$ * IN HIGH COURT OF DELHI AT NEW DELHI R-93 + ITA 346/2002 STITCHWELL QUALITEX (RF) ..... Appellant Through: Mr. S. Krishnan, Advocate. versus INCOME TAX OFFICER & ANR ..... Respondents Through: None. CORAM: HON'BLE DR. JUSTICE S.MURALIDHAR HON'BLE MR. JUSTICE VIBHU BAKHRU ORDER % 16.09.2015 1. This appeal by Assessee, Stitchwell Qualitex (RF), under Section 260- of Income Tax Act, 1961 ( Act ) is directed against impugned order dated 26th April 2002 passed by Income Tax Appellate Tribunal ( ITAT ) in ITA No. 6209/Del/96 for Assessment Year ( AY ) 1990-91. 2. following question of law has been framed by Court by its order dated 3rd April 2003: Whether Tribunal was correct in law in holding that Assessee-firm was not entitled to depreciation claimed by it in respect of Unit-II? ITA 346/2002 Page 1 of 6 3. facts to this appeal are that Assessee is registered firm carrying on business of manufacturing bag stitching machines in factory situated at Noida since 1981. In year 1987 Assessee applied for and was allotted plot No. A-11, Sector-57, Noida. It constructed factory building thereon in accounting year ending 31st March 1989 (AY 1989-90) and cost of factory building was Rs. 9,77,775.58. Machinery worth Rs. 1,10,825 was installed in said factory (styled Unit II) in previous year 1989-90. Assessing Officer while framing assessment under Section 143 (3) of Act noted that Assessee had claimed depreciation of Rs. 1,97,458 in AY 1990-91 as per following details: Building : Rs. 1,51,432.00 Plant & Machinery : Rs. 36,572.00 Furniture & fixtures: Rs. 2,920.00 Office equipment in respect of Unit-II: Rs. 6,534.00 --------------------- Rs. 1,97,458.00 --------------------- 4. AO disallowed above claim of depreciation on ground that (i) no sales have been made from Unit-II; (ii) purchases made for Unit-II are only Rs. 361.70; (iii) no expenses under any head have been claimed; (iv) all wages payments and official documents showed that no manufacturing ITA 346/2002 Page 2 of 6 activity took place; (v) no separate staff was engaged and (vi) no power bill has been received. AO held that Assessee failed to prove that it had undertaken any manufacturing activity during AY in question. 5. Commissioner of Income Tax (Appeals) [ CIT (A) ] however accepted plea of Assessee that plant and machinery was installed in previous year 1989-90 (AY 1989-90). However, CIT (A) also observed that there was no employment of staff, payment of wages, purchase of raw material or sale from Unit-II. CIT further observed that in other words, plant was not actually used for any manufacturing activity. CIT (A) allowed depreciation and came to conclusion that assets were kept ready for actual use and were profit making apparatus. 6. Aggrieved with above order of CIT (A), Revenue went in appeal before ITAT. ITAT referred to decision of Supreme Court in Federation of Andhra Pradesh Chambers of Commerce and Industry v. State of Andhra Pradesh [2001] 247 ITR 36 (SC) and concluded that in order to claim depreciation, it is important, inter alia, that asset must be actually used for purpose of business. Accordingly, it ITA 346/2002 Page 3 of 6 was held that CIT (A) was not justified in granting depreciation. 7. This Court has heard submissions of Mr. S. Krishnan, learned counsel for Appellant. None appears for Revenue. 8. As noted by this Court in recent decision in National Thermal Power Corporation Limited v. Commissioner of Income Tax (2013) 357 ITR 253 (Del), two conditions are necessary to be fulfilled before allowance by way of depreciation under Section 32 of Act can be granted to Assessee. first is ownership of asset and second, user of assets for purposes of business. Court on facts of said case rejected stand of Revenue that machinery and equipment had to be put to actual use and that it would not be enough if they were "kept ready for use". Court referred to large number of decisions of High Courts which held that expression "used for purpose of business" in Section 32 of Act was interpreted to include case where asset is kept ready for use but is not actually put to use. These included Whittle Anderson Ltd. v. CIT (1971) 79 ITR 613 (Bom); CIT v. Yamaha Motor India Pvt. Ltd. (2010) 328 ITR 297 (Del); CIT v. Vayithri Plantations Ltd. (1981)128 ITR 675 (Mad) and CIT v. Refrigeration and Allied Industries ITA 346/2002 Page 4 of 6 Ltd. (2001) 247 ITR 12 (Del). 9. Supreme Court in Federation of Andhra Pradesh Chambers of Commerce v. State of Andhra Pradesh (supra), was interpreting word "used" occurring in Section 3 of Andhra Pradesh Non-Agricultural Lands Assessment Act, 1963. question in that case was whether agricultural lands of Assessee had been used for industrial purposes so as to subject it to levy of 'assessment' . It was held in that context that that "it is only land which is actually in use for agricultural purpose as defined in said Act that can be assessed to non-agricultural assessment at rate specified for land used for industrial purpose." In other words, given background in which question arose, interpretation placed on word 'used' was in favour of Assessee. 10. In present case context is claim for depreciation under Section 32 of Act. On facts, it is not in dispute that building was constructed in previous year 1988-89. Further, plant and machinery was installed in factory in previous year ending 31st March 1990. Court in of view that installation of plant and machinery in building would amount to use of building so as to justify claim for ITA 346/2002 Page 5 of 6 depreciation on building. Further, plant and machinery installed in building during AY 1989-90 was ready for use for purpose of business of Assessee. electricity connection was given on 6th February 1990. Another important fact was that Assessee was already conducting its business and this was Unit II which was by way of expansion of existing business. It is not Revenue's case that building and plant and machinery were not for purpose of business of Assessee. Therefore, it is concluded that building and machinery in Unit II were used for purpose of business of Assessee during AY in question. 11. question of law is accordingly answered in negative, i.e. in favour of Assessee and against Revenue. impugned order of ITAT on issue is set aside and appeal is allowed with no order as to costs. S.MURALIDHAR, J VIBHU BAKHRU, J SEPTEMBER 16, 2015 Rk ITA 346/2002 Page 6 of 6 STITCHWELL QUALITEX (RF) v. INCOME TAX OFFICER & ANR