2009 (10) TMI 17 - HC - Income Tax

Depreciation WDV on germplasm seeds which is a plant actual cost held that - depreciation is a privilege and can only be on the basis of actually allowed and not notionally allowed if assessee did not claim the benefit of depreciation during the earlier year, the cost can not be reduced notionally for the purpose of depreciation for subsequent years

Summary

Issues:
Claim for depreciation on germplasm seeds - WDV calculation - Actual cost vs. market value or notional WDV

Analysis:
The judgment addresses the claim for depreciation on germplasm seeds, acknowledged as a plant by the revenue. The appellant, engaged in producing hybrid rice seeds, claimed depreciation on germplasm seeds used in the business. Initially treated as agricultural income, a tribunal decision prompted the appellant to declare it as business income, claiming depreciation on the actual cost of the seeds acquired in previous years. The Assessing Officer (A.O.) requested a depreciation chart based on WDV, but the appellant insisted on depreciation on actual cost. Disputes arose regarding the WDV calculation for depreciation, not the allowance itself.

The judgment refers to relevant provisions of the Income Tax Act, emphasizing depreciation allowance under Section 32 based on WDV. The definition of WDV under section 43 includes actual cost for assets acquired in previous years and assets acquired before the previous year, adjusted for depreciation allowed. The actual cost definition under section 43(1) specifies direct or indirect costs borne by the assessee. The issue of actual cost for depreciation calculation is supported by Supreme Court judgments, such as CIT Vs. Straw Products Ltd., CIT Vs. Dharampur Leather Co. Ltd., and CIT Vs. Nand Lal Bhandari Mills, which clarify that "actually allowed" does not include notional allowances.

The judgment dismisses the revenue's reliance on CIT Vs. Saharanpur Electrical Supply Corporation Ltd., emphasizing that the appellant's correct calculation of actual cost for depreciation does not constitute taking advantage of a mistake. It affirms that depreciation is a privilege based on actual allowances, not notionally allowed amounts. The conclusion states that the ITAT was correct in allowing depreciation on the actual cost of germplasm seeds, even when the cost was incurred before becoming an assessee. The judgment highlights that an assessee's choice to claim depreciation is a statutory privilege, not an obligation, and should not be denied based on past non-claims.

In summary, the judgment resolves the issue by affirming the ITAT's decision to allow depreciation on the actual cost of germplasm seeds, rejecting the revenue's argument against the appellant's claim based on past non-claims. The judgment clarifies the distinction between actual and notional allowances for depreciation, emphasizing the statutory privilege of claiming depreciation based on actual costs incurred by the assessee.