ltd. to uphold the Assessee's contention that depreciation is not an expenditure under Sect
Colour shows how this judgement treated each authority
Nectar Beverages Pvt. Ltd. v. DCITRelied on¶4
Nectar Beverages Pvt. Ltd. v. DCIT (2009) 314 ITR 314
CIT v. Anand TheatresRelied on¶8
CIT v. Anand Theatres (2000) 244 ITR 192
1 provisions across 1 enactments
PR. COMMISSIONER OF INCOME TAX DELHI-2
CENTRAL WAREHOUSING CORPORATION
S. MURALIDHAR
PRATHIBA M. SINGH
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
