K. M. Sugar Mills Ltd. vs. CIT (2015) 373 ITR 42 (SC)
The appellant-assessee had set up its unit some time in September, 1985 to carry on the business of manufacturing and compressing oxygen, hydrogen, nitrogen amonis, carbonic acid, action (including dissolved) argon, cooking gas and other types of industrial gases or kind substances etc. For running the aforesaid plant, the assessee had also bought 1,250 gas cylinders. However, since the unit had not started functioning, these gas cylinders were leased out to M/s. Saraveshwari Gases (P) Limited, Ghaziabad and M/s. Malik Industries. In the return filed by the assessee, he claimed depreciation on those gas cylinders at the rate of 100 %, as provided under the rules on the aforesaid item.
The Assessing Officer, however, rejected the claim of depreciation on the ground that hiring business was not proved. The appeal filed by the assessee before the Commissioner of Income Tax (Appeals) was accepted on the ground that the income received from leasing the aforesaid equipments would be treated as business income and on that basis he allowed the depreciation.
The aforesaid order of the CIT(Appeals) was set aside by the Income Tax Appellate Tribunal, and the order of the Income Tax Appellate Tribunal was upheld by the High Court. The High Court has concurred with the opinion of the Tribunal on the ground that the cylinders were not purchased for leasing business and one of the parties to whom the cylinders were leased out is the manufacturer and seller of the cylinders. It was further stated that the cylinders were dispatched to the other party only a day before the closing of the accounting period.
On an appeal by the Appellant-assessee, the Supreme Court held that the aforesaid reasons given by the Income Tax Appellate Tribunal and the High Court in denying the depreciation did not appear to be valid reasons in law. Insofar as the purchase of gas cylinders by the assessee was concerned, this fact was not disputed. It was also not disputed that these gas cylinders were purchased for business purpose. In fact, the plea of the assessee that the manufacturing unit had not started functioning and this had necessitated the assessee to lease out these gas cylinders to the aforesaid two parties to enable it to earn some income, rather than keeping those cylinders idle, was also not in dispute. On the contrary, the income which was generated from leasing out those gas cylinders was treated as “business income”. Once the income from leasing those gas cylinders was accepted as the “business income”, which was taxed at the hands of the assessee as such, there was no reason how the depreciation on these gas cylinders could have been disallowed on the ground that the cylinders were not purchased for “leasing business”.
According to the Supreme Court, the aforesaid facts clearly demonstrated that the assessee had proved ownership of these gas cylinders and use of these gas cylinders for business purpose. Once these ingredients were proved, the assessee was entitled to depreciation u/s. 32 of the Income-tax Act. The Supreme Court, therefore, set aside the judgment of the High Court, and held that the assessee was entitled to depreciation as claimed for the assessment year in question.
