1935 (12) TMI 30 - Commissioner - Income Tax

Summary

Issues: Interpretation of "used for the purposes of the business" under Sec. 10(2)(iv) of the Indian Income tax Act, 1922 for claiming depreciation on idle machinery.

Analysis:
The judgment concerns a reference under Sec. 66 of the Income Tax Act by the Central Provinces Manganese Ore Company Ltd., Nagpur, objecting to the disallowance of depreciation on idle machinery. The company argued that since income was derived from the sale of ore mined using the machinery in previous years, depreciation should be allowed even when the machinery was not in use during the current year. The questions referred for decision revolve around the interpretation of the phrase "used for the purposes of the business" in Sec. 10(2)(iv) of the Act. The Commissioner of Income Tax opined that the phrase should be understood as machinery being "actually used for such purposes" during the account year, not merely "not used for other purposes." The judgment discusses precedents like N.D. Radhakishen & Sons v. Commissioner of Income Tax, Punjab, emphasizing that depreciation is granted for machinery employed in earning income, not merely for owning it. The court rejected the company's argument, citing cases like Sri Gopalji v. The Commissioner of Income tax, Punjab, and Bhikaji Venkatesh v. The Commissioner of Income tax, Central and United Provinces, which support the Commissioner's interpretation.

The court acknowledged that idle machinery may result in the full depreciation not being recovered over time but emphasized the need to adhere to the rule's plain significance. The judgment concluded by answering the questions in favor of the Income tax Commissioner, affirming that the phrase "used for the purposes of the business" means machinery must be actively employed in the business during the account year to claim depreciation. The court also ruled that the second question did not require a separate answer, and costs of the application were imposed on the non-applicant assessee, along with a specified pleader's fee.

In summary, the judgment clarifies the interpretation of the phrase "used for the purposes of the business" under Sec. 10(2)(iv) of the Income Tax Act, emphasizing that depreciation can only be claimed for machinery actively employed in the business during the account year. The court rejected the argument that idle machinery could still claim depreciation based on past use, citing precedents and the fundamental purpose of allowing depreciation.