Thursday, March 12, 2015

Depreciation available on asset even when it was transferred to stock-in-trade at nominal value


Assessee who used to convert the assets (incapable of any further use and having negligible market value) into stock-in-trade at nominal value would be entitled to claim depreciation on remaining book value of block of asset.

Facts:

a)The assessee ('Xerox India Ltd.') was engaged in the business of trading in Xerographic equipments, Printers, Scanners, etc.

b)It leased out the equipments to the customers on an operating lease basis.These equipments were capitalised and depreciation thereon was claimed by assessee.

c)When equiptments were returned back to the assessee on the termination of the lease, it used to convert these into stock-in-trade at a nominal value of Rs.1.

d)The nominal value was reduced from the block of assets and depreciation was claimed by assessee on the remaining amount. The revenue disallowed the depreciation on the ground that instead of nominal value, actual value of asset had to be reduced from the block of assets as these assets were transferred to stock-in-trade.

e)On the other hand the assessee contended that whenever these assets were sold, the profit was offered for taxation and in case any of these assets was again leased out, then it was recapitalized in block of asset at the nominal value at which it was decapitalised.

The ITAT held in favour of assesse as under-

1)When the assets were recapitalized at the nominal value at which these were decapitalised then there was no effect on the taxability of the assessee.

2)Similarly, there was no harm to revenue whenever these used assets were sold after their conversion into stock-in-trade as surplus on the sale would be taxed.

3)Thus, assessee was entitled to depreciation on asset. - XEROX INDIA LTD. V. DEPUTY CIT (2015) 55 taxmann.com 29 (Delhi - Trib.)