TMI Blog1998 (3) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... ant's income should be worked out in accordance with r. 7(2)(a) and not 7(2)(b) of IT Rules, 1962? (2) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the assessee was not entitled to deduct the depreciation in respect of farm assets used by the assessee in its business?" 2. The assessee is a manufacturer of sugar in its factory. The assessee also grows sugarcane in its own lands and the sugarcane so grown is utilised in the manufacture of sugar. The case of the assessee before the ITO was that the income taxable under the IT Act, 1961 (in short 'the Act') should be computed by applying r. 7(2)(b) of the IT Rules, 1962 (in short 'the Rules'). Both the ITO and the CIT(A) rejected t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter the income chargeable to income-tax under the Act was determined in accordance with r. 7 of the Rules. Both the ITO as well as the CIT(A) rejected the claim of the assessee holding that the assessee was not entitled to depreciation on farm assets. The Tribunal on consideration of r. 7(2)(a) of the Rules came to the conclusion that the income assessable under the Act was determined in accordance with r. 7 of the Rules and no further deduction shall be made from the income so computed and thereafter the assessee was not entitled to the depreciation as claimed. 4. Learned counsel for the assessee submitted that a close scrutiny of the Rules would show that the restriction made in r. 7 of the Rules is restricted to the deduction claimed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cultural income. The claim of the assessee for depreciation would be on the assets owned and used by the assessee for earning agricultural income and the attempt of the assessee to claim the depreciation allowance on farm assets used for producing agricultural income against the non-agricultural income portion is impermissible in law. In our view, under the scheme the assessee is entitled to claim depreciation on the assets owned and used for the purpose of assessee's business and is not entitled to claim depreciation on assets used for earning agriculture income. The assets on which depreciation claimed are farm assets which were used for earning the agricultural income, and therefore, under the provisions of s. 32 of the Act, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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