2017 (11) TMI 574 - HC - Income Tax

Eligible for depreciation u/s 32 - whether the depreciation deserves to be computed and allowed with reference to the Written Down Value of such Block of Asset as defined u/s 43(6)? - Held that - Expression Used for the purpose of business in section 32 has to be read harmoniously with the expression Discarded occurring in Clause III of sub section (1) thereof. On harmonious reading of these expressions, Used for the purpose of business only means that assessee has used the machinery for the purpose of business in earlier years. Therefore once depreciation was allowed on block of assets in previous year actual user of machinery is not required with respect to the discarded machinery and the condition for eligibility of depreciation that machinery is used for the purpose of business would mean that discarded machine is used for the purpose of business in the earlier years for which depreciation is allowed. - Decided in favour of the assessee against the department.

Issues:
- Interpretation of Section 32 for depreciation claim on assets forming part of a Block of Asset.
- Allowance of depreciation on assets kept under forced idleness due to closure or strike.
- Application of depreciation provisions on block value concept.
- Disallowance of depreciation claim on assets used for different divisions of the same business.
- Consideration of judgments from different High Courts for interpreting Section 32.

Analysis:

1. Interpretation of Section 32 for depreciation claim on assets forming part of a Block of Asset:
The main issue in this case revolves around the interpretation of Section 32 of the Income Tax Act for claiming depreciation on assets forming part of a Block of Asset. The appellant challenged the Tribunal's decision based on the interpretation of relevant legal provisions and previous judgments. The Court framed a substantial question of law regarding the computation and allowance of depreciation on assets forming part of a Block of Asset.

2. Allowance of depreciation on assets kept under forced idleness due to closure or strike:
The appellant contended that despite assets being kept under forced idleness due to closure or strike, depreciation should still be allowed as the assets were ready for use. The Court analyzed the arguments presented by the appellant's counsel, citing judgments from various High Courts to support the claim that even passive use of assets under forced idleness could qualify for depreciation under Section 32 of the Income Tax Act.

3. Application of depreciation provisions on block value concept:
The Court considered the application of depreciation provisions based on the block value concept for the appellant's case. It was argued that once assets form part of a Block of Asset, depreciation should not be partially disallowed, especially when the business as a whole is operational, even if certain units are closed. The Court emphasized the importance of considering the block value concept for allowing depreciation claims.

4. Disallowance of depreciation claim on assets used for different divisions of the same business:
The case involved a situation where assets were used for different divisions of the same business, and the question arose whether depreciation could be claimed for assets not directly used in a specific division. The Court examined previous judgments and legal provisions to determine the eligibility of depreciation claims in such scenarios.

5. Consideration of judgments from different High Courts for interpreting Section 32:
The Court considered and compared judgments from various High Courts to interpret Section 32 of the Income Tax Act regarding the allowance of depreciation on assets forming part of a Block of Asset. The judgments provided insights into the application of depreciation provisions and the treatment of assets used for different purposes within the same business.

In conclusion, the Court allowed the appeal in favor of the appellant, emphasizing the correct interpretation of Section 32 for depreciation claims on assets forming part of a Block of Asset. The decision highlighted the importance of considering the block value concept and the applicability of depreciation provisions in cases of forced idleness due to closure or strikes.

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