2004 (10) TMI 72 - HC - Income Tax

Depreciation actual cost - Explanation 6 to section 43(1) - Whether, the depreciation was correctly allowed on factory and non-factory buildings purchased from Dalmia Cement (Bharat) Ltd. which had ceased to be a holding company in the assessment year 1976-77? - Whether the written down value of the holding company is to be taken as actual cost of the assessee or the amount paid by the assessee to the holding company - On behalf of the assessee it was contended that actual cost is not static and it is required to be determined year to year - In view of Explanation 6 to clause (1) of section 43 the Assessing Officer as well as the Tribunal have rightly rejected the contention of the assessee and have rightly held that the actual cost once determined under section 43(1) read with Explanation 6 will remain the same for that assessee Thus answer is required to be given in favour of the Revenue and against the assessee.

Summary

Issues:
Depreciation allowance on factory and non-factory buildings purchased from a holding company ceased to be a holding company.

Analysis:
The judgment addressed a group of references under the Income-tax Act, 1961, where the main issue revolved around the correct allowance of depreciation on factory and non-factory buildings purchased from a holding company that ceased to be a holding company. The assessee argued that the higher depreciation figures should be allowed, contrary to the figures based on the holding company's written down value. The Tribunal upheld the depreciation allowance based on the holding company's written down value, rejecting the assessee's claim for higher figures. The Tribunal's decision was based on legal provisions and previous rulings, emphasizing that the change in the holding company status did not affect the depreciation allowance correctness.

The key contention was whether the actual cost to the assessee should be based on the holding company's written down value or the amount paid by the assessee to the holding company. Section 43 of the Act defined actual cost and written down value, with relevant explanations. The judgment highlighted that the actual cost to the transferee company would be the written down value of the transferor company, as per the provisions. The court referred to legal precedents and the Supreme Court's decisions to support the interpretation of the law in determining the actual cost for depreciation purposes.

The court also considered the argument that the actual cost is not static and can be determined year to year, but in this case, Explanation 6 to section 43(1) indicated that the actual cost once determined would remain the same for the assessee. The judgment differentiated the case from other rulings involving gift or inheritance scenarios, emphasizing that the situation in this case required adherence to the written down value of the holding company for depreciation calculation. Ultimately, the judgment ruled in favor of the Revenue, upholding the depreciation allowance based on the holding company's written down value and dismissing the assessee's claim for higher figures. The references were disposed of accordingly, with no costs awarded.