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CASE NO.: Appeal (civil)  1183 of 2008

PETITIONER: Jt. Commissioner of Income Tax,Valsad, Gujarat

RESPONDENT: M/s. United Phosphorous Ltd

DATE OF JUDGMENT: 08/02/2008

BENCH: S.H. Kapadia & B. Sudershan Reddy

JUDGMENT: J U D G M E N T

CIVIL APPEAL NO.      1183            OF 2008 (Arising out of S.L.P. (C) No.21331 of 2002)

KAPADIA, J.

       Delay condoned.  2.      Leave granted. 3.      In this civil appeal filed by the Department two questions  of law arise for determination which questions are as follow:  (1)     Whether interest paid in respect of borrowings  on capital assets not put to use in the  concerned financial year can be permitted as  allowable deduction under Section 36(1)(iii) of  the Income-tax Act, 1961? (2)     Whether respondent-assessee had an option in  law to claim partial depreciation in respect of  any block of assets.

4.      Our answer to the above-mentioned       question No.(1) is  squarely covered by our decision in favour of the assessee and  against the Department in the case of Dy. Commr. of Income  Tax, Ahmedabad v. M/s. Core Health Care Ltd. in Civil  Appeal Nos.3952-55 of 2002.   

5.      Regarding the question No.(2), quoted above, it may be  noted that the High Court has relied upon the judgment of this  Court in Commissioner of Income-tax v. Mahendra Mills &  Anr. \026 (2000) 243 ITR 56 in which it has been held that the  assessee has an option to claim depreciation.  However,  Section 34(1) of the Income-tax Act, 1961 (for short, "1961  Act") has been omitted w.e.f. 1.4.88.  Therefore, we are  remanding the matter to the High Court after setting aside the  impugned order of the High Court on this question, with the  direction to the High Court to consider : whether the assessee  has an option in law to claim partial depreciation in respect of  block of assets.  In the case of Mahendra Mills (supra) the  concept of block of assets was not there.  In our view,  substantial question of law did arise for determination before  the High Court under Section 260A of the 1961 Act,  particularly when Section 34(1) of the 1961 Act stood omitted  w.e.f. 1.4.88.  The High Court is also requested to consider  whether the judgment of this Court in the case of Mahendra  Mills (supra) would apply to the assessment years under  consideration.  In this connection the High Court is also  requested to take into account the scope of Explanation 5 to  Section 32(1) of the 1961 Act, made by the Finance Act, 2001.

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6.      Accordingly question No.(1) is answered in favour of  assessee and against the Department and question No.(2) is  remitted to the High Court.  Consequently the Department’s  civil appeal is partly allowed with no order as to cost.