TMI Blog1981 (4) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... vely; (3) before the production (even trial run) is commenced and the business of the company of manufacturing an article with the aid of the said machinery has commenced ? Can depreciation be allowed in these facts and circumstances when it is allowable upon the property being used for or in the business of the said unit of the company ? In other words, the question is whether it can be said that the building has been used in the business even before the articles, for production of which the plant is set up, have not been produced and the machinery itself has become functional later on. This question has arisen in the background of the following facts. An existing company installed a new plant for the manufacture of dyestuffs and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion under s. 256(1) of the I.T. Act, 1961 (hereinafter, referred to as " the Act ") : " Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the 'Azo' building was used' for the purposes of business for more than one month in the relevant accounting year for the assessment year 1965-66 and was entitled to depreciation in the said assessment year ? " The view taken by the Tribunal is that the date on which the machinery installed in the building became functional is irrelevant. What is relevant is the date on which the machinery was installed in the building. Now, provisions on which reliance is placed for claiming depreciation allowance, namely, s. 32(1) read with r. 5, as they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) for a period of thirty days or less than thirty days, respectively........" It must be realised that what was being erected was a new plant though it was being erected by an existing company. The machines which were installed in the building in question in respect of which depreciation allowance is claimed became functional only on March 7, 1965. The business of the company was to manufacture dyestuffs, etc. The production of dyestuffs could not have commenced before March 7, 1965, the date on which the machines became operative. Under the circumstances, can it be said that the building was used by the assessee for the purpose of his business at a point of time when the machines, had not become functional, merely because the machin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oning an hypothetical situation. Take the case of a building which was completed, say in 1970, and the installation of the machinery was commenced in 1971, but could not be completed, for say five years thereafter, till 1974. Could it then be contended that the building was " used " for the purpose of the " business " of the assessee and could the assessee have claimed depreciation for these five years ? Five years even before the machinery became functional and the plant was commissioned ? In other words, even before it could have commenced trial production let alone actual production ? The answer is obviously " no ". Depreciation, it must not be overlooked, if inseparable from the actual user for business. And, depreciation allowance is p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commenced and the date when the actual production commenced. The court took the view that the date on which the trial production commenced was irrelevant for the purpose of claiming depreciation and that it cannot be said that the company had set up its business at the point of time when the trial production had commenced. In other words, the company had not commenced its business from the standpoint of the right to claim depreciation for the user of a building or machine in the business of the assessee-company. Under the circumstances, the conclusion is inescapable that the Tribunal had committed an error in reversing the view taken by the ITO as confirmed by the AAC and in deciding the question in favour of the assessee. We, therefore, a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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