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Interpretation of the term "machinery" for claiming depreciation on electrification of labor quarters. Detailed Analysis: The case involved a reference under section 256(2) of the Income-tax Act, 1961, regarding the entitlement of the assessee to claim depreciation on the cost of electrification of labor quarters for the assessment years 1981-82 and 1982-83. The assessee incurred expenses on electrification of labor quarters in its tea estates, which included stationery items, wiring, and fittings of electric light and fan installations. The dispute arose when the Commissioner of Income-tax questioned the allowance of 100% depreciation by the Income-tax Officer on the electrification costs. The Commissioner directed to recompute the depreciation at ten percent, considering the components used in electrification not as machinery. However, the Tribunal pointed out contradictions in the Commissioner's order, noting that allowing depreciation at ten percent implied treating electrification as machinery. The Tribunal highlighted the failure of the Commissioner to provide a reasoned order and consider the separate unit nature of each quarter in determining depreciation eligibility. During the hearing, the contention was made that electrical fittings in each labor quarter should be considered as a separate unit for claiming depreciation under the proviso to section 32(1)(ii) of the Income-tax Act. The court analyzed the proviso, which stated that any machinery or plant costing Rs. 750 or below should be considered as a unit for depreciation purposes. It was argued that each labor quarter's electrical fittings should be treated as a separate unit since each quarter is individually identifiable. Drawing a distinction from a previous case involving a hotel building, the court concluded that the divisibility of fittings and installations in each quarter warranted treating them as separate units eligible for depreciation. The court emphasized the test of divisibility and concluded that if the cost for electrification of each quarter does not exceed the specified ceiling, 100% depreciation would be allowable. In conclusion, the court ruled in favor of the assessee, allowing 100% depreciation on the electrification costs for each labor quarter meeting the specified criteria. The judgment highlighted the importance of considering the separate unit nature of assets for depreciation eligibility under the Income-tax Act.
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