1. This is an appeal filed by the assessee against the order of CIT(A), dt. 21st Jan., 2004 for the asst. yr, 2003-04.
(i) Learned CIT(A) has erred in adopting the WDV as per books for calculation of depreciation instead of original cost of assets, which is WDV of assets as per Act for the facts and circumstances of the case.
(ii) The CIT(A) has erred in not treating wharves, quays, pavements, drain, docks, jetties, fender buoys, navigational aids structures, etc., as plant for the purpose of depreciation which are tools of trade and without which no port operations can be carried out. For the facts and circumstances of the case, these assets are plant and so depreciation, as claimed for plant and machineries, needs to be allowed.
3. Rival contentions have been heard and record perused. The facts in brief are that the assessee Kandla Port Trust is a Major Port under the Major Ports Trust Act, 1963. It is having status of local authority.
The income of the Port Trust was exempted under Section 10(20) of the IT Act till 31st March, 2002. By virtue of amendment under Section 10(20) of the IT Act, 1961 in the Finance Bill, 2002, the income of Port Trust: has become taxable for the first time w.e.f. 1st April, 2002. In view of the amendment, Kandla Port Trust has filed its first return for the asst. yr. 2003-04. Prior to it, to claim refund of TDS, return was filed for asst. yr. 1998-99 showing 'nil' income. Kandla Port Trust has never provided depreciation in the books as per IT Act or Rules. Since there was no assessment of income, there was no question that any depreciation being actually allowed to it, and hence opening WDV as on 1st April, 2002 was taken as the original cost to the port.
4. The assessee filed the first ever return of income for asst. yr.
2003-04. In computation of total income, the assessee-trust claimed depreciation, which was computed on the original cost of assets. The AO was of the view that the depreciation cannot be allowed on the original cost since for all these years the assets have depreciated for which provisions had been made in the books of account. He has allowed depreciation on the book value of the assets, which is arrived at after deducting from the original cost of the assets, depreciation provided in the books of account till 31st March, 2002. Main reasons for disallowance was that (i) the appellant is systematically providing depreciation in the books of account year after year and books of account are audited by the Accountant General, (ii) major part of the assets owned is very old. The assets would not remain in the same condition after all these years. Value of the assets would therefore not remain same as on 1st April, 2002. There is a deterioration in the value of the assets particularly when they are situated at the sea coast, (iii) the appellant cannot claim depreciation on very old assets, which have got nil or negligible value, (iv) if the claim of the appellant is accepted, it would amount to granting of depreciation on the assets already written off and on the assets which have no value or insignificant value. In respect of assets such as wharf, roads and boundaries, railway siding and permanent including signal, docks, pier and jetty, fender, bouys and moorings, navigation structure, the appellant claimed depreciation at 25 per cent being the rate applicable to plant and machinery. The AO has treated these assets as building and allowed depreciation at 10 per cent.
5. By the impugned order CIT(A) confirmed the action of the AO by observing that merely since the income was not includible in the total income earlier, depreciation cannot be said to have been allowed is not a correct interpretation of law. The difficulty in working out depreciation as per IT Act for all these years also should be a reason for not following the legal provisions in letter and in spirit. He also treated various apparatus used by assessee in its port as building and confirmed the action of AO for not allowing depreciation thereon at the rate applicable to plant and machinery. Aggrieved by the order of CIT(A), the assessee is in further appeal before us.
6. It was contended by the learned senior Authorised Representative, Mr. J.P. Shah, that Kandla Port Trust was exempted till the asst. yr.
2002-03 under the IT Act, 1961 and has been made liable to tax from the asst. yr. 2003-04, therefore, the question of claiming depreciation under the said Act has arisen for the first time in the asst. yr.
2003-04. He further submitted that like other concern running the business to arrive at its book profit, it has provided depreciation in its books of account up to asst. yr. 2002-03, but the fact of the matter is that as there is no computation of income and its assessment under IT Act, up to the asst. yr. 2002-03, there has been no question of allowing depreciation under the said Act.
7. He has further drawn our attention to the definition of depreciation as contained under Section 32(1)(ii) r/w Section 43(6)(b) of the IT Act which defines WDV and submitted that only depreciation "actually allowed" has to be considered for working out the WDV on which the claim of depreciation has to be allowed. He also relied on various judicial pronouncements in support of his contention that only actual depreciation allowed under IT Act while computing taxable income under IT Act is to be considered, and not the depreciation provided by way of book entry.
8. On the other hand, learned Departmental Representative relied on the orders of the lower authorities and submitted that the assessee is eligible for depreciation on the WDV arrived at in the books of account after providing for depreciation.
9. We have considered the rival contentions, carefully gone through the orders of the authorities below and also deliberated on the case laws cited by the learned Authorised Representative with reference to the factual matrix of the instant case. The controversy here relates to allowance of depreciation whether on WDV as per the books of account treating all the depreciation provided in the books, by treating the same as actually allowed or it should be taken on the original cost of the assets as reduced by the depreciation actually allowed under the IT Act. For this purpose provisions contained under Sections 32(1)(ii) and 43(6) are very much pertinent.
10. Section 32(1)(ii) provides that depreciation is to be allowed and computed at a prescribed percentage on the WDV of any block of assets.
(a) In the case of assets acquired in the previous year, the actual cost of the assessee; (b) In the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Act, or under the Indian IT Act, 1922, or any Act repealed by that Act, or under any executive orders issued when the Indian IT Act, 1886, was in force: Provided that in determining the WDV in respect of buildings, machinery or plant for the purpose of Clause (ii) of Sub-section (1) of Section 32, "Depreciation actually allowed" shall not include depreciation allowed under Sub-clauses (a), (b) and (c) of Clause (vi) of Sub-section (2) of Section 10 of the Indian IT Act, 1922, where such depreciation was not deductible in determining the WDV for the purposes of the said Clause (vi).
(c) In the case of any block of assets...(not produced as it is not relevant) 11. Thus, determination of WDV refers to three types of situations.
First, Sub-clause (a) of Section 43(6) speaks of the determination of cost where assets are acquired in the previous year concerned. In that case, the actual cost the assessee shall be the WDV. Secondly, Sub-clause (b) of Section 43(6) states that the WDV of any asset acquired before the previous year shall be actual cost of the asset less depreciation actually allowed in respect of that asset under the 1961 Act or under Indian IT Act, 1922 or any other law prevailing before coming into force of that Act where the depreciation allowed shall not include depreciation allowed under the Act of 1922 which were not deductible in determining the WDV. It may be noted that the Clause (b) of Section 43(6) clearly speaks of depreciation actually allowed and not the depreciation allowable. Thirdly, Sub-clause (c) provides for determination of WDV in case of any block of assets. In the instant case we are concerned with Sub-clause (b) of Section 43(6). It is pertinent to mention here that the key word in Clause (b) of Section 43(6) is "actually". It is the antithesis of that which is merely speculative, theoretical or imaginary. The connotation of the phrase "actually allowed" is thus limited to depreciation actually taken into account or granted and given effect to, i.e., debited by the AO against the income of the business while computing the taxable income of the assessee. It cannot be stretched to mean 'notionally allowed' or merely allowable on a notional basis or provided in books of account by having an accounting entry. The question of allowing depreciation arises, only when for the purpose of assessing income-tax the profits and gains of the business are to be computed. If no income-tax is payable, whether on account of exemption or otherwise, profits and gains of the business are not required to be computed and there is no occasion for allowing depreciation.
12. Thus, there is a clear distinction between depreciation actually allowed and depreciation which would have been allowed if the profits and gains of the business had to be computed for assessment of income-tax, and under Section 43(6) the WDV is calculated after deduction from the original cost, only that depreciation that has actually been allowed in the computation of the profits and gains of the business during the proceedings for assessment of income-tax in earlier years. The word "actually" used in Section 43(6} was not redundant and must be given its full effect. Depreciation deemed to have been allowed or which might have been allowed if the profits and gains of business had been assessed to income-tax in previous year is certainly not depreciation "actually allowed" and cannot be deducted from the original cost. The WDV during the previous year in question would be the original cost less nil, i.e., the original cost. The only depreciation allowed under the IT Act is the depreciation allowed by any ITO when computing its profits and gains of business for assessment purposes. "Actually allowed" means allowed by an IT authority; depreciation claimed by the assessee itself in its own account is not depreciation allowed to it. The language used in Section 43(6) is very clear. As per our considered view so long as there is no ambiguity in the statutory language, resort to any interpretative process to unfold the legislative intent becomes impermissible. The supposed intention of the legislature cannot then be appealed to whittle down the statutory language which is otherwise unambiguous. If the intendment is not in the words, it is nowhere else. The need for interpretation arises when the words used in the statute are, on their own terms, ambivalent and do not manifest the intention of the legislature. When words acquire a particular meaning or sense because of their authoritative construction by superior Courts, they are presumed to have been used in the same sense when used in a subsequent legislation in the same or similar context. It is settled law that the expressions used in a taxing statute would ordinarily be understood in the sense in which it is harmonious with the object of the statute to effectuate the legislative intention. In Raja Jagdambika Pratap Narain Singh v. CBDT , Supreme Court held that "equity and income-tax have been described as strangers". The Act, in the very nature of things, cannot be absolutely based upon logic. It is to be read and understood according to its language. If a plain reading of the language compels the Court may have to adopt it, vide H.H. Prince Azam Jha Bahadur v.Expenditure Tax Officer determinative of a controversy arising from a taxing statute. Equally, commonsense is a stranger and an incompatible partner to the IT Act. It does not concern itself with the principles of morality or ethics. It is concerned with the very limited question as to whether the amount brought to tax constitutes the income of the assessee. It is equally settled law that if the language is plain and unambiguous, one can only look fairly at the language used and interpret it to give effect to the legislative intention. Nevertheless, tax laws have to be interpreted reasonably and in consonance with justice adopting a purposive approach. No words or expressions used in any statute can be said to be redundant or superfluous. In matters of interpretation one should not concentrate too much on one word and pay too little attention to other words. No provision in the statute and no word in any section can be construed in isolation. Every provision and every word must be looked at generally and in the context in which it is used. Every statute is an edict of the legislature. The elementary principle of interpreting any word while considering a statute is to gather the means or sentential legis of the legislature. Where the words are clear and there is no obscurity and the intention of the legislature is clearly conveyed, there is no scope for the Court to take upon itself the task of amending or altering the statutory provisions. Wherever the language is clear the intention of the legislature is to be gathered from the language used. While doing so what has been said in the statute and what has not been said has to be noted. A construction which requires for its support addition or substitution of words has to be avoided.
The Court cannot aid the legislature's defective phrasing of an Act, the Court cannot add or mend and by construction make up deficiencies which are left there. It is a trite law that "in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can look fairly at the language used." This view has been reiterated by the Supreme Court time and again. In State of Bombay v. Automobile & Agricultural Industries Corporation (1961) 12 STC 122, the Court said (p. 125) : "But the Courts in interpreting a taxing statute will not be justified in adding words thereto so as to make out some presumed object of the legislature. If the legislature has failed to clarify its meaning by the use of appropriate language, the benefit thereof must go to the taxpayer. It is settled law that in case of doubt, that interpretation of a taxing statute which is beneficial to the taxpayer must be adopted." In view of the above discussion we are inclined to agree with Mr. Shah that the words used in Section 43(6) to the effect that while arriving at WDV of any asset acquired before the previous year shall be the actual cost of the asset less depreciation actually allowed in respect of that asset under the IT Act and not the depreciation allowable.Madeva Upendra Sinai v. Union of India observed that the Scheme of the 1922 Act is that depreciation is allowed, year after year, on the actual cost of the assets as reduced by the depreciation actually allowed in earlier years. It follows, therefore, that even in the case of assets acquired before the previous year, where in the past, no depreciation was computed, actually allowed or carried forward, for no fault of the assessee the "WDV" shall under Clause (b) of Section 43(6), be the actual cost of the assets to the assessee. In Rampui Distillery & Chemical Works Ltd. v. CIT (1965) 55 ITR 338 (All), it was held that where no income-tax was payable by the assessee during the earlier years and hence no depreciation was allowed to the assessee, the WDV of the assets purchased during earlier years would be the original cost, as the depreciation actually allowed in respect of such asset within the meaning of Section 10(5)(b) of the 1922 Act [Corresponding to Section 43(6)(b) of the IT Act, 1961] is nil. What is required to be deducted from the original cost under Section 10(5)(b) is the depreciation which has been allowed to the assessee under the IT Acts and not depreciation which might have been allowed to him under the IT Acts if he was liable to pay income-tax.
14. In CIT v. Coimbatore Motor Transport Co-operative Society For Ex-Servicemen (1968) 70 ITR 165 (Mad), it was held that where the assessee, a cooperative society, had not been assessed to tax till the asst. yr. 1959-60 on account of its income being exempt and for the first time it was assessed to tax in the asst. yr. 1960-61, depreciation should be allowed on the original cost of the assets. Also in very recent decision in case of G.C. Associates v. Dy. CIT (2003) 80 TTJ (Pune) 539, it was held that unless there is a process of assessment, there cannot be any presumption of allowance of depreciation. The words "actually allowed" means depreciation actually allowed by the AO in making the assessments. If the wording of Section 139(10) precludes existence of the return, assessment cannot be presumed and necessarily it would mean that depreciation was not actually allowed. Even notional allowance of depreciation cannot be considered for the purpose of Section 43(6). In the above case, case law cited and relied upon are Rampui Distillery & Chemical Works Ltd. v. CITMadeva Upendra Sinai v. Union of India (supra) and CIT v. Mahendra Mills (2000) 159 CTR (SC) 381 : (2000) 243 ITR 56 (SC).
15. In the instant case, the assessee, Kandla Port Trust, was not assessed to tax till asst. yr. 2002-03 by virtue of provisions of Section 10(20) and thus was not required to compute profits and gains of business or profession under the IT Act. Thus mere passing of accounting entry made for depreciation in the books of account was not the depreciation actually allowed, as there was no liability to tax and as there was no assessment till asst. yr. 2002-03. Thus, WDV as on 1st April, 2002 would be original cost less nil, i.e., original cost.
16. As per our considered view, the question is not to determine block of assets, but to determine WDV as on 1st April, 2002 for the purpose of calculating depreciation and this is determined after deducting depreciation actually allowed under IT Act, from the original cost. The decision of Pune Tribunal cited above pertains to block period from 1987-88 to 1997-98 and Rampui Distillery & Chemical Works Ltd.'s case (supra) and Madeva Upendra Sinai's case (supra) was cited and relied upon by the Tribunal and it suggests that these cases are still relevant today also.
17. In view of the above discussion, we are inclined to agree with the learned Authorised Representative that the assessee is entitled to claim depreciation as per Sub-clause (b) of Section 43(6) according to which WDV of the assets acquired before the previous year shall be actual cost of the assets less depreciation actually allowed in respect of that assets under IT Act, 1961, if any, and not the depreciation provided by way of book entry, without any relevance of computation of income for the purpose of IT Act.
18. The next controversy relates to classification of various equipments as plant or building. In the instant case, wharves, pavements, docks including dry docks, drains, jetties, railways, rolling stock have been taken as plant and machinery and depreciation has been claimed at rates applicable to plant and machinery. To find out whether a structure is 'plant' or 'building', one has to see if building or structure constituted an apparatus or tool of taxpayer by means of which business activities are carried out, or the structure played no part in the carrying on those activities but merely constituted a place wherein they were carried on. From the record we found that in the instant case all these assets are necessary and critical apparatus/tools with which the port carries on its business and are so designed to equip itself with heavy machinery such as cranes, railway wagons and sidings, heavy goods vehicles, loader, etc., and is not merely concrete structure which can be said to be building.
As per the nature of work undertaken by ports, the ports create facilities for reception of vessels and the vessels are docked and undocked at the wharf/jetty/quay/ mooring, etc. Once the vessels are berthed, the cargo loading and unloading operations are done by using the wharf with equipments like cranes, unloading arms, etc. As such, the assets like wharf, jetty, piers, railway sidings, docks including dry docks, platforms, etc., are core assets for the business of the port and the Revenue is earned out of these assets. We also found that income generated by deployment of these assets accounts for more than 50 per cent of the total income of the port. In CIT v. Dr. B. Venkata Rao nursing home. In respect of the building in which the nursing home was run, the assessee claimed, for the asst. yr. 1983-84, that it was a 'plant'. Supreme Court applying functional test allowed assessee's claim and held that if it was found that the building or structure constituted an apparatus or a tool of the taxpayer by means of which business activities were carried on, it amounted to a 'plant'.
Reference can also be made to Supreme Court decision in case of Scientific Engineering House (P) Ltd. v. CIT , where in applying the functional test 'documentation services' obtained from foreign collaborator, i.e., supply to up-to-date, correct and complete set each of five types of documents such as manufacturing, drawing, processing documents, designs, charts, plans and other literature were held to be a 'plant'. It held that articles must have some degree of durability and it should fulfil the functions of plant in assessee's trading activity and should be a tool of his trade with which he carries on his business.
19. In case of CIT v. Navodaya (2004) 186 CTR (Ker) 357, it is held by the Court that building and structure can be considered to be plant provided they fulfil the functional test and are used as a tool of the trade with which the business is carried on. The Supreme Court in case of CIT v. Elecon Engineering Co. Ltd. and CIT v. Taj Mahal Hotel held that assets were to be classified based on functional test. Also in English law in case of Can (H.M.Inspector of Taxes) v. Sayer (1992) 65 Tax Cases 15 and IRC v. Barclay, Curie & Co. Ltd. (1970) 76 ITR 62 (HL) it was pointed out that only in the case of structures like dry docks, where the construction is composite with installations of generator and machinery for operating the dock, there will be a case for treatment of such dock as plant. The question as to whether bottles and crates used by sellers of soft drinks can be treated as plant for purposes of depreciation and development rebate had arisen in CIT v. Prem Nath Monga Bottlers (P) Ltd. durability and their use they have to be classified as plant following the decision in CIT v. Sri Krishna Bottlers (P) Ltd. 20. In view of the above discussions, we are of the considered view that if assets used in the business are tools or apparatus of assessee by means of which it carries on his business then it can be classified as plant. Wharves, pavements, docks, including dry docks, drains, jetties, railway wagons and sidings rolling stock and various platforms are principal apparatus of port with which it carries on its business and they are so equipped to take care of heavy machinery and that is the reason all the above assets are classified under Block VI as plant and machinery and depreciation applicable to plant and machinery is to be allowed. We also found that in the case of instant assessee-port, without these assets the port cannot perform its function as a port and there will be no revenue irrespective of whether machinery, highly qualified personnel are available with the port. We also found that in the absence of docks, wharves, pavements, jetties, one can say that the entire coastal area is a port, provided ships can come alongside.
21. Thus, applying the functional tests to each and every item described hereinabove, we are persuaded to agree with the learned Authorised Representative that docks, wharves, pavements, jetties, are not building but plant of the port, on which the assessee is entitled to claim depreciation at the higher rates which are applicable on the plant and machinery.
22. In the result we are inclined to reverse the findings and conclusions of lower authorities both on the point of determining the WDV of assets on which depreciation is to be allowed, as well as the treatment of various assets discussed hereinabove as building instead of plant.