1986 (7) TMI 135 - AT - Income Tax

Issues:
1. Interpretation of initial depreciation under section 32(1)(iv) of the Income-tax Act, 1961 for a building used for the residence of employees in a professional services firm.
2. Determining whether the term 'business' in section 32(1)(iv) includes 'profession.'
3. Analysis of the legislative intent behind the inclusion of 'profession' in section 32(1)(iv).
4. Application of the decision in Barendra Prasad Ray v. ITO [1981] 129 ITR 295 to the case.
5. Examination of the distinction between section 32(1) and section 32(1)(iv) regarding the eligibility for initial depreciation.
6. Evaluation of the failure to assess whether the assessee fulfills the conditions under section 32(1)(iv) for claiming initial depreciation.

Detailed Analysis:

1. The appeal concerns the admissibility of initial depreciation under section 32(1)(iv) of the Income-tax Act, 1961 for a building used for the residence of employees in a professional services firm. The dispute arose from the assessee's claim for initial depreciation based on the contention that the term 'business' in section 32(1)(iv) encompasses 'profession' as well.

2. The Income Tax Officer (ITO) rejected the claim, emphasizing that section 32(1)(iv) applies only to businesses and not professions. The ITO highlighted the separate definitions of 'business' and 'profession' in the Act and disallowed the claim after considering various precedents cited by the assessee.

3. On appeal, the Commissioner (Appeals) accepted the assessee's argument, citing the Supreme Court's decision in Barendra Prasad Ray v. ITO [1981] 129 ITR 295 to support the inclusion of 'profession' within the scope of 'business' for the purpose of initial depreciation under section 32(1)(iv).

4. The department challenged the Commissioner (Appeals)'s decision, contending that initial depreciation was intended solely for entities engaged in 'business' activities and not 'profession.' The respondent, represented by the partner, relied on the Barendra Prasad Ray case to support the Commissioner (Appeals)'s ruling.

5. The Tribunal observed that the Barendra Prasad Ray decision was specific to the facts of that case and did not universally apply. It noted the distinction between section 32(1) and section 32(1)(iv) to emphasize that the legislative intent was to limit the deduction under section 32(1)(iv) to 'business' only, excluding 'profession.'

6. Importantly, neither the ITO nor the Commissioner (Appeals) had assessed whether the assessee met the basic conditions stipulated in section 32(1)(iv) for claiming initial depreciation. The Tribunal focused on the legal issue at hand and concluded that the Barendra Prasad Ray decision did not align with the facts of the case, leading to the reversal of the allowance of deduction under section 32(1)(iv) by the Commissioner (Appeals).

7. Consequently, the Tribunal ruled in favor of the revenue, highlighting the necessity of fulfilling the statutory requirements for claiming initial depreciation and clarifying the distinction between 'business' and 'profession' under the relevant provisions of the Income-tax Act, 1961.

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