1998 (3) TMI 60 - HC - Income Tax

Summary

Issues:
1. Interpretation of IT Rules for computing income under profits and gains of business.
2. Entitlement to claim depreciation on farm assets used for business.

Analysis:

Issue 1:
The primary issue in this case revolved around the interpretation of the IT Rules for computing income under the heads of profits and gains of business. The Tribunal had to determine whether the deduction to exclude the agricultural portion of the appellant's income should be calculated in accordance with rule 7(2)(a) or 7(2)(b) of the IT Rules, 1962. The Tribunal, supported by a judgment of the Supreme Court, held that the deduction should be made in accordance with rule 7(2)(a) of the Rules. This decision was based on the market value of the agricultural produce consumed by the assessee, affirming that rule 7(2)(a) applied to the facts of the case. Consequently, the Tribunal's decision was upheld, affirming that the deduction should be computed in accordance with rule 7(2)(a).

Issue 2:
The second issue involved the entitlement of the assessee to claim depreciation on farm assets used for business purposes. The assessee had claimed depreciation on the farm assets after the income was determined in accordance with rule 7 of the IT Rules. Both the ITO and the CIT(A) rejected this claim, stating that the assessee was not entitled to depreciation on farm assets. The Tribunal, after considering rule 7(2)(a) of the Rules, concluded that no further deduction could be made after computing the income under the Act as per rule 7. The contention of the assessee's counsel was that depreciation should not be restricted by rule 7 as it is a statutory allowance, not an expenditure incurred as a cultivator. However, the court disagreed, ruling that the assessee cannot claim depreciation on farm assets used for agricultural income against non-agricultural income. The court held that the assessee is entitled to claim depreciation on assets used for the business but not on assets used for agricultural income. Therefore, the claim for depreciation on farm assets was denied, upholding the Tribunal's decision that the assessee was not entitled to claim depreciation on the farm assets.

In conclusion, the High Court affirmed the Tribunal's decisions on both issues, ruling in favor of the Revenue and denying the assessee's claims regarding the computation of income and entitlement to claim depreciation on farm assets.