Mumbai, Oct 12: The Chennai high court has ruled that 100 per cent depreciation can be claimed on bottles under Section 32(1)(ii) of the Income Tax Act on the ground that each bottle constitutes a `plant'.The decision has come in as a shot in the arm of the leasing industry, banks, non-banking finance companies (NBFCs) and manufacturers who have substantial exposure to leasing of bottles.
"The leasing of bottles has considerably slowed down after mass diallowance of depreciation by the income tax authorities but the Chennai high court judgment would again lure many companies to start leasing the bottles again," sources said.
The division bench of the Chennai high court in a case between First Leasing Company and commissioner of income tax (CIT) has decided that the company can claim 100 per cent depreciation on the bottles as `each bottle constitutes a plant and that the cost of each bottle is less than Rs 750'.
The bench, consisting of Justice R Jayasimha Babu and Justice A Subbulakshmy, hasobserved that "each bottle is an independent unit and is not dependent for its user on the availability of other bottles whether empty or filled."
First Leasing had purchased bottles worth Rs 44,80,245 in assessment year 1981-82. It leased out bottles for a value of Rs 44,80,705 and wrote off the entire cost as 100 per cent depreciation under the first proviso to section 32(1)(ii) of the Income Tax Act, as the cost of each bottle was Rs 750.
The bottles were leased in bulk to Spencer & Co. to be used as containers for soft drinks and beverages manufactured by the company.
In the assessment year 1982-83, a similar claim was made for bottles for the value of Rs 7,29,218.
The income tax officer rejected the claims on the grounds that --
the bottles did not constitute plant, the assessee had purchased and leased the bottles in bulk, and the value of such bulk purchase was much more than Rs 750.The first appellate authority (or the Commissioner of Income Tax- Appeals) disallowedFirst Leasing's claim of 100 per cent depreciation. It allowed only 10 per cent on the entire block as the CIT-(Appeals) considered the entire block as one unit and disregarded the contention of First Leasing that each bottle constituted plant.
The second appellate authority (or the Income Tax Appellate Tribunal) held that the bottles did constitute `plant' on which normal depreciation is allowable. The tribunal, however, held that the benefit of Section 32(1)(ii) cannot be extended to bottles as these are normally used by manufacturers or lessors in bulk and not individually.
The Chennai high court based its judgment on the citations made by First Leasing - in CIT- vs Sri Krishna Bottles Pvt ltd (175 ITR 154) and CIT vs Margadarsi Chit Fund (P) Ltd (1997 227 ITR 646) of the Andhra Pradesh high court, wherein it was held that bottles did constitute plant for the purpose of section 32(1)(ii).
Reference was also cited by the court on an judgment delivered by the Delhi high Court in the case of CIT vs PremNath Monga Bottles (P) Ltd (226 ITR 864).
The court also relied on a judgment of the Calcutta high court in the case of CIT Vs Tea Estates India Ltd (207 ITR 311) wherein it was held that electrical installations installed in labour quarters are to be allowed depreciation u/s 32(1)(ii).
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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