2014 (9) TMI 391 - HC - Income Tax

Entitlement for 100% depreciation on value of cylinders purchased Held that - If the cost of the item is less than ₹ 5,000/-, it need not even be entered in the block of assets at all and that in turn would keep such article outside the field of taxation relying upon Commissioner of Income Tax v. Dhall Enterprises and Engineers (P) Ltd 2005 (12) TMI 79 - GUJARAT High Court - an article whose cost is less than ₹ 5,000/- cannot form part of the block of assets much less the depreciation is subjected to any test as to extent of use Tribunal rightly was of the view that once an article or item is covered by first proviso, it cannot be subjected to any test including the one stipulated under third proviso Decided against revenue.

Summary

Issues:
Interpretation of Section 32 of the Income Tax Act - Depreciation on gas cylinders purchased by the respondents.

Analysis:
The appeals before the Andhra Pradesh High Court involved a dispute regarding the depreciation claim on gas cylinders purchased by the respondents for the Assessment Years 1993-94 and 1994-95. The respondents, engaged in the supply of gas cylinders, claimed 100% depreciation on cylinders purchased, asserting that each cylinder's value was less than Rs. 5,000, as per the first proviso to Section 32 of the Income Tax Act, 1961. However, the assessing authorities restricted the depreciation to 50% under the third proviso, citing that the cylinders were used for less than 180 days.

The crux of the matter was whether the gas cylinders should be governed by the first or the third proviso of Section 32 of the Act. The first proviso allows full deduction if the cost of the item is below Rs. 5,000, without any additional conditions. On the other hand, the third proviso restricts the deduction to 50% if the asset is used for less than 180 days, without specifying the cost threshold.

The assessing authorities and the Commissioner initially applied the third proviso to restrict depreciation, leading to the appeals by the respondents. The Tribunal, however, ruled in favor of the respondents, emphasizing that if an item falls under the first proviso, it should not be subject to any further conditions, including the usage duration criteria of the third proviso.

In aligning with the Tribunal's decision, the High Court dismissed the appeals by the Revenue, citing precedents from the Gujarat High Court and the High Court of Madhya Pradesh, which clarified that items costing less than Rs. 5,000 do not fall under the block of assets for depreciation purposes. Consequently, the High Court upheld that once an item is covered by the first proviso, it should not be subjected to any additional tests, including those outlined in the third proviso.

In conclusion, the High Court found no merit in the Revenue's appeals and dismissed them, emphasizing that items with a cost below Rs. 5,000 are not subject to depreciation restrictions under the third proviso of Section 32.