ORDER SHEET IN HIGH COURT AT CALCUTTA Special Jurisdiction (Income Tax) ORIGINAL SIDE ITA No. 120 of 2000 C.I.T. (CENT-I), CAL Appellant Versus HOOGHLY MILLS LTD. Respondent BEFORE: Hon'ble JUSTICE GIRISH CHANDRA GUPTA Hon'ble JUSTICE ARINDAM SINHA Date : 9th February, 2015. For appellant : Mr. M.P. Agarwal, Advocate with Mr. S.N. Dutta, Advocate For respondent : Mr. J.P. Khaitan, Senior Advocate Court :- subject matter of challenge in present appeal is judgment and order dated lst September, 1999 passed by learned Income Tax Appellate Tribunal allowing appeal of assessee by holding that What assessee acquired is fixed assets like land, building and also plant & machinery, for which price had to be paid partly in cash and partly by way of taking over accrued liability in respect of gratuity and leave salary payable to workers. For purpose of computing cost of assets, only present-day value of these accrued liabilities was taken into consideration by assessee. We are, therefore, of opinion that facts of case as well as legal issue involved are within all corners of two decisions of I.T.A.T. for assessment year 1989-1990, as mentioned above. Following 2 said line , therefore, we reverse orders of lower authorities and direct AO to allow claim of assessee towards depreciation on fixed assets acquired by it by considering present-day value of gratuity as well as leave salary liability as forming part of cost of these assets. Aggrieved by judgment and order of learned Tribunal Revenue has come in appeal. questions framed at time of admission of appeal are as follows :- a) Whether on facts and in circumstances of case I.T.A.T. is justified in law in directing to allow depreciation on written down values of assets after including gratuity liability taken over ? c) Whether on facts and in circumstances of case, Learned ITAT was justified in law in holding that consideration of Rs. 4.10 crores shown in agreement is not real consideration unless liability towards payment of gratuity and leave salary is spread over consideration shown.? Mr. Agarwal submitted that question is no longer res integra since point has already been decided in favour of Revenue by Supreme Court in case of assessee itself in case of Commissioner of Income Tax vs. Hooghly Mills Co. Ltd. reported in (2006) 287 ITR 333 (SC) wherein following views were expressed :- However, even if we reject aforesaid submission of learned counsel for Revenue (as we are inclined to do) and hold that expenditure on taking over gratuity liability is capital expenditure, yet in our opinion no depreciation is allowable on same because section 32 of Income-tax Act states that depreciation is allowable only in respect of buildings, machinery, plant or furniture, being tangible assets, and know how patents, copyrights, 3 trade marks, licences, franchises or other business or commercial rights of similar nature being intangible assets. gratuity liability taken over by respondent does not fall under any of those categories specified in section 32. Hence, in our opinion, no depreciation can be claimed in respect of gratuity liability even if it is regarded as capital expenditure. gratuity liability is neither building machinery, plant or furniture nor is it intangible asset of kind mentioned in section 32(1)(ii). Hence, we fail to see how depreciation can be allowed on same. In fact, depreciation cannot even be allowed on land because that too is not mentioned in section 32. It may be mentioned that in present case, agreement of sale, dated March 24, 1988, separately mentioned price of land, building and machinery. Had it been case where agreement of sale mentioned entire sale price without separately mentioning value of land, building or machinery, we would have remitted matter to Tribunal to calculate separate value of items mentioned in section 32 and grant depreciation only on these items. However, in present case, agreement itself mentioned value of building, plant and machinery. Hence it is not necessary to remit matter to Tribunal in this case. No doubt, word plant had been given deeming meaning vide section 43(3) but even this deeming meaning does not include gratuity liability. Hence, in our opinion, no depreciation can be granted on gratuity liability taken over by respondent assessee. Mr. Khaitan, learned senior Advocate submitted that Apex Court was considering matter in light of agreement dated 24th March, 1988 entered into between assessee and M/s. Fort Gloster Industries Ltd. whereas case before us arose out of agreement dated 30th August, 1994 entered into between assessee and India Jute & Industries Ltd. He added that present agreement contained stipulation which was conspicuous by its absence in earlier agreement. He drew 4 our attention to following lines appearing in clause 2 of agreement at or for price of Rs. 410.- lakhs only free from all encumbrances and liens and liability save and except those which have been assumed and taken over by purchaser as hereinafter mentioned and subject to terms and conditions hereinafter appearing. He contended that this stipulation was not there in agreement dated 1988. Therefore, facts and circumstances of case are different. He also drew our attention to clause 4 of agreement which shows that money consideration has also been differently apportioned than what was in earlier agreement. He contended that when facts and circumstances are different, question of application of judgment of Supreme Court to case in hand, does not arise. He added that in any case there can be no denial of fact that cost of acquisition of assets is both money paid and money promised. He submitted that neither principle nor law can assist revenue in contending that they shall permit depreciation only so far as money paid is concerned, but omit to do so with respect to money promised. assets were purchased at price which is aggregate of amount paid and promised. Therefore, depreciation shall take place of combined value of assets and not in respect of money paid only. He submitted that Hon ble Apex Court s attention was not drawn to fact that liability on account of gratuity taken over by purchaser lost character of outstanding gratuity and partook character of consideration in hands of assessee. Once it partook character of consideration, there is no reason why depreciation should not be allowed. Mr. Khaitan contended, liability on account of gratuity was in hands of seller. buyer did not enjoy any service of employee nor could have been in law liable for payment of any gratuity to employees of seller. buyer became liable because buyer undertook to pay debt due by seller. Therefore, liability is on account of consideration. 5 He submitted that case is illustrated by sub-section 2 of Section 43 which provides that paid means, actually paid or incurred according to method of accounting. He contended that there cannot be any dispute that liability was incurred and it was incurred on account of acquisition of assets. We have carefully considered submissions of Mr. Khaitan. His submissions though call for serious thought, we are bound by views expressed by Apex Court. Therefore, re-consideration, if any, can only be by Their Lordships and not by us. We, however, feel that matter needs re-consideration by Their Lordships. With these observations, appeal is allowed. (GIRISH CHANDRA GUPTA, J.) (ARINDAM SINHA, J.) ANC/sm C.I.T. (CENT-I), Cal v. Hooghly Mills Ltd