Facts of the Case

The Revenue filed an appeal against the order dated 11.11.2005 passed by the Income Tax Appellate Tribunal pertaining to Assessment Year 1992-93.

The Revenue proposed six questions as substantial questions of law. Among them, questions relating to reassessment proceedings under Section 147 of the Income Tax Act, 1961, and the allowability of depreciation on leased bottles were raised.

The dispute on merits concerned the depreciation claimed by the assessee on bottles leased in the course of its business. The bottles individually cost less than ₹5,000 each, and the assessee claimed depreciation at the rate of 100%.

The Tribunal had allowed the claim. The Revenue challenged the allowability of such depreciation before the Delhi High Court.

 Issues Involved

  1. Whether each bottle costing less than ₹5,000 should be treated as an individual asset for the purpose of depreciation.
  2. Whether the assessee was entitled to claim 100% depreciation on leased bottles costing less than ₹5,000 each.
  3. Whether only 50% depreciation was allowable where the assets were used for less than 180 days during the relevant previous year.
  4. Whether the reassessment proceedings under Section 147 of the Income Tax Act, 1961, raised any substantial question of law requiring consideration.

 Petitioner’s Arguments (Revenue)

  • The Revenue challenged the Tribunal’s order allowing depreciation at the rate of 100% on leased assets.
  • It was argued that the assessee was engaged in the business of leasing and the bottles had been leased in a single lot.
  • The Revenue contended that depreciation should not automatically be granted at 100% merely because each individual bottle cost less than ₹5,000.
  • It was further submitted that since the bottles had been used for less than 180 days during the relevant year, only 50% of the otherwise allowable depreciation could be claimed.

 Respondent’s Arguments (Assessee)

  • The assessee submitted that the issue regarding depreciation on bottles costing less than ₹5,000 had already been settled by judicial precedents.
  • Reliance was placed on the decisions of the Delhi High Court in CIT v. Prem Nath Monga Bottlers (P) Ltd. and JCIT v. Anatronics General Company (P) Ltd.
  • It was argued that each bottle constituted a separate asset and therefore qualified for 100% depreciation as its individual cost was below ₹5,000.
  • The assessee maintained that the Tribunal had correctly applied the settled legal position.

 Court Findings / Order

The Delhi High Court observed that the issue regarding depreciation on bottles costing less than ₹5,000 had already been settled by earlier judicial decisions.

The Court referred to:

  • CIT v. Prem Nath Monga Bottlers (P) Ltd. (226 ITR 864)
  • JCIT v. Anatronics General Company (P) Ltd. (247 ITR 25)
  • CIT v. Sri Krishna Bottlers Pvt. Ltd. (175 ITR 154) (Andhra Pradesh High Court)

The Court reiterated that:

  • Each bottle is to be treated as an individual asset.
  • Since the cost of each bottle was below ₹5,000, the assessee was eligible for 100% depreciation under the applicable provisions.

However, the Court accepted the Revenue’s submission that the bottles had been used for less than 180 days during the relevant previous year.

Since this factual position was not disputed by the assessee, the Court held that only 50% of the otherwise allowable depreciation could be claimed for that assessment year.

Accordingly, while the legal principle regarding eligibility for 100% depreciation remained undisturbed, the Tribunal’s order was modified to the extent that only 50% depreciation was allowable because the assets were used for less than 180 days.

The appeal was disposed of in these terms.

 Important Clarification

This judgment clarifies two important principles:

1. Individual Asset Test

For depreciation purposes, each bottle costing less than ₹5,000 is to be treated as a separate asset and not as part of a larger block merely because the bottles were acquired or leased in bulk.

2. Restriction Where Asset Used for Less Than 180 Days

Even where an asset qualifies for 100% depreciation under the applicable depreciation provisions, only 50% of such depreciation is allowable if the asset is put to use for less than 180 days during the relevant previous year.

The decision reinforces the principle that eligibility for depreciation and the quantum of depreciation are distinct considerations under the Income Tax Act.

 Sections Involved

  • Section 32 of the Income Tax Act, 1961 – Depreciation Allowance
  • Section 147 of the Income Tax Act, 1961 – Reassessment Proceedings

 Link to download the order -

https://delhihighcourt.nic.in/app/case_number_pdf/2010:DHC:2428-DB/BDA30042010ITA9572006.pdf 

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