Tax Tribunal Upholds 100% Depreciation for Shuttering Equipment

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Case Name:

Commissioner of Income Tax Vs. U.P. State Bridge Corporation Ltd. (High Court of Allahabad)

Income Tax Appeal No. 23 of 2014

Date: 11th January 2017

Key Takeaways:

• The court confirmed that shuttering equipment, essential for the construction business, qualifies as a plant eligible for 100% depreciation.
• The decision reinforces the interpretation of “used” in Section 32 (of Income Tax Act, 1961), emphasizing actual use in business operations.
• The judgment aligns with previous rulings, maintaining consistency in tax treatment for construction-related assets.

Issue

Was the Income Tax Appellate Tribunal justified in allowing 100% depreciation on shuttering equipment as a plant under the Income Tax Act?

Facts

• The U.P. State Bridge Corporation Ltd. is engaged in bridge construction, where shuttering is a critical component.
• The Income Tax Department challenged the corporation’s claim for 100% depreciation on shuttering equipment, arguing it was not used.
• The Tribunal had previously ruled in favor of the corporation, treating the shuttering as a plant eligible for full depreciation.

Arguments

• For the Appellant (Commissioner of Income Tax): Argued that the shuttering equipment was not used and thus should not qualify for 100% depreciation.
• For the Respondent (U.P. State Bridge Corporation Ltd.): Contended that the shuttering is essential for their business and qualifies as a plant, citing previous legal precedents.

Key Legal Precedents

• Harijan Awam Nirbal Varg Avas Nigam Vs. CIT (1998, 229 ITR, 776 Alld): Established that shuttering is a plant eligible for 100% depreciation.
• Mohta Construction Company (273 ITR, 276 Rajasthan): Supported the classification of shuttering as a plant.
• Dinesh Kumar Gulabchand Agarwal Vs. CIT (276 ITR, 768 Bombay): Clarified the meaning of “used” in the context of Section 32 (of Income Tax Act, 1961), emphasizing actual use in business.

Judgement

The court upheld the Tribunal’s decision, allowing 100% depreciation for the shuttering equipment. It agreed with the Tribunal’s reasoning that the equipment was essential for the corporation’s business and was ready for use, thus meeting the criteria for depreciation under the Income Tax Act. The appeal by the Income Tax Department was dismissed.

FAQs

Q1: What does this decision mean for U.P. State Bridge Corporation Ltd.?

A1: The corporation can claim 100% depreciation on its shuttering equipment, reducing its taxable income.

Q2: Why was the concept of “used” important in this case?

A2: The court needed to determine if the equipment was actively used in business operations to qualify for depreciation.

Q3: How does this case impact other construction companies?

A3: It sets a precedent that similar equipment used in construction can be classified as a plant, eligible for full depreciation.

1. Heard Sri Manish Misra, learned counsel for appellant and Sri Pradeep Agrawal, counsel for respondent.

2. This appeal under Section 260 (of Income Tax Act, 1961)­A of Income Tax Act, 1961 (hereinafter referred to as “Act 1961”) preferred by Revenue relating to Assessment Year 1992-­93 has arisen from judgment and order dated 30.01.2014 passed by Income Tax Appellate Tribunal, Lucknow Bench ‘A’ Lucknow (hereinafter referred to as ‘Tribunal”) in Income Tax Appeal no. 05/LKW/2003. Though it is not admitted but counsel for parties agreed that only following substantial questions of law which may arise in this appeal are:­

“1. Whether on the facts and circumstances of the case the Income­Tax Appellate Tribunal was justified in upholding the order of the CIT(A) without appreciating the fact that any item can be categorised as either Revenue or Capital but not both at the same time.

2. Whether on the facts and circumstances of the case the Income­Tax Appellate Tribunal was justified in upholding the order of the CIT(A) by following its earlier order without assigning any reason for the same.”

3. He also stated that similar questions have already been considered by this Court in Income­Tax Appeal no. 24 of 2011 between same parties for Assessment Year 1995­96 and the same have been answered in favour of Assessee and against Department. The operative part of judgment reads as under:­

“It may be mentioned that in the instant case, the construction of the bridge is the main business activity of assessee for which the shuttering is an essential item. The assessee is the complete owner of the shuttering.

Without shuttering, no building or bridge can be erected. Shuttering material was treated as a plant on which 100% depreciation is allowable as per the ratio laid down in the case of Harijan Awam Nirbal Varg Avas Nigam Vs. CIT 1998, 229 ITR, 776 Alld. Similar views were also expressed in the case of CIT Vs. Mohta Construction Company 273 ITR, 276 Rajasthan.

Further, in the instant case, it was claimed by the department that the shuttering was not used, it was kept unused. But it may be mentioned that in the case of Dinesh Kumar Gulabchand Agarwal Vs. CIT 276 ITR, 768 Bombay, it was held that:­

"The word "used" in section 32 (of Income Tax Act, 1961) of the Income­tax Act, 1961, denotes that the asset has been actually used and not that it is merely ready for use. The expression "used" means actually used for the purpose of the business."

In the instant case, the assessee was the owner of the shuttering which was ready to use. When it is so, then the assessee is entitled for 100% depreciation, as rightly observed by the Tribunal. Therefore, we find no reason to interfere with the impugned order passed by the Tribunal and the same is hereby sustained along with the reasons mentioned therein.

The answer to the substantial question of law is in favour of the assessee and against the department.

In the result, appeal filed by the department is dismissed.”

4. For the reasons stated therein and having not being placed any otherwise binding law to persuade us to take a different view in the matter, this appeal is decided in favour of Assessee and against Revenue.

5. Appeal is accordingly dismissed.

Order Date :- 11.1.2017