1995 (12) TMI 53 - HC - Income Tax

Summary

Issues:
Interpretation of section 32(1)(iv) of the Income-tax Act, 1961 regarding entitlement to initial depreciation.

Analysis:
The judgment pertains to a reference under section 256(1) of the Income-tax Act, 1961, concerning the entitlement of the assessee to initial depreciation under section 32(1)(iv) of the Act. The assessee, a State Government company, claimed initial depreciation for residential quarters purchased under a hire purchase agreement. The Income-tax Officer, on appeal, and the Tribunal denied the initial depreciation. The key issue was whether the assessee met the criteria under section 32(1)(iv) for claiming initial depreciation.

The relevant provision, section 32(1)(iv), allows for initial depreciation on newly erected buildings used for specific purposes, including residences for employees earning a specified income. The Tribunal denied the claim citing lack of evidence regarding the construction timeline and the income of employees. However, the Tribunal correctly noted that the relevant income for application of section 32(1)(iv) is the income chargeable under the head "Salaries."

The Court analyzed the requirements of section 32(1)(iv), emphasizing the need for a newly erected building used solely for employee residences with income below a specified threshold. The Court found that the assessee met these conditions as the building was constructed and possession was handed over in the previous year, and the employees' salaries were below the threshold. The assessing authority had already granted depreciation under section 32(2), indicating ownership by the assessee.

The Court disagreed with the Tribunal's findings, stating that the possession of the building in the previous year and ownership by the assessee were established. Therefore, the assessee was entitled to initial depreciation under section 32(1)(iv). The Court ruled in favor of the assessee, concluding that the Tribunal's decision was incorrect based on the facts presented.

In conclusion, the judgment clarifies the interpretation of section 32(1)(iv) regarding initial depreciation entitlement for newly erected buildings used for specific purposes. It underscores the importance of meeting the statutory requirements and providing sufficient evidence to support the claim, ultimately ruling in favor of the assessee based on the established facts and statutory provisions.