1935 (7) TMI 21 - HC - Income Tax

Summary

Issues:
Determination of allowance for depreciation under Sec. 10(2)(vi) of the Income Tax Act for an assessee who did not use the buildings, machinery, plant, or furniture for business purposes during the assessment year.

Analysis:
The case involved a reference under Sec. 66(2) of the Income Tax Act by the Commissioner of Income Tax, Central and United Provinces, regarding the entitlement of the assessee, Rao Bahadur Bhikaji Venkatesh, to an allowance for depreciation under Sec. 10(2)(vi) of the Act for the relevant assessment year. The assessee owned a ginning factory as part of a pool of factory owners where factories operated in rotation, and during the assessment year, the assessee's factory did not operate but received profits from the pool. The contention was whether the buildings, plant, and machinery, although not in use, could still be considered as "used for the purpose of the business" under Sec. 10(2)(iv). The Commissioner's view, supported by a precedent, was that actual usage during the year was necessary for claiming depreciation.

The assessee argued that the phrase "used for the purpose of the business" in Sec. 10(2)(iv) should be interpreted broadly to include potential or general usage, not limited to actual usage during a specific year. However, the court disagreed, emphasizing the plain meaning of "used" as "actually used" and citing legal commentary to support the interpretation that allowances covering multiple years require actual usage unless specified otherwise. Precedents were cited where similar situations led to disallowance of depreciation claims due to lack of actual usage during the relevant year.

The court rejected the argument that clause (iv) of Sec. 10(2) supported a broader interpretation of "used for the purposes of the business," as it related to insurance considerations affected by actual usage. The judgment clarified that for Sec. 10(2)(vi), "used" must mean "actually used," not merely capable of use or generally used. The court dismissed arguments about potential higher depreciation for unused machinery and emphasized adherence to the Act's provisions over general considerations.

Ultimately, the court held that in the context of Sec. 10(2)(vi), the phrase "used for the purposes of the business" from clause (iv) meant "actually used," and in cases where buildings, plant, and machinery were not utilized during the year, no depreciation allowance could be granted. The judgment was delivered under Sec. 66(5) of the Act, with costs of the reference to be borne by the assessee and a specified pleader's fee. The reference was answered accordingly, affirming the denial of the depreciation claim for the assessee.