2006 (11) TMI 150 - HC - Income Tax

Entitled for the claim of depreciation u/s 32 when the machinery are kept ready for use? - machinery being actually used or employed in the earning of income - HELD THAT - The Calcutta High Court in CIT v. Oriental Coal Co. Ltd. 1994 (1) TMI 82 - CALCUTTA HIGH COURT also noticed Liquidators of Pursa Ltd. v. CIT 1954 (2) TMI 1 - SUPREME COURT and thereafter it ruled that under sub-section (1) of section 32 there should be actual user of plant and machinery for the purposes of business. The Bombay High Court in Dineshkumar Gulabchand Agrawal v. CIT 2003 (1) TMI 19 - BOMBAY HIGH COURT has ruled that the word used in section 32 of the Income-tax Act 1961 denotes that the asset has been actually used and not that it is merely ready for use. The expression used means actually used for the purposes of the business. A special leave petition filed against the said judgment stood dismissed. We are of the view that the kept ready theory is not available to the assessee for the purpose of claiming depreciation when the Legislature has chosen to use the word used we have to give a full meaning to it and avoid reading something not intended by the Legislation. After all these benefits are provided for certain purposes. That purpose is used in terms of the statute. If the machinery is not used section 32 is not applicable and hence the assessee cannot have any benefits if granted would result in reading something which is not provided in the statute in terms of section 32. In the result we accept the contention of Sri Indra Kumar learned counsel and accept this appeal. In the result the following order is passed. The appeal is accepted. The questions of law are answered in favour of the Revenue.

Summary

Issues:
1. Claim of depreciation on machinery not put to use by the hospital.
2. Entitlement to depreciation allowance under section 32 of the Indian Income-tax Act.
3. Interpretation of the term "used" for the purpose of depreciation.

Analysis:

1. The case involved the Revenue challenging the allowance of depreciation claimed by the assessee on machinery not put to use by the hospital. The assessing authority disallowed depreciation on imported and Indian machinery totaling Rs. 21,96,094. The Appellate Commissioner directed further depreciation to be allowed, which was upheld by the Tribunal based on the machinery being kept ready for use. The Revenue contended that the machinery should be actually used to claim depreciation.

2. The court analyzed section 32 of the Indian Income-tax Act, which allows depreciation on machinery, plant, or furniture used for business purposes. The Assessing Officer found no evidence of actual use of machinery by the firm. The Appellate Authority and Tribunal considered the machinery being kept ready for use as sufficient for depreciation benefits. However, the court emphasized that the term "used" in the statute must be given its full meaning, and benefits are provided for actual usage in business, not just readiness for use.

3. Various case laws were cited by the assessee to support the claim for depreciation based on machinery being kept ready for use. However, the court referred to judgments from different High Courts and the Supreme Court, emphasizing that for depreciation purposes, machinery must be actually used as per the statute. The court concluded that the "kept ready theory" is not applicable, and the word "used" in section 32 should be interpreted to mean actual usage for business purposes.

In the final judgment, the court accepted the Revenue's appeal, ruling in their favor and answering the questions of law in favor of the Revenue. The court's decision was based on the interpretation of the term "used" in section 32 of the Indian Income-tax Act, highlighting the importance of actual usage of machinery for claiming depreciation benefits.