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Issues:
- Interpretation of Sec. 66(2) of the Indian Income Tax Act regarding depreciation allowance for machinery. - Determining if machinery kept ready for use under an express contract can be considered "used" for the business under Sec. 10(2)(vi) of the Act. Analysis: The judgment by the Bombay High Court pertains to a reference made by the Commissioner of Income Tax under Sec. 66(2) of the Indian Income Tax Act. The primary issue revolves around whether the assessee, who owned a ginning factory as part of a pool agreement, is entitled to a depreciation allowance for the machinery in the factory. The agreement required the assessee to keep the machinery in good repair and condition in order to receive a share of the profits made by the pool. The question at hand is whether the machinery, although not actively used during the assessment year, can be considered "used" for the business under the Income Tax Act. The court delves into the interpretation of the relevant sections of the Income Tax Act, specifically Sec. 10(2)(vi) which allows for depreciation of machinery used for business purposes. The court emphasizes that "used" denotes actual user, not just the capability of being used. However, it is argued that machinery kept ready for use under a contract contributing to taxable profits can be considered as being used for the business, even if not actively operated. The court opines that the machinery's passive readiness for use is a form of usage, as it is essential for the profits to be earned. The judgment distinguishes between active and passive usage, asserting that the machinery's maintenance in working order is integral to the business operations, thereby constituting usage for depreciation allowance purposes. In comparing the present case with precedents, the court highlights the importance of the specific contractual obligations regarding machinery maintenance. The judgment draws a distinction from previous cases by emphasizing the existence of a covenant requiring the assessee to keep the machinery ready for actual use during the assessment year. Ultimately, the court rules in favor of the assessee, concluding that the machinery's maintenance under the contract qualifies as usage for depreciation allowance purposes. The decision is based on the necessity of the machinery's readiness for the business to function effectively, leading to the allowance of costs to the assessee.
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