Case Law Details
The Delhi High Court has held in case of Stitchwell Qualitex (RF) Vs. ITO that Installation of plant and machinery in building would amount to use of the building and therefore assessee is eligible to claim for depreciation u/s 32 on said building . Court Further held that Depreciation is allowable on plant and machinery installed and ready for use of despite no actual use as same were for expansion of existing Plant & Machinery and were for Business Purpose Only.
Facts of the case
- The Assessee is a registered firm carrying on business of manufacturing bag stitching machines in a factory.It constructed a factory building thereon in (AY 1989-90) Machinery was installed in the said factory (styled Unit II) in the previous year 1989-90.
- The Assessing Officer while framing assessment under Section 143 (3) noted that the Assessee had claimed depreciation .
- The AO disallowed the above claim of depreciation on the ground that (i) no sales have been made from Unit-II; (ii) purchases made for Unit-II are only Rs. 361.70; (iii) no expenses under any head have been claimed; (iv) all the wages payments and official documents showed that no manufacturing activity took place; (v) no separate staff was engaged and (vi) no power bill has been received. The AO held that the Assessee failed to prove that it had undertaken any manufacturing activity during the AY in question.
Contention of Assesse
The plant and machinery was installed in the previous year 1989-90 (AY 1989-90). Though there was no employment of staff, payment of wages, purchase of raw material, or any sale from the said unit-II, but the premises was in ready condition to carry on any business activity.
HELD by CIT(A)
The CIT (A) accepted assessee’s plea and observed that there was no employment of staff, payment of wages, purchase of raw material or sale from Unit-II. The CIT further observed that the plant was not actually used for any manufacturing activity. The CIT (A) allowed the depreciation and came to the conclusion that the assets were kept ready for actual use and were profit making apparatus.
HELD by ITAT
The ITAT held that in order to claim depreciation, it is important,that the asset must be actually used for the purpose of business. Thus the CIT (A) was not justified in granting depreciation.
HELD by HIGH COURT
In the present case the context is the claim for depreciation under Section 32. On facts, it is not in dispute that the building was constructed in the previous year 1988-89. Further, the plant and machinery was installed in the factory in the previous year ending 31st March 1990. The Court in of the view that the installation of the plant and machinery in the building would amount to use of the building so as to justify the claim for depreciation on the building. Further, the plant and machinery installed in the building during AY 1989-90 was ready for use for the purpose of business of the Assessee. The electricity connection was given on 6th February 1990. Another important fact was that the Assessee was already conducting its business and this was Unit II which was by way of expansion of an existing business. It is not the Revenue’s case that the building and plant and machinery were not for the purpose of business of the Assessee. Therefore, it is concluded that the building and machinery in Unit II were used for the purpose of the business of the Assessee during the AY .
