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DEPRECIATION UNDER INCOME TAX ACT, 1961

Income Tax - Direct Tax Code - DTC - By: - Mr.M. GOVINDARAJAN - Dated:- 4-12-2015 Last Replied Date:- 5-12-2015 - Introduction The very concept of the depreciation suggests that the tax benefit on account of depreciation belongs to one who has invested in the capital asset is utilizing the capital asset and thereby losing gradually investment caused by wear and tear and would need to replace the same by having lost its value fully over a period of time. Section 32 of Income Tax Act, 1961 ( Act .....

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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; in the case of any block of assets, such percentage on the written down value thereof as may be prescribed. The various issues involved in Depreciation are discussed as below with reference to decided case laws. Ownership In Commissioner of Income Tax and another V. WEP Peripherals Limited - 2014 (3) TMI 935 - KARN .....

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ugh legal title was conveyed by the Karnataka Industrial Areas & Development Board initially in 2003 by executing lease deed and then in 2009 by executing a sale deed in favor of the assessee. The High Court held that the Tribunal had rightly allowed the depreciation In Mysore Minerals Limited V. Commissioner of Income Tax - 1999 (9) TMI 1 - SUPREME Court the Supreme Court was of the opinion the term owned as occurring in Section 32(1) of the Act must be assigned an wider meaning. Any one in .....

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ving acquired the possession over the building in his own right uses the same for the purposes of the business or profession though a legal title has not been conveyed to him consistently with the requirements of law, but nevertheless is entitled to hold the property to the exclusion of all others. The Supreme Court further held that it is well settled that there cannot be two owners of the property simultaneously and in the same sense of the term. The intention of the legislature in enacting Se .....

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t by NHAI for widening, rehabilitation and maintenance of the existing two lane highway into a four lane and the existing two lane highway on two sections of the national highway on build, operate and transfer basis. The entire cost of construction was borne by the assessee. The construction was completed during 2004 - 05 and after that the assessee denied depreciation from 2005 - 06 onwards. The Assessing Officer held no ownership, leasehold or tenancy rights ever vested in the assessee for the .....

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ASTHAN HIGH COURT the assessee claim for depreciation for the year 2005 - 06 and 2006 - 07 in respect of the assets and the same were accepted by the department. However for the assessment year 2007 - 08 it was disallowed on the ground that there was no evidence to prove the change of ownership of the building from the Government of Rajasthan to the assessee-society and in the records, the title still continued to be with the State of Rajasthan. The Commissioner (Appeals) and the Tribunal held t .....

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nt year 2007 - 08. Passive User The Delhi High Court in Commissioner of Income Tax V. Oswal Agro Mills Limited - 2010 (12) TMI 947 - Delhi High Court considered that even the passive user qualifies for depreciation and held that the passive user of the assets is also recognized that the passive user is interpreted to mean that the asset is kept ready for use and if this condition is satisfied, even when it is not used for certain reasons in the concerned assessment year, the assessee cannot be d .....

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dge. The High Court held that the existence of an agreement to acquire technology was not sufficient to claim depreciation. There had to be some active or passive use of technology know-how during the year. The depreciation was held not to be allowable. In Commissioner of Income Tax V. Metalman Auto P Limited - 2011 (2) TMI 330 - PUNJAB AND HARYANA HIGH COURT the High Court held that even if the air conditions though purchased in the name of Managing Director and his wife, were for the assessee .....

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ession in part performance under Section 53A of Transfer of Property Act. In the agreement dated 21.11.2002 it is stated that NBCC had handed over the vacant possession to the assessee. The Tribunal concluded that possession in fact or actually was handed over to the assessee before the end of the Financial Year ending 31.03.2000. The assessee is, therefore, entitled to the benefit under Section 53A of the Transfer of Property Act and allowed the depreciation. The High Court confirmed the findin .....

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sed in the manufacture of wind mill or any specially designed device, which run wind mills, it would not fall for consideration on the block of assets which is defined in Section 2(11). Therefore, the generator set alone would qualify for the rate as prescribed under renewable energy services that is 100% depreciation. The other machinery would qualify for depreciation at 25% and not 100% as claimed by the assessee. False Ceiling In Commissioner of Income Tax V. Ayesha Hospital P. Limited - 2006 .....

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n Comfort Living Hotels P Limited V. Commissioner of Income Tax - 2014 (3) TMI 585 - DELHI HIGH COURT the assessee claimed depreciation at 100% on roofing on the basis that the construction was temporary in nature. The Assessing Officer disallowed this on the assumption that the construction included two sets of toilets and that it involved the use of marble and false ceiling. This was confirmed by the Tribunal. On appeal the High Court held that the Tribunal had not adequately dealt with the re .....

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it was held that unabsorbed depreciation in the case of a firm cannot be set off at the hands of the partners and it has to be reverted back to the firm. Depreciation for Vibro bed dryer In Commissioner of Income Tax V. Mcleod Russel (India) Limited - 2014 (2) TMI 797 - CALCUTTA HIGH COURT the High Court held that vibro bed dryer is an item covered under Appendix I III (3) (iii) A of Income Tax rules,1962 and is entitled to 100% depreciation. Depreciation for going concern In Mattel Toys (I) P .....

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ver the assessee was a going concern and depreciation could not be denied on plant and machinery used for purposes other than manufacture. Depreciation for good will In Commissioner of Income Tax V. Worldwide Media P Limited - 2014 (4) TMI 527 - ITAT MUMBAI it was held that depreciation can be allowed on such intangible assets in the form of good will also. Once depreciation was allowable on goodwill at the same rate at which the assessee had claimed depreciation on trade mark and copy right, it .....

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