High Court Of Madras
CIT vs. Ashoka Betelnut Co. (P) Ltd.
Sections 32(1)(iii)
Asst. Year 1983-84
R. Jayasimha Babu & K. Raviraja Pandian, JJ.
Tax Case No. 389 of 1995
28th August, 2002
Counsel Appeared
T. Ravikumar, for the Applicant : None, for the Respondent
JUDGMENT
R. JAYASIMHA BABU, J. :
The assessment year is 1983-84. The questions referred to us at the instance of the Revenue are :
“1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the terminal allowance under s. 32(1)(iii) of the IT Act in respect of the demolished building is Rs. 1,60,866 and not Rs. 1,10,867 as computed by the ITO ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that only the actually realised value of the scrap and not the value of the scrap as such, which has to be taken into account in computing the terminal allowance ?”
The assessee is a private limited company which had owned a building at the Jail Road Complex, Coimbatore. The assessee claimed a sum of Rs. 1,60,866 as loss on assets scrapped, that building having been demolished, in the financial year preceding the assessment year. The assessee claimed that no material had been salvaged. It was found, on enquiry from the director, who had carried out the work, that steel trusses, several steel doors and steel windows had been retrieved and had been utilised in Sri Vasavi College, Erode. The assessee admitted having given those materials to that college, one of whose trustees was also a director of the company. The assessee valued those materials at Rs. 20,000. The ITO assessed the scrap value at Rs. 50,000 and disallowed that amount from the amount claimed by the assessee as loss on the assets. That assessment having been affirmed by the CIT(A) the assessee carried the matter to the Tribunal which upheld the claim as made by the assessee. The contention of the assessee was that the words ‘amount of scrap value, if any’ in that section refers only to the monies actually realised by the assessee as scrap value, and does not permit an estimate of that value being made and that if the assessee has chosen not to realise any value from the scrap material, no deduction could be made towards scrap value.
We do not find it possible to uphold the order of the Tribunal. Sec. 32(1)(iii) of the Act permits the writing off of the deficiency between the written down value and the money realised on the building, machinery, plant or furniture which is sold, discarded, demolished or destroyed in the previous year together with the amount of scrap value, if less than written down value.
The scrap value will arise for consideration where assets are discarded or demolished or destroyed and will not arise for consideration where assets are sold. When the asset is discarded, demolished or destroyed, the assessee which is no longer put to use or which has suffered damage or destruction, may even after being so discarded, damaged or destroyed still have value as scrap. If it has such a value, it is immaterial as to whether the assessee has chosen to convert that value into cash. What is required to be taken into account is the value of the scrap and not the amount realised by the assessee by the sale of that scrap. The provision refers to the asset being sold. It is in that context that the reference to the scrap value is clarified as ‘amount of scrap value, if any’ as the question of scrap value will not arise for consideration when the asset has been sold altogether. When the asset is discarded it ceases to be put to use, but still will be available for disposal by the assessee. So also the scrap which results from the demolition or destruction of the assets. The decision of the assessee not to convert that scrap into money by selling that scrap or by merely giving away that scrap in whole or in part to others without realising anything in return from them, does not have the effect of depriving the scrap of the value it otherwise has.
The fact that the assessee by choosing to gift away the salvaged material after the building had been demolished, chose not to realise the price from the person to whom the articles were given does not deprive the article of it’s value. The value of the scrap, therefore, is required to be taken into account while determining the extent to which the assessee can claim the benefit under s. 32 (1)(iii).
The Tribunal has only taken note of the value of the steel trusses, doors and windows and has not said anything about the correctness or otherwise of the estimate made by the AO who had valued the scrap at Rs. 50,000. The AO had taken a higher figure as he found that there were a number of items of steel windows and doors with the assessee, even after the building was pulled down. We, therefore, answer the question referred to us in favour of the Revenue and against the assessee.
[Citation : 259 ITR 733]
