2006 (2) TMI 98 - HC - Income Tax

Depreciation - electrical yarn cleaners - Whether Tribunal was right in holding that the two electrical yarn cleaners by the assessee is entitled for depreciation at the rate of 100 per cent.? - Central Board of Direct taxes Circular No. 591 dated January 30, 1991 - held that the circulars are binding on the Department and it is not open to the Department to raise a contention which is contrary to the circulars and instructions validly issued by the Board. The Revenue authorities were therefore not correct in restricting the depreciation to the extent of 50 per cent.

Summary

Issues:
1. Depreciation rate on electrical yarn cleaners for less than 180 days of use.

Analysis:
The case involved a dispute over the depreciation rate applicable to two electrical yarn cleaners purchased by the assessee in 1992. The Assessing Officer contended that since the assets were used for less than 180 days, the depreciation should be restricted to 50%. The Commissioner of Income Tax (Appeals) upheld this decision, but the Income-tax Appellate Tribunal ruled in favor of the assessee, directing full depreciation for the year under consideration.

The core issue revolved around the interpretation of Section 32 of the Income-tax Act, 1961, specifically the third proviso which restricts depreciation to 50% for assets used for less than 180 days. The Revenue argued that this proviso should apply if the individual worth of the asset is less than Rs. 5,000. However, the Central Board of Direct Taxes Circular No. 591 clarified that assets with a cost not exceeding Rs. 5,000 are eligible for 100% depreciation without any restriction based on usage.

The judgment highlighted the importance of circulars issued by the Central Board of Direct Taxes, emphasizing that they are binding on the Department. Referring to the Supreme Court case of UCO Bank v. CIT, it was established that the Department cannot deviate from validly issued circulars. Therefore, the Revenue authorities were deemed incorrect in restricting depreciation to 50% based on usage.

Ultimately, the High Court concurred with the Income-tax Appellate Tribunal's decision, finding no error in their judgment. As no substantial question of law arose for consideration, the court dismissed the tax case without costs, upholding the full depreciation allowance for the assessee on the electrical yarn cleaners.