- (1.) THE subject matter of challenge in the present appeal is a judgment and order dated 1st September, 1999 passed by the learned Income Tax Appellate Tribunal allowing an appeal of the assessee by holding that - "What the assessee acquired is the fixed assets like land, building and also plant & machinery, for which the price had to be paid partly in cash and partly by way of taking over the accrued liability in respect of the gratuity and leave salary payable to the workers. For the purpose of computing the cost of the assets, only the present -day value of these accrued liabilities was taken into consideration by the assessee. We are, therefore, of the opinion that the facts of the case as well as the legal issue involved are within the all corners of the two decisions of the I.T.A.T. for assessment year 1989 -1990, as mentioned above. Following the said line, therefore, we reverse the orders of the lower authorities and direct the AO to allow the claim of the assessee towards depreciation on the fixed assets acquired by it by considering the present -day value of the gratuity as well as the leave salary liability as forming part of the cost of these assets." Aggrieved by the judgment and order of the learned Tribunal the Revenue has come in appeal. The questions framed at the time of admission of the appeal are as follows: "(a) Whether on the facts and in the circumstances of the case the I.T.A.T. is justified in law in directing to allow depreciation on the written down values of assets after including the gratuity liability taken over? (c) Whether on the facts and in the circumstances of the case, the Learned ITAT was justified in law in holding that the consideration of Rs. 4.10 crores shown in the agreement is not the real consideration unless liability towards payment of gratuity and leave salary is spread over the consideration shown -
(2.) MR . Agarwal submitted that the question is no longer res integra since the point has already been decided in favour of the Revenue by the Supreme Court in the case of the assessee itself in the case of CIT v. Hoogly Mills Co. Ltd. : [2006] 287 ITR 333/157 Taxman 347 wherein the following views were expressed: "However, even if we reject the aforesaid submission of learned counsel for the Revenue (as we are inclined to do) and hold that the expenditure on taking over the gratuity liability is a capital expenditure, yet in our opinion no depreciation is allowable on the same because section 32 of the Income -tax Act states that depreciation is allowable only in respect of buildings, machinery, plant or furniture, being tangible assets, and know how patents, copyrights, trade marks, licences, franchises or other business or commercial rights of similar nature being intangible assets. The gratuity liability taken over by the respondent does not fall under any of those categories specified in section 32. Hence, in our opinion, no depreciation can be claimed in respect of the gratuity liability even if it is regarded as capital expenditure. The gratuity liability is neither a building machinery, plant or furniture nor is it an intangible asset of the kind mentioned in section 32(1)(ii). Hence, we fail to see how depreciation can be allowed on the same. In fact, depreciation cannot even be allowed on land because that too is not mentioned in section 32. It may be mentioned that in the present case, the agreement of sale, dated March 24, 1988, separately mentioned the price of the land, building and the machinery. Had it been a case where the agreement of sale mentioned the entire sale price without separately mentioning the value of the land, building or machinery, we would have remitted the matter to the Tribunal to calculate the separate value of the items mentioned in section 32 and grant depreciation only on these items. However, in the present case, the agreement itself mentioned the value of the building, plant and machinery. Hence it is not necessary to remit the matter to the Tribunal in this case. No doubt, the word "plant" had been given the deeming meaning vide section 43(3) but even this deeming meaning does not include the gratuity liability. Hence, in our opinion, no depreciation can be granted on the gratuity liability taken over by the respondent assessee." Mr. Khaitan, learned senior Advocate submitted that the Apex Court was considering the matter in the light of the agreement dated 24th March, 1988 entered into between the assessee and M/s. Fort Gloster Industries Ltd. whereas the case before us arose out of an agreement dated 30th August, 1994 entered into between the assessee and India Jute & Industries Ltd. He added that the present agreement contained a stipulation which was conspicuous by its absence in the earlier agreement. He drew our attention to the following lines appearing in clause 2 of the agreement "at or for the price of Rs. 410 lakhs only free from all encumbrances and liens and liability save and except those which have been assumed and taken over by the purchaser as hereinafter mentioned and subject to the terms and conditions hereinafter appearing." He contended that this stipulation was not there in the agreement dated 1988. Therefore, the facts and circumstances of the case are different. He also drew our attention to clause 4 of the agreement which shows that money consideration has also been differently apportioned than what was in the earlier agreement. He contended that when the facts and circumstances are different, the question of the application of the judgment of the Supreme Court to the case in hand, does not arise.
(3.) HE added that in any case there can be no denial of the fact that the cost of acquisition of the assets is both money paid and money promised. He submitted that neither principle nor law can assist the revenue in contending that they shall permit depreciation only so far as the money paid is concerned, but omit to do so with respect to the money promised. The assets were purchased at a price which is aggregate of the amount paid and promised. Therefore, the depreciation shall take place of the combined value of the assets and not in respect of the money paid only. He submitted that the Hon'ble Apex Court's attention was not drawn to the fact that liability on account of gratuity taken over by the purchaser lost the character of outstanding gratuity and partook the character of consideration in the hands of the assessee. Once it partook the character of consideration, there is no reason why the depreciation should not be allowed. Mr. Khaitan contended, the liability on account of gratuity was in the hands of the seller. The buyer did not enjoy any service of the employee nor could have been in law liable for payment of any gratuity to the employees of the seller. The buyer became liable because the buyer undertook to pay the debt due by the seller. Therefore, the liability is on account of consideration.;