COMMISSIONER OF INCOME TAX Vs. NAGARI MILLS LIMITED

JUDGEMENT

(1.) BOTH these references arise out of the same order of the Tribunal and one reference is at the instance of the Revenue and the other is at the instance of the assessee. After the Tribunal had passed its order in the relevant appeal, two applications under S. 256(1) were made to the Tribunal, one by the assessee and the other by the Revenue, and in the light of those two applications, the Tribunal has referred the following four questions to us for our opinion :

(2.) AT the hearing of the reference, Mr. K. C. Patel, learned counsel for the assessee, did not press question No. (4) and, therefore, we are not called upon to give any answer to that question. That leaves us only with question No. (3) for which we have to deliver this judgment.

(3.) UNDER S. 32 of the IT Act, 1961, in respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, deductions mentioned in the different clauses of Sub S. (1) of S. 32 are to be allowed while computing profits or gains from business or profession and under cl. (iii) of Sub S. (1) of S. 32, in the case of any building, machinery, plant or furniture which is sold, discarded, demolished or destroyed in the previous year (other than the previous year in which it is first brought into use), the amount by which the moneys payable in respect of such building, machinery, plant or furniture, together with the amount of scrap value, if any, fall short of the written down value thereof, deduction shall be allowed : provided that such deficiency is actually written off in the books of the assessee. Now, the case of the assessee in the instant case is that because it found that the water from the bore well in question was very hard and was not suitable for boiler feed, it decided to discard the bore well. It seems from the materials on record that they had consulted M/s Firdos & S. Khambata & Co. and also the Imperial Chemicals Ltd. for the purpose of ascertaining as to whether the water from this bore well could be suitable and after considering the pros and cons and after obtaining the opinion of experts in the year under consideration, the bore well appears to have been discarded. No scrap value from the bore well was realised and, therefore, the scrap value was zero and, therefore, the entire amount of the written down value was claimed as balancing allowance under cl. (iii) of Sub S. (1) of S. 32. The only requirement of cl. (iii) is the factum of plant, machinery, etc., being discarded by the assessee concerned and the only requirement is in the form of the proviso that the deficiency must be actually written off in the books of the assessee. It is the case of the assessee and that has not been disputed by the other side that in the books of the assessee the amount of Rs. 46,414 has been written off in the year under consideration. Whether an alternative use for the water from the bore well could or could not have been found and whether, by the installation of water softening plant, water from the bore well could or could not have been utilised for the purposes of the business of the assessee, are questions which have to be decided on commercial considerations by the assessee itself and it is nowhere laid down that the discarding should be to the satisfaction of the ITO or the IT authorities. By considering the question of advisability of discarding the bore well, the Tribunal has sought to substitute the decision of the IT authorities for the decision of the assessee regarding the advisability of discarding. The decision regarding discarding has to be taken by the assessee and by nobody else and that he has to do on commercial considerations and commercial expediency. Once that decision about discarding is taken, the only question that the IT authorities can ask is whether there was any scrap value and if there was any scrap value whether the scrap value fell short of the written down value of that particular asset made up of buildings, machinery, plant or furniture. Under these circumstances, it seems to us that the whole approach adopted by the Tribunal, with respect to it, was not correct and was contrary to the requirements of law. Here, it is not a question where facts have to be established by the assessee in accordance with the provisions of the section. The only thing that the section calls for is that there should be the factum of discarding accompanied by the actual writing off of the discarded building, machinery, plant or furniture in the books of account of the assessee concerned. Beyond these two requirements nothing else is required and the decision about discarding or selling, destroying or demolishing has to be taken by the assessee concerned and by no one else. It may be, as has been pointed out in India Nut Co. Ltd. vs. CIT (1960) 39 ITR 234 (Ker), that the assessee concerned discards a piece of machinery because of obsolescence even though it may be capable of giving some more years of service but the decision has ultimately to be taken on commercial considerations by the assessee himself and by no one else and the wisdom of the discarding cannot be questioned by the IT authorities. Of course, if they come to the conclusion that discarding was a device to evade income tax, they can disallow the claim of the assessee on this ground but that can be done only upon the factum of discarding rather than advisability or desirability of discarding of a particular asset, if it otherwise falls under S. 32(1)(iii).