F.I Rebello, J.:— This is an appeal preferred by the Revenue wherein they have raised the following question:
“Whether, on the facts and in the circumstances of the case and in law, the hon'ble Tribunal is right in allowing the assessee's claim of deprecation ?”
2. A few facts may be set out. The assessee is in the business of leasing. It purchased breakers from M/s. Asea Brown Boveri Ltd. and leased out the same to M/s. Tata Electric Company Limited. The assessee claimed depreciation amounting to Rs. 25,25,889. Tata Electric Company Limited had installed the said breakers in July, 1990. In other words, not in the financial year 1991-92. The Assessing Officer on this basis disallowed the depreciation by rejecting the contention of the assessee that the breakers were given on lease before the end of previous year and, therefore, the same should be considered as “used” for the purpose of business. The Assessing Officer disallowed the claim for depreciation on the ground that the asset in question was neither installed nor put to use in the previous year and consequently the basic conditions for allowance of depreciation were not satisfied and that mere earning of the lease rent did not make the assessee eligible for depreciation.
3. The assessee aggrieved, preferred an appeal before the Commissioner of Income-tax (Appeals) wherein it was submitted that the lease rentals had accrued to the assessee and the same had been offered for taxation for the year under consideration and as such the assessee was eligible for claim of depreciation. The appeal preferred was rejected against which the assessee preferred the appeal before the Tribunal. In so far as this issue is concerned, the learned Tribunal noted that what section 32 requires is that the assets must have been used during the year under consideration. The term “used” refers to actual use. At the hearing the submission on behalf of the assessee was that the moment an article or thing was leased out, such article or thing was put to use for the purposes of leasing business whereas the main contention of the Revenue is that the depreciation is given for the depletion in the value of the assets due to their use. The Tribunal held that they were unable to accept the contention of the Revenue because the depreciation is not given only for the depreciation in value because of the use of the asset. The Tribunal observed that the depreciation could also be given for the reduction in the usable value of assets due to wear and tear, efflux of time and obsolescence. Depreciation, it observed, can also be viewed as a method of amortising the cost of asset employed in the business during the useful life of each asset. Thus, the user of asset is not the only aspect which governs the allowance of depreciation. However, for the purposes of the Income-tax Act, user of the asset is required for claiming depreciation.
4. At the hearing of this appeal, on behalf of the parties, the learned counsel have reiterated their respective contentions and have also relied on various judgments in favour of their respective contentions.
5. From the facts on record it is clear that the business of the assessee is of leasing. The lessor had given assets on lease, in the previous year and had received the lease rentals. Would the act of the lessor in giving the assets on lease amount to use of the assets considering the business of the assessee. The Tribunal, as noted earlier, has noted that the expression “user” is not confined to use of the machinery and consequent depreciation in the value of assets pursuant to their use. The expression has a very wide connotation to include, amongst others, reduction in useful value of the assets due to wear and tear, efflux of time, obsolescence and the like.
6. Let us, therefore, examine the judgments relied upon by the parties to answer the question as raised. We may first gainfully refer to section 32 of the Act to the extent required and which reads as under:
“32.(1) In respect of depreciation of—
(i) buildings, machinery, plant or furniture, being tangible assets,
(ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed—
(i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed:
(ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed:
Provided that no deduction shall be allowed under this clause in respect of—
(a) any motor car manufactured outside India, where such motor car is acquired by the assessee after the 28th day of February, 1975, but before the 1st day of April, 2001, unless it is used—
(i) in a business of running it on hire for tourists; or
(ii) outside India in his business or profession in another country; and
(b) any machinery or plant if the actual cost thereof is allowed as a deduction in one or more years under an agreement entered into by the Central Government under section 42.”
7. In CIT v. Shaan Finance (P.) Ltd., [1998] 231 ITR 308, the Supreme Court was considering whether in a case where the business of the assessee consisted of hiring out machinery, the assessee would be entitled to investment allowance as set out under section 32A of the Act. The relevant portion of section 32A(1) reads as under:
“32A. (1) In respect of a ship or an aircraft or machinery or plant specified in sub-section (2), which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section, be allowed a deduction, in respect of the previous year in which the ship or aircraft was acquired for the machinery or plant was installed or, if the ship, aircraft, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, of a sum by way of investment allowance, equal to twenty five per cent of the actual cost of the ship, aircraft, machinery or plant to the assessee.”
8. The court noted that to get the benefit of the section, the assessee ought to establish:
(i) the machinery should be owned by the assessee,
(ii) it should be wholly used for the purposes of the business carried on by the assessee, and
(iii) the machinery must come under any of the categories specified in sub-section (2) of section 32A.
9. The court then proceeded to observe that the requirement, therefore, is that the machinery must be wholly used for the purpose of such assessee's business and when the business of the assessee is leasing of such machines, the machines so leased out are being used for the purpose of the assessee's business. The court further observed that section 32A does not require that the assessee itself should use the machinery for the purpose.
10. On the comparison of the language used in sections 32A and 32, the same is in pari materia, Ordinarily, considering that the words appear in the same Chapter as far as possible the same meaning should be assigned unless the context otherwise requires. In Shaan Finance, [1998] 231 ITR 308 (SC), therefore, the test used by the Supreme Court is not actual use of machinery but the test is in the context of business of the assessee and whether it is used for the purpose of business.
11. The learned counsel for the assessee also had placed before us the judgment of the Madras High Court in CIT v. First Leasing Co. of India Ltd., [1995] 216 ITR 455. The issue there was whether the assessee was entitled to investment allowance and depreciation. The learned Madras High Court answered the issue in the affirmative. In so far as section 32 is concerned, the court held that because of machinery being leased, the lessor would be entitled to claim depreciation whether or not the lessee had actually put the machinery to use. It was submitted that this issue was the subject-matter of the SLP filed before the Supreme Court which has been dismissed.
12. On the other hand, on behalf of the Revenue, our attention was invited to the judgment of this court in Dineshkumar Gulabchand Agrawal v. CIT, [2004] 267 ITR 768 where depreciation had been claimed though the vehicle was not actually used but ready for use. The learned Bench considering the word “used” was pleased to hold that the word denotes actual use and not merely ready for use and in that context observed that the expression “used” means actual use for the purpose of business. A special leave petition filed was dismissed. Looking at the observations in the judgment what will be apparent is that the court understood the expression “used” to mean used for the purpose of the business, however, made distinction with respect to the vehicle which was ready for use. In an unreported judgment of the Supreme Court in Mcorp Global Private Limited v. Commissioner Of Income Tax, Ghaziabad, [2009] 309 ITR 434 (SC) being Civil Appeal No. 955 of 2009 decided on February 12, 2009, the appellant before the Supreme Court was claiming claim for depreciation in respect of bottles, which were received after the financial year, i.e, March 31, 1991, i.e, between April 3, 1991, and April 18, 1991, though the bottles were paid for and dispatched before March 31, 1991. The Assessing Officer had allowed the deprecation only in respect of the bottles which had been received before March 31, 1991, and disallowed the deprecation in the relevant assessment year in respect of those bottles received after March 31, 1991. The learned court was pleased considering the facts to hold that once the bottles had been sold before March 31, 1991, the assessee would be entitled to deprecation of those bottles considering the business of the assessee. In our opinion, applying the same test, as in the case of Mcorp Global P. Ltd., [2009] 309 ITR 434 (SC) the assessee, admittedly had supplied the machinery before the end of the financial year and the assessee had received the lease rentals for the same. The fact whether the lessee had put to use the leased equipment would be irrelevant as long as the machinery in fact had been given on lease before the end of the financial year, as then it can be said that the assessee for the purpose of business had “used” the leased equipment.
13. Considering the earlier discussion and the ratio of the judgment in Mcorp Global P. Ltd., [2009] 309 ITR 434 (SC), we are of the opinion that there is no merit in the appeal preferred by the Revenue which is accordingly dismissed.