1967 (3) TMI 6 - SC - Income Tax

Whether the cost of land is entitled to depreciation under the Schedule to the IT Act along with the cost of the building standing thereon - judgment of the High Court set aside and the question referred is answered in the negative and against the assessee

Summary

Issues:
1. Interpretation of whether the cost of land is entitled to depreciation under the Income-tax Act along with the cost of the building.

Analysis:
The case involved a dispute over whether the cost of land is eligible for depreciation under the Income-tax Act along with the cost of the building. The respondent, an exhibitor of films, had claimed depreciation on the entire cost of the building, including the cost of land. The Income-tax Officer excluded the cost of land from the depreciation calculation, leading to a series of appeals. The Appellate Tribunal ruled in favor of the assessee, emphasizing that a building inherently includes the land beneath it. The High Court also sided with the assessee, equating a building to a unit that cannot be split into building material and land for depreciation purposes. The judges analyzed the relevant provisions of the Income-tax Act, particularly section 10(2)(vi), which deals with depreciation of buildings. They highlighted that the term "building" in the Act must have a consistent meaning across its clauses. The judges further examined the concept of depreciation, emphasizing that land does not depreciate and allowing depreciation on land would distort the true income of a business. They distinguished a previous case involving municipal rates exemption, emphasizing that it was not directly applicable to the depreciation issue at hand.

The judges also referred to the Indian Income-tax Rules, specifically Rule 8, which prescribes rates of depreciation based on the nature of the building structure. They pointed out that no rate of depreciation is prescribed for land, indicating that land is not meant to depreciate. The court concluded that allowing depreciation on land would not align with the objective of determining the true assessable income of a business. Ultimately, the Supreme Court allowed the appeal, setting aside the High Court's judgment and ruling against the assessee. The decision clarified that land is not entitled to depreciation under the Income-tax Act, aligning with the principles of depreciation and the legislative intent behind the relevant provisions.