ORDER
I.P. Bansal, Judicial Member
1. to 6. These paras are not reproduce here, as they involved minor issues.
7. Grounds No. 2a to 2d read as under :
2a. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in law in not accepting the contention of the appellant that assets which have been fully depreciated before 1-4-1988 did not enter the block of assets as introduced with effect from assessment year 1988-89.
2b. On the facts and in the circumstances of the case the ld. CIT(A) erred in holding that the provisions of Section 50(1) of the IT Act were applicable on sale of assets which did not form part of the opening written down value of the block of assets at the beginning of the year as they had been fully depreciated in an earlier year.
2c. On the facts and in the circumstances of the case the ld. CIT(A) erred making an addition of Rs. 14,00,000 as deemed short term capital gain under Section 50 of the Income-tax Act, 1961.
2d. On the facts and in the circumstances of the case the ld. CIT(A) erred in not allowing the loss of Rs. 7,96,693 as long term capital loss claimed on sale of gas cylinders.
These grounds are interrelated therefore adjudicated simultaneously.
8. The brief facts are as follow :
Certain gas cylinders costing Rs. 25,48,133 were purchased by the assessee in the previous year relevant to the assessment year 1987-88. Since the cost of each of these cylinders was less than Rs. 5,000, full depreciation at the rate of 100% was allowed for the assessment year 1987-88, thus rendering WDV of all these cylinders at nil.
9. The above mentioned cylinders were sold by the assessee during the year under consideration for a sum of Rs. 14 lakhs. In the computation of income filed along with return, the assessee had shown long term capital loss of Rs. 7,96,693 after scaling down from the gross loss of Rs. 11,48,133 under Section 48(2) on sale of gas cylinders. In the computation of total income following note was given by the assessee :
The gas cylinders were acquired by the company in the previous year relevant to the assessment year 1987-88. There were depreciated @ 100% and as such they did not form part of block of assets which came into existence w.e.f. assessment year 1988-89. To be part of the block of assets within the meaning of Section 43(6) and consequently to be covered by the provisions of Section 50, an asset has to have a value as at 1-4-1988 and since the cylinders were fully depreciated before 1-4-1988 they had no WDV as at 1-4-1988 and consequently they did not form in part of block of assets. As such, the realisation on sale of cylinders constitutes realisation on sale of a long term capital asset and since the price realised is less than the cost there is a resultant long term capital loss.
During the course of hearing it was pleaded by the assessee that gas cylinders were acquired by the company prior to the assessment year 1988-89 and to form part of the ‘block of assets’ within the meaning of Section 43(6) and consequently to be covered by the provisions of Section 50, an asset has to have a value as at 1-4-1988 and since the cylinders were fully depreciated before 1-4-1988 they had no WDV as at 1-4-1988 and consequently they did not form in part of block of assets. As such, the realisation on sale of cylinders constitutes realisation on sale of a long term capital asset and since the price realised is less than the cost there is a resultant long term capital loss”. During the course of hearing it was pleaded by the assessee that gas cylinders were acquired by the company prior t(r) the assessment year 1988-89 and to form part of the ‘block of assets’ within the meaning of Section 43(6) and consequently to be covered by the provisions of Section 50, an asset has to have a value as at 1-4-1988 and since the gas cylinders were fully depreciated before 1-4-1988 they had no WDV as at 1-4-1988 and as such they did not form part of the block of assets. It was contended that realisation of sale of cylinders constitutes realisation on sale of a long term capital asset and since price realised was less than cost, there was a resultant long term capital loss and the same should be allowed subject to deduction under Section 48(2) of the Act. It was also pleaded that for application of Section 50, existence of the block of asset is an essential condition. As explained earlier there was no block of asset as 100% depreciation was granted. The reference to the definition of ‘Block of assets’ given in Section 2(11) of Income-tax Act, 1961 (Act) was also made which reads as follow:
Block of assets means a group of assets falling within a class of assets being building, machinery, plant or furniture in respect of which the same percentage of depreciation is prescribed.
The emphasis was given on word ‘prescribed’ which has been defined in Section 2(33), according to which ‘prescribed’ means prescribed by the Rules made under this Act. It was contended that the depreciation of 100% has not been provided under rule 5, of the IT Rules therefore the said cylinders did not form ‘block of asset’ and Section 50 was therefore not applicable.
10. The Assessing Officer rejected the claim of the assessee on the ground that the word ‘prescribed’ is not only to be understood by the Rule 5 of Income Tax Rules but also as prescribed under the Act itself. The Assessing Officer observed that in Section 32(1)(ii) proviso itself the rate of depreciation has been provided. In the said proviso the rate of depreciation 100% was prescribed. Even if 100% depreciation was allowed, the asset existed as the ‘block of assets’ with nil WDV as on 1-4-1988 and 1-4-1989 alongwith other block of assets of the assessee-company. The Assessing Officer further observed that the assets wont disappear from the blocks merely because there is nil WDV. The Assessing Officer found that the explanation of the assessee is not acceptable. The Assessing Officer applied Section 50(1), as all the ingredients of the said section were fulfilled. The Assessing Officer observed that there is a block of assets, there is a WDV which is nil and the consideration received exceeds the aggregate of WDV of the block of assets at the beginning of the year. Thus the Assessing Officer negatived the claim of the assessee with regard to long term capital loss and added a sum of Rs. 14 lakhs to the assessable income being profit on sale of gas of cylinders.
11. Aggrieved assessee filed an appeal before the CIT(A), before whom the similar contentions were raised. The CIT(A) after considering the submissions of the assessee held that even if WDV nil the asset will not disappear from the ‘block of asset’. Therefore, the CIT(A) held that the contention of the assessee that as the cylinders were fully depreciated before 1-4-1988 and they had no WDV as on 1-4-1989 and therefore they did not form part of the ‘block of assets’ could not be accepted. The CIT(A) held that cylinders were in fact block of assets within the meaning of Section 32(1)(ii) having WDV at Rs. nil The CIT(A) further observed that the contention of the assessee that Section 50 comes into play only in respect of those assets which form a part of the block of assets and the question of applying this section to gas cylinders which did not enter the block does not arise is also not correct because as has been mentioned that though the cylinders even depreciated at the rate of 100% but even then they did form part of the block of asset. Thus, the CIT(A) held that Section 50(1) was rightly applied by the Assessing Officer. The assessee is aggrieved hence in appeal before us.
12. The learned authorised representative of the assessee narrated the above mentioned facts. He reiterated the similar arguments which were raised before Assessing Officer as well as before CIT(A). Reference was made to Section 50 according to which the existence of block of asset was necessary for application of said section. It is the contention of the learned AR that as there was no WDV in respect of cylinders for which the 100% depreciation was granted by the revenue for assessment year 1987-88. He contended that the concept of block of asset was first provided in the Statute by the amendment applicable with effect from assessment year 1988-89. As there was no value in respect of cylinders there was no question of block of asset with reference to gas cylinders. For this purpose he referred to the Speech of Finance Minister dated 18th May, 1995 appearing in paragraph 10 as reported in 213 ITR Statute 11. He also referred to memorandum explaining the amendment as appearing at page 355 of 212 ITR Statute. Similarly, he referred to 212 ITR 296 (Statute), wherein with effect from assessment year 1996-97 Section 32 was amended vide which the first proviso to Sub-section (1)’of Section 32 was omitted.
13. He further referred to the definition of word ‘prescribed’ given under Section 2(33) of the Act. Referring to the said definition, he contended that the word ‘prescribed’ should be given restricted meaning so as to it relates to the rates prescribed under the Income Tax Rules only. He contended that the rates of depreciation on the assets below Rs. 5,000 was prescribed by the Act itself therefore it cannot be said that the cylinders form ‘block of asset’ within the meaning of Section 43(6) and the definition given under Section 2(11). He also referred to the provisions of Section 43(6) and the definition of ‘block of asset’ under Section 2(11). On the basis of this argument, he submitted that there was no WDV of cylinders as on the beginning of the years under consideration, i. e., on 1-4-1989. Therefore, there was no block of asset pertaining to the cylinders. As there was no ‘block of asset’ the Section 50 has no application. Therefore the Assessing Officer was wrong in adding a sum of Rs. 14 lakhs under the provision of Section 50 and also wrong in disallowing the claim of assessee of long term capital loss amounting to Rs. 7,96,693.
14. The ld. Departmental Representative contended that the word ‘prescribed’ cannot give restricted meaning as the rate of depreciation on asset costing less than Rs. 5,000 was prescribed by the Act itself. He further contended that WDV of gas cylinders as at the beginning of the year was at Rs. nil and it cannot be said that there was no WDV in respect of gas cylinders and therefore no ‘block of asset’ existed. He, therefore, contended that a sum of Rs. 14 lakhs has rightly been added to the income of the assessee under the provisions of Section 50. Similarly, he contended that the claim of the assessee in respect of long term capital loss is not allowable as Section 50 have been held applicable.
15. We have carefully considered the rival submissions in the light of material placed before us. We do not find any force in the arguments of learned AR that the word ‘prescribed’ should be construed with reference to the definition given in Section 2(33) for the reasons that the rate of depreciation, i.e., 100% was prescribed by Act itself. The definition given in Section 2 of the Act starts with the words “In this Act unless the context otherwise requires”. Looking into this aspect, we cannot say that there was no intention of Statute to ignore the substantive provisions of law contained in the Act itself. As the rate of depreciation was prescribed in the substantive provisions of Act, the word ‘prescribed’ appearing in the definition of ‘block of asset’ under Section 2(11) cannot be construed only to mean the rate of depreciation as prescribed under Rules only and to ignore the rate prescribed under the substantive provisions of Act. In this view of the situation, the order of authorities below is in accordance with law. We are of the firm opinion that block of asset existed though the WDV of gas cylinders was nil at the beginning of the year. All the necessary conditions as laid down in Section 50(1) were existing to bring a sum of Rs. 14 lakhs as assessable amount under the provisions of Section 50(1). As the provisions of Section 50(1) were applicable, there is no force in the claim of the assessee in regard to long term capital loss. In view of the discussion above, these grounds of appeal of the assessee are dismissed.
