FORM NO.(J2) IN HIGH COURT AT CALCUTTA Special Jurisdiction ( Income Tax) Original Side Present: Hon ble Justice Girish Chandra Gupta & Hon ble Justice Arindam Sinha Income Tax Appeal No. 175 of 2005 M/s Budge Budge Company Ltd. Vs. Commissioner of Income Tax For Appellant: Mr. Ananda Sen, Adv. For Respondent: Mr. R.K. Sinha, Adv. Heard on : 12.03.2015 & 02.04.2015 Judgment on: 13th May, 2015 Arindam Sinha J. : appellant assessee has preferred this appeal against judgment dated 31st December, 2004 pertaining to Assessment Year 1992- 93 by which learned Appellate Tribunal dismissed both grounds of appeal of assessee in upholding order of Assessing Officer as confirmed by CIT(A). appeal before us was admitted on following questions:- i) Whether on facts and in circumstances of case in spite of relevant facts and evidences being on record Hon ble Tribunal erred in law in coming to finding that machinery was not used for purpose of business and, therefore, claim of depreciation under Section 32 of Act for sum of Rs.32,77,267.00 could not be allowed, even though cession of work/suspension of work in factory premises of petitioner was not on account of petitioner, and during that time also machinery was kept ready for use and that factory having resumed operation, immediately after certain period of time and which is still running up to present date and further fact is that word user being given wider meaning to include not only active user but passive user, confirmation of orders of Assessing Officer as well as Commissioner of Income Tax (Appeals) by Tribunal being last fact finding authority by ignoring relevant facts and on contrary taking irrelevant facts into consideration is perverse? ii) Whether on facts and in circumstances of case Hon ble Tribunal erred in law in not granting petitioner s claim of Rs.15.69 lacs incurred for filling up pond, leveling of low land as revenue expenditure where no enduring benefit had accrued to petitioner and when there was judicial view for finding that it would be allowed as revenue expenditure, and mere confirmation of order of lower authority by Tribunal is perverse? On first question regarding depreciation facts are that assessee by notice dated 18th March, 1989 had suspended work of mills with effect from that day. suspension of work continued till it was lifted in phased manner on and from 26th December, 1994. Mr. Sen, learned Advocate appearing on behalf of assessee/appellant relied on two decisions of this High Court in cases of Hindusthan Gas & Industries Ltd. Vs. CIT reported in (1995) 79 Taxman -Tax Reports 151 and CIT Vs. M/s. Norplex Oak India in ITA 17 of 2001 disposed of by judgment dated 31st March, 2011. He submitted that in Hindusthan Gas & Industries Ltd. this court in considering claim of assessee for depreciation on diesel generating sets let out on lease which lease had expired but generating sets lying in lessee s factory under lock-out could not be used, had held claim was allowable. Relying on M/s. Norplex Ork India, Mr. Sen submitted word used in section 32(1) of Act should be given reasonable meaning. Mr. Sinha, learned Advocate appearing on behalf of respondent/Revenue reiterated case of Revenue made out before authorities below. learned Tribunal found decision of this court in case of CIT Vs. Oriental Coal Co. Ltd. reported in (1994) 206 ITR 682 was squarely applicable to this case in rejecting contention of appellant that there was passive use of plant and machinery of mills for depreciation to be allowed in lock-out period. In our view decisions relied upon by Mr. Sen support his contention. In Hindusthan Gas & Industries Ltd. this court in allowing claim of depreciation of diesel generating sets leased out for period when lessee s factory premises was under lock-out had taken following view:- business of assessee-company was to lease out generating sets. lease in instant case expired on 30-11-1974 but assessee-company did not get back diesel generating set because of lock-out declared in lessee s factory. Lock outs and strikes are usual business hazards that company has to face in course of running of business. fact that lock- out was not in assessee s own business does not make any difference to position. assessee had leased out generating set in course of its business. It could not get back set even after lease period because of lockout in lessee s factory. This is happening which was incidental to assessee s business of leasing out generating sets. assessee itself was not actually running generating sets. assessee s business was leasing out generators. generating set was being used by assessee and is still being used by assessee in its business of leasing out generating sets. Therefore, claim of assessee has to be allowed. Accordingly, question no.4 is to be answered in negative and in favour of assessee. In M/s. Norplex Oak India claim for depreciation of plant and machinery arose because work was suspended due to serious deterioration of law and order situation in Kashmir Valley, this court had said:- In case before us, assessee was ready for doing his business. But for adverse law and order situation, he could not actually run factory although all machineries were ready for use and valuation of such machinery also depreciated notwithstanding its non-user. Notwithstanding such adverse law and order situation, assessee did not abandon its business but suffered loss for such state of affairs prevailing in that State over which he had no control with expectation of resuming business. This is not case where assessee himself is embroiled in dispute with his labourers and in process, has decided to declare lockout expressing its intention not to run business. Thus, taking into consideration circumstances of present case, we are of view that Tribunal below rightly granted depreciation in favour of assessee. Our attention was not drawn to any finding to indicate that suspension of work was actuated by any malice. plant was lying ready for use. Applying aforesaid decisions to facts in this case first question has to be and is answered in affirmative and against revenue. second question is with regard to disallowance of sum of Rs.15.69 lakhs as revenue expenditure. appellant/assessee had claimed such expenditure as of revenue nature on ground that by filling up pond assessee did not acquire/create any new asset. Assessing Officer rejected claim of assessee and treated expenditure as capital in nature. CIT(A) found pond and ground are shown as part of land in assessee s schedule of assets and any improvement will definitely bring further enduring value as also enhance cost of such asset and upheld order of Assessing Officer. learned Tribunal in its turn confirmed order in appeal by holding as follows:- It was case of assessee that by filling up pond, no new asset has been created by assessee, rather it was yielding rental income for assessee and hence expenditure incurred on such filling up should be treated as revenue expenditure. In our considered view, opinion expressed by revenue does not call for any interference in facts and circumstances of case. After filling up pond, it has become land and it automatically raises value of such land. In this view of matter, we hold that revenue authorities were justified in treating expenditure incurred on filling up pond to give same shape of land as capital in nature. Mr. Sen submitted expenditure was incurred by assessee wholly and exclusively for purpose of business in as much as result of it enabled assessee to earn rental income. He relied upon case Sassoon J. David and Co. P. Ltd. Vs. CIT reported in (1979) 118 ITR 261 (SC) for view taken by Supreme Court with regard to relevant provisions in Act of 1922, which is as follows:- In order to claim deduction under s. 10(2)(xv) of Act, assessee has to show that expenditure in question, (i) was not allowance of nature described in any of cls. (i) to (xiv) of s. 10(2), (ii) was not in nature of capital expenditure or personal expenses of assessee, and (iii) had been laid out or expended wholly and exclusively for purposes of his business, profession or vacation. CIT(A) in rejecting assessee s appeal on this ground had held as follows:- I have considered submission. pond and ground are shown as part of land in assessee s schedule of assets. Any improvement in such land will definitely bring further enduring value as also enhance cost of such assets. said land has been improved by filling pond. idea was to enhance value of such land and to give it more beneficial feature, thus adding to its value. Such additional value added to land will become part of land and be capital in nature. Also, such expenditure has been brought in further enduring value in assets, namely, land. I, therefore, hold that said expenditure is certainly of capital in nature and requires no interference from undersigned. This ground is, therefore, rejected. learned Appellate Tribunal in not interfering held that Revenue authorities were justified in treating expenditure incurred on filling up pond to give same shape of land as capital in nature. filling up of pond and leveling of low land is improvement and enhancement of value being change of permanent character resulting in benefit of enduring nature to assessee. In case of Kalyanji Mavji and Co. Vs. CIT, West Bengal II. reported in (1973) 87 ITR 228 (Cal) also cited by Mr. Sen, this court had expressed following view:- If expenditure is made for acquiring or bringing into existence asset or advantage for enduring benefit of business it is properly attributable to capital and is of nature of capital expenditure. If on other hand it is made not for purpose of bringing into existence any such asset or advantage but for running business or working it with view to produce profits it is revenue expenditure. We find on facts and circumstances in this case expenditure was made for bringing into existence advantage for enduring benefit of business of assessee, and therefore, same was capital in nature. In circumstances view taken by learned Appellate Tribunal is certainly possible view. We, therefore, answer second question in negative and against assessee. appeal is thus partly allowed. I agree. (Girish Chandra Gupta, J.) (Arindam Sinha, J.) M/s. Budge Budge Company Ltd. v. 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