1982 (7) TMI 15 - HC - Income Tax

Summary

Issues:
1. Allowance of 100% depreciation on certain expenditure capitalized by the assessee.
2. Determination of written down value for an asset without a prescribed depreciation rate.
3. Applicability of section 43(6)(b) in determining the written down value of capitalized expenditure.

Analysis:
1. The case involved a private limited company claiming 100% depreciation on salt pans, reservoirs, and condensers for the assessment year 1971-72. The Income Tax Officer (ITO) disallowed the claim, stating that the assets were not acquired in the previous year. The Appellate Tribunal allowed the depreciation, directing verification of past depreciation claims. The Revenue challenged this decision, arguing that depreciation should be based on the actual cost of the assets, not including repairs and renewals. The Tribunal held that 100% depreciation is available for assets used in the previous year, regardless of acquisition date. The High Court agreed, emphasizing actual use as the criterion for depreciation eligibility and ruled in favor of the assessee on this issue.

2. The second issue pertained to the determination of the written down value for an asset without a prescribed depreciation rate. The Tribunal directed full depreciation if no past claims existed. The Revenue contended that only actual asset cost should be considered for depreciation. The High Court upheld the Tribunal's decision, emphasizing that the date of asset acquisition is immaterial, and actual use in the previous year governs depreciation eligibility. Thus, the Court answered this question in the affirmative, favoring the assessee.

3. The final issue revolved around the applicability of section 43(6)(b) in determining the written down value of capitalized expenditure. The Tribunal had considered the conditions for claiming depreciation under section 32 of the Income Tax Act and found the assessee entitled to 100% depreciation. The High Court concurred, stating that the cost of repairs and replacements, treated as revenue expenditure, should not affect the depreciation claim. The Court ruled in favor of the assessee on this issue as well.

In conclusion, the High Court upheld the Tribunal's decision, allowing 100% depreciation on assets used in the previous year, irrespective of acquisition date, and emphasizing actual use as the key criterion for depreciation eligibility. The Court ruled in favor of the assessee on all three questions referred, highlighting the importance of actual asset use in determining depreciation entitlement.