2004 (10) TMI 602 - HC - Income Tax

Summary

Issues:
1. Entitlement to depreciation when machinery not used for the entire previous year.
2. Allowability of depreciation on fixed assets forming part of Block of Assets irrespective of individual use.

Entitlement to Depreciation:
The High Court considered the appeal filed by the Commissioner of Income-tax against the Income-tax Appellate Tribunal's order. The main issue raised was whether the assessee is entitled to depreciation when the machinery had not been used for a single day in the entire previous year. The respondent argued that depreciation should be allowed on fixed assets forming part of the Block of Assets, even if not individually used, after the assets merge into the Block. The Court held that the Tribunal did not consider this aspect, leading to the decision to set aside the Tribunal's order and remand the matter for a fresh decision in line with the law and directions provided in the judgment.

Allowability of Depreciation on Fixed Assets:
The respondent contended that even if the factory was under lockout, depreciation should be allowed on fixed assets forming part of the Block of Assets owned by the assessee company. The argument was that the test of actual user applies only in the year of purchase when the new asset is first used, and subsequent to merging into the Block of Assets, depreciation is permissible irrespective of individual use. As the Tribunal did not address this argument, the High Court directed a fresh decision by the Tribunal, emphasizing the need to consider the law and directions provided in the judgment for a comprehensive resolution of the matter.

In conclusion, the High Court's judgment focused on the entitlement to depreciation when machinery remains unused for a year and the allowability of depreciation on fixed assets forming part of the Block of Assets. The Court emphasized the need for a fresh decision by the Tribunal to address the unconsidered aspects and ensure compliance with the law and directions outlined in the judgment for a fair and just resolution of the issues raised in the appeal.