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TMI Blog1967 (3) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... ot;, referred the following question : "Whether the cost of land is entitled to depreciation under the Schedule to the Income-tax Act along with the cost of the building standing thereon ?" This question arose out of the following facts : The respondent, M/s. Alps Theatre, hereinafter referred to as " the assessee ", carries on business as exhibitor of films. The Income-tax Officer initiated proceedings under section 34(1)(b) of the Indian Income-tax Act, 1922, on the ground that in the original assessment depreciation was allowed on the entire cost of ₹ 85,091 shown as cost of the building which included ₹ 12,000 as cost of land. The Income-tax Officer, by his order dated February 22, 1959, recomputed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it-building. If later on it is sold and it fetches more than its written down value the surplus is liable to tax (see in this connection section 10(2)(vii), proviso)." He felt that "the crux of the matter is that the building is treated as a unit for purposes of depreciation or repair, and there is no warrant in the Act which would permit us to split the unit for the purposes of section 10." He further felt that at any rate two equally plausible interpretations are possible and the one in favour of the assessee should be adopted. Dua J., in a concurring judgment, felt that the question was not free from difficulty, but he answered the question in favour of the assessee on the ground that much could be said for both points o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure, the amount paid on account thereof." This again cannot include the site. Then we come to sub-clause (vi), the relevant portion of which reads as under: "in respect of depreciation of such buildings, machinery, plant or furniture being the property of the assessee, a sum equivalent... as may in any case or class of cases be prescribed." It would be noticed that the word used is "depreciation" and "depreciation" means : "a decrease in value of property through wear, deterioration or obsolescence: the allowance made for this in book-keeping, accounting, etc." (Webster's New World Dictionary). In that sense land cannot depreciate. The other words to notice are "such buildings" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e land under a third class building should depreciate three times quicker than land under a first class building. One other consideration is important. The whole object of section 10 is to arrive at the assessable income of a business after allowing necessary expenditure and deductions. Depreciation is allowable as a deduction both according to accountancy principles and according to the Indian Income-tax Act. Why ? Because otherwise one would not have a true picture of the real income of the business. But land does not depreciate, and if depreciation was allowed it would give a wrong picture of the true income. The High Court relied on Corporation of the City of Victoria v. Bishop of Vancouver Island, but in our view this case is distin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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