1993 (8) TMI 115 - AT - Income Tax

Summary

Issues:
1. Disallowance of 7/8th of deduction of depreciation on car.
2. Claim of depreciation against professional receipts.
3. Interpretation of statutory conditions for claiming depreciation.

Detailed Analysis:
1. The appeal was against the disallowance of 7/8th of the depreciation claimed on a car for the assessment year 1990-91. The assessee, a Legal Officer who retired and resumed legal practice, showed professional receipts of Rs. 6,000 and claimed depreciation of Rs. 40,622 on the car used for professional purposes. The Assessing Officer disallowed 7/8th of the claim, considering the professional receipts and the state of professional take off. The DCIT (Appeals) upheld the disallowance, viewing the claim as a tax avoidance device. However, the Appellate Tribunal found the observations misconceived, emphasizing that depreciation is a statutory deduction and must satisfy specific conditions.

2. The DCIT (Appeals) reasoned that the high claim of depreciation against professional receipts was a colorable device for tax planning. The Tribunal disagreed, noting that the conditions for claiming depreciation were met by the assessee. The Tribunal highlighted that the Act aims to encourage investment in capital assets, including motor cars, through depreciation allowances. The lower authorities' view that the claim was unjustified due to low professional income was deemed untenable. The Tribunal directed the Assessing Officer to allow the depreciation claim as all statutory conditions were fulfilled, emphasizing the legislative intent to promote investment.

3. The Tribunal clarified that the conditions for claiming depreciation include the asset being used for business, owned by the assessee, and not exceeding the original cost. Despite the initial stage of professional activities and low income, the Act does not impose restrictions based on income quantum for claiming depreciation. The legislative provisions allowing for carrying forward unabsorbed depreciation indicate a pro-investment stance. Therefore, the Tribunal found the lower authorities' reasoning unfounded and directed the allowance of the depreciation claim, emphasizing the statutory compliance and legislative intent to incentivize investment in capital assets.