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Issues involved: Interpretation of the term "used" in u/s 32(1) of the Income Tax Act for claiming depreciation on a building not actively operational during the assessment year 1971-72.
Summary: The High Court of Punjab and Haryana addressed a reference from the Revenue against the decision of the Income-tax Appellate Tribunal regarding the depreciation allowance on a building in Chandigarh for the assessment year 1971-72. The respondent, an HUF running a printing press, purchased a factory building in Chandigarh but was disallowed depreciation by the ITO as the building was not actively used during the accounting year. The Tribunal allowed the appeal, leading to the reference to the High Court. The main contention was whether the respondent could claim depreciation for the period before the building was fully operational. The interpretation of the term "used" in u/s 32(1) of the IT Act was crucial in this case. The court considered the procedural formalities involved in setting up a new unit, starting with acquiring a suitable building, installing necessary fittings, machinery, arranging manpower, and complying with legal formalities before actual operation. The argument centered on whether the building can be considered "used" even if not fully operational. The court rejected the Revenue's argument that actual functioning was necessary for claiming depreciation, highlighting potential illogical outcomes if such a strict interpretation was applied. The court emphasized that any steps taken to prepare the building for operation should be considered as putting it to "use." Referring to the legal proposition in Sarabhai Management Corporation Ltd. v. CIT, where depreciation was allowed during the preparation period for leasing a building, the court found similarities in the present case. The respondent had purchased the building, installed electrical fittings, and shifted the business within a few months. Therefore, the court concluded that during this transitory period, the building was indeed "used." Consequently, the court ruled in favor of the respondent-assessee, allowing the depreciation claim for the building in Chandigarh. No costs were awarded in this reference.
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