Madhya Pradesh H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the assessee-company was entitled to depreciation on biogas plant for full year ignoring comprehensive information furnished by the assessee-company itself vide its letter dt. 23rd Feb., 1996, which contains its own admission with the biogas plant was commissioned on 9th Oct., 1992, and also documentary evidence on record clearly proves the biogas plant having been operational on 9th Oct., 1992, i.e., after the expiry of half of the previous year relevant to the assessment year in question ?

High Court Of Madhya Pradesh

CIT vs. Vindhyachal Distilleries (P) Ltd.

Sections 32, 260A

Asst. Year 1993-94

R.V. Raveendran, C.J. & Shantanu Kemkar, J.

IT Appeal No. 54 of 2003

27th October, 2004

Counsel Appeared

Rohit Arya & Sanjeev Tuli, for the Appellant : Sumit Nema with Mukesh Agrawal, for the Respondent

JUDGMENT

R.V. raveendran, C.J. :

The respondent (assessee) claimed that it installed and put to use a biogas plant at the cost of Rs. 90,41,057 in May, 1992. In the return for the asst. yr. 1993-94, it claimed depreciation. The ITO while passing the order of assessment dt. 29th Feb., 1996, restricted the depreciation to 50 per cent on the ground that the biogas plant was commissioned and put to use for less than 180 days, that is, only from 9th Oct., 1992. The CIT(A) by his order dt. 13th Aug., 1996, upheld the disallowance of depreciation of 50 per cent of biogas plant. For this purpose, the AO and the appellate authority relied on the statement said to have been made by the representative of the assessee on 28th Feb., 1996, at the time of hearing that the biogas plant was commissioned on 9th Oct., 1992, and was put to use from that date. A further appeal preferred by the assessee was allowed by the Tribunal, Indore Bench, by order dt. 4th Oct., 2002, with a direction to the AO to allow the claim of the assessee regarding depreciation by treating the biogas plant as being in use from May, 1992, itself. The Tribunal accepted the case of the assessee after examination of the documents and held that the biogas plant was installed and put to use in May, 1992, as was evident from the assessee’s letter dt. 19th May, 1992 to the supplier of the biogas plant, that during trial runs, it developed some leakage and other problems, that there was some correspondence with the supplier of the plant in July and August, 1992, and thereafter, the plant was repaired and leakage and other teething problems were solved and normal flaring of methane gas started in October, 1992. The Tribunal recorded a finding of fact after examining the relevant documents that the entire equipment has been installed and commissioned and put to use in May, 1992.

2. Feeling aggrieved, the Department filed this appeal under s. 260A of the IT Act contending that the following question of law arises for consideration : “Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the assessee-company was entitled to depreciation on biogas plant for full year ignoring comprehensive information furnished by the assessee-company itself vide its letter dt. 23rd Feb., 1996, which contains its own admission with the biogas plant was commissioned on 9th Oct., 1992, and also documentary evidence on record clearly proves the biogas plant having been operational on 9th Oct., 1992, i.e., after the expiry of half of the previous year relevant to the assessment year in question ?”

3. The question whether the biogas plant was put to use for the purpose of business of the assessee from a particular date, is a question of fact. The Tribunal after exhaustive reference to the records (correspondence, bills and other documents) has recorded a finding of fact that the installation and use was from May, 1992. The finding may not, therefore, call for interference.

4. Learned counsel for the Revenue placed reliance on the letter dt. 17th Oct., 1992, written by the assessee to the Chairman, M. P. Pollution Control Board, wherein it was confirmed that the normal flaring of methane gas commenced only on 9th Oct., 1992, and which was also confirmed at the time of hearing before the AO on 28th Feb., 1996. Therefore, it is contended that the “use” was only from 9th Oct., 1992, though installation was completed in May, 1992, and trial runs were commenced in May, 1992.

5. Sec. 32 of the IT Act, 1961, provides that in respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of business or profession, deductions provided therein shall be allowed. The question is whether the term “use” refers to the commencement of regular commercial production or whether it would include the period during which trial runs and repairs are made to make it fully operational. It is well-settled that the word “used” should be understood in a wide sense, so as to include passive as well as active user [vide the decisions of the Bombay High Court in CIT vs. Viswanath Bhaskar Sathe (1937) 5 ITR 621 (Bom); Whittle Anderson Ltd. vs. CIT (1971) 79 ITR 613 (Bom) and the decision of the Delhi High Court in Capital Bus Service (P) Ltd. vs. CIT (1980) 17 CTR (Del) 155 : (1980) 123 ITR 404 (Del)]. In V. Ramakrishna & Sons Ltd. vs. CIT (1984) 149 ITR 554 (Mad), the Madras High Court held that user of machinery in test production or experimental manufacture was user for the purposes of the assessee’s business. The question was directly considered by the Gujarat High Court in Asstt. CIT vs. Ashima Syntex Ltd. (2001) 169 CTR (Guj) 102 : (2001) 251 ITR 133 (Guj) and it was held that trial production of a machinery would fall within the ambit of “used for the purpose of business”. The following observations are relevant : “There must be use of plant and machinery for the purpose of business as contemplated in s. 32 of the Act. There is thus a thin line between the trial run and actual production, or many a time, the word used is ‘commercial production’. If the machines are installed properly and it gives good result, then one need not wait for any rectification in the system. There may be some cases wherein after commencement of the production, the machine may not give proper results—may be on account of failure of certain parts, may be on account of requirement of certain additional machinery, etc. In such a case, the production obtained at the initial stage would be considered as trial production. …. The law does not require that there must be optimum production for granting the benefit. Law only requires that there must be use of plant and machinery for the purpose of business. Use of such words that plant and machinery was run more extensively or was required to be used for larger production is not to be found in the Act or Rules. Whether the plant and machinery were upto the extent of its efficiency is irrelevant for the purpose of deciding depreciation.”

6. It is not in dispute that the plant was installed in May, 1992, and the records clearly showed that on installation, it was commissioned in May, 1992, but on account of certain leakage, during trial run, repairs had to be carried out and regular production started in October, 1992. We, therefore, find no error in the findings recorded by the Tribunal and no substantial question of law arises for consideration. The appeal is, therefore, dismissed.

[Citation : 272 ITR 583]

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