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Issues: Interpretation of expression "for the purposes of business of manufacture" in s. 32(1)(vi) of IT Act, 1961. Entitlement to initial depreciation.
Analysis: 1. The dispute in this appeal revolves around the interpretation of the expression "for the purposes of business of manufacture" in s. 32(1)(vi) of the IT Act, 1961, for the assessment year 1977-78. The Assessing Officer (AO) denied initial depreciation under s. 32(1)(vi) to the assessee, stating that there was no business of manufacture during the relevant previous year, as manufacturing work was done "just on trial basis." The Appellate Authority Commissioner (AAC) agreed with the AO, noting that the assessee had shifted to anodising work during the previous year, abandoning manufacturing. However, the counsel for the assessee argued that all conditions of s. 32(1)(vi) were met, and the assessee was entitled to initial depreciation at 20% of the machinery's actual cost. 2. The main contention was whether the assessee needed to continue the business of manufacture throughout the year to claim initial depreciation under s. 32(1)(vi). The Tribunal held that the only requirement was for the small scale industrial undertaking to have installed machinery for the purpose of manufacturing. The machinery could be used for various purposes, including manufacturing certain items. Even though the assessee shifted to anodising work during the year under appeal, it did carry out manufacturing for a period, as confirmed by the AAC. The Tribunal emphasized that the intention to carry on manufacturing was present, but due to unmarketable products, manufacturing was discontinued. The Tribunal opined that the machinery was indeed installed for the purpose of manufacturing, entitling the assessee to initial depreciation. 3. Consequently, the Tribunal allowed the appeal, holding that the assessee was entitled to initial depreciation as it had engaged in the business of manufacture during the relevant year, even if for a limited period. The decision underscores the importance of the purpose for which machinery is installed, rather than the continuity of a specific business activity, in determining eligibility for initial depreciation under s. 32(1)(vi) of the IT Act, 1961.
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