Landmark Cases on Depreciation and Allowances

A building used as a nursing home qualifies as 'plant' under the Income-tax Act if it functions as a tool of the trade with which the business is carried on, as determined by the functional test.

A wet dock of a dockyard is considered 'plant' for the purpose of depreciation.

Subsidy is not deductible from the 'actual cost' under section 43(1) for calculating depreciation, as it's an incentive to encourage industrial establishment, not a payment towards actual cost.

Additional depreciation under Section 32(1)(iia) can be claimed in the year an asset is acquired and installed, even if it is claimed in a subsequent year of acquisition and installation.

Depreciation is allowable on goodwill as an intangible asset under Section 32(1)(ii) when it arises from a scheme of amalgamation or similar corporate restructuring.

A payment for non-compete fees creates a commercial right and is considered an intangible asset eligible for depreciation under Section 32(1)(ii).

Deductions under section 80IA are to be computed with reference to the profits of each eligible unit independently, without considering the profits or losses of other units. Each eligible unit is treated as a standalone entity for the purpose of calculating this deduction.

In a slump sale, the slump purchase price cannot be apportioned among individual assets for claiming depreciation, as there is no indication of the price attributable to specific assets out of the total sale consideration.

An asset kept ready for use in a business is considered to be 'used' for the purpose of business, entitling the assessee to depreciation, even if it is not actively operated or was not used in prior years. Passive usage of an asset also qualifies for depreciation.

A valuation report furnished by the assessee for the cost of assets cannot be ignored if the Assessing Officer has not appointed his own valuer, has not examined the assessee's valuer, and has no other evidence to show the report is unreliable. Similarly, Explanation 3 to Section 43(1) can only be invoked if the Assessing Officer believes the fair market value was inflated to claim excess depreciation.

If the actual cost of an asset was wrongly assessed in earlier years, it can be recomputed and corrected in subsequent assessment years. Interest incurred before production on borrowed money for plant construction can be capitalized and added to the cost of fixed assets.

Specified intangible assets like business claims, information, records, contracts, employees, and know-how acquired under a slump sale are considered 'business or commercial rights' eligible for depreciation under section 32(1)(ii).

Depreciation on a vehicle cannot be denied solely because the transfer was not recorded under the Motor Vehicles Act or the vehicle stood in the vendor's name in official records, if the assessee can establish ownership.

Depreciation on a building used for business purposes should be allowed following the rule of consistency if it was allowed in earlier assessment orders and the Assessing Officer raised no doubts about its use.

For claiming higher depreciation on trucks, the relevant consideration is whether the assessee was engaged in the business of hiring out trucks, not merely including transportation income in total business income.

A subsidy received by an assessee for acquiring depreciable fixed assets cannot be reduced from the actual cost or written-down value (WDV) of those assets for the purpose of claiming depreciation. The subsidy itself is to be treated as capital receipt.

Depreciation on fixed assets used for business purposes cannot be disallowed under Section 14A of the Income-tax Act.

Additional depreciation allowance that was already granted in the original assessment cannot be withdrawn in a subsequent assessment.

When investments are made in accordance with the Income Tax Act, and the market price of these investments changes from the value shown in the opening balance at the year-end, depreciation on such investments can be allowed.

Depreciation is not allowable on toll roads constructed under Build-Operate-Transfer (BOT) arrangements as the assessee does not acquire ownership of the road and the right to collect toll is merely a contractual right, not an intangible asset under section 32(1)(ii).

Land is not subject to depreciation. Depreciation can only be claimed on buildings, and the value of the building must be considered separately from the land when computing capital gains.

Depreciation at 60% is allowable on batteries used with a UPS system for power backup, as they form an integrated system.

Expenditure incurred includes depreciation claims. Necessary provisions required by statute, such as for gratuity and leave encashment, can be considered as applied for the objects of a trust.

The extraction or winning of coal is considered 'production' for the purpose of claiming additional depreciation under Section 32(1)(iia) of the Income Tax Act.

The asset must be actually used for the purpose of business to be eligible for depreciation, not merely ready for use.

The Bombay High Court case CIT-10 v. North Karnataka Expressway Ltd. (2014) is cited for the proposition that commercial rights can be considered intangible assets eligible for depreciation under Section 32(1)(ii) of the Income Tax Act, 1961, if they possess enduring benefit.

The 'written down value' (WDV) under Section 43(6)(b) is determined by depreciation that has been 'actually allowed', meaning it has been taken into account or granted and given effect to by the Income-tax Officer in computing taxable income.

The case is cited for the principle that income from leasing of assets, if the lease is a finance lease, the depreciation allowance should be computed on the leased asset, not on the lease income.

An assessee is not required to carry on business in the year in which unabsorbed depreciation is sought to be set off, provided the return is filed within the stipulated time. The carry forward of depreciation or investment allowance is permissible even if the business was stopped in the prior year.

A charitable trust can claim depreciation on a capital asset even if its cost was treated as application of income for charitable purposes. Allowing depreciation does not constitute double allowance.

Software integrated with a computer system is eligible for the same rate of depreciation as the computer system itself.

Printers are an integral part of computers and are therefore eligible for the higher rate of depreciation applicable to computers. The decision also refers to expenditures on signboards being revenue in nature.

Where the sale consideration for a slump sale is a lumpsum amount, and there is no evidence to indicate the price attributable to specific assets like plant, machinery, or buildings, the excess of the sale consideration over the written-down value of depreciable assets is not automatically taxable as deemed business profit under Section 41(2) merely because depreciation has been allowed.

Depreciation allowance can be claimed for an asset even if it is not actively used in the business, as the term 'used' encompasses both passive and active user. Machinery kept idle may still depreciate.

Additional depreciation is allowable for assets purchased and put to use for less than 180 days in the preceding assessment year.

The leasing company is considered the owner of an asset in a lease agreement and is therefore entitled to claim depreciation, including at a higher rate if the asset is hired out.

Depreciation must be allowed on the entire block of assets as defined in Section 2(11) of the Income-tax Act, and individual assets of each unit cannot be considered separately for this purpose.

Depreciation is not allowable on tenancy rights as they are not considered intangible assets falling within the meaning of Explanation to Section 32(1). The restriction of depreciation applies to tangible and intangible assets specifically enumerated in Section 32.

Depreciation is not admissible on leasehold rights when no payment was made for acquiring the lease and royalty has already been allowed as a deduction. Subscription and membership fees do not form part of revenue receipts.

The leasing company is considered the owner of an asset under a lease agreement and is therefore entitled to claim depreciation, including at a higher rate for assets hired out. The court does not consider it necessary to delve into disputes about invoice issuance names when the lease agreement and related factors satisfy the ownership criteria.

The Bombay High Court ruled that the Assessing Officer and CIT(A) relied on Circular No. 609 and the decision in CIT v. S.C. Takur & Brothers to disallow depreciation exceeding 15% on motor vehicles, implicitly acknowledging a specific interpretation of depreciation claims for certain vehicles.

Additional depreciation under section 32(1)(iia) is allowable every year, distinguishing previous decisions that limited it to the initial assessment year.

Section 72 of the Income Tax Act, 1961, deals with the carry forward of business losses and does not encompass the carry forward of depreciation, which is provided for under Section 32(2).

Depreciation is allowable to a company for a vehicle registered in a director's name if the vehicle is used for the company's business and the income generated is offered as the company's income.

In lease transactions, only the lessor is entitled to claim depreciation, regardless of whether the lease is a finance lease or an operating lease. This is because the substantial risks and rewards of ownership are not transferred to the lessee.

Unabsorbed depreciation concerning AY 2001-02 and assessment years prior thereto can be set off in subsequent years without any time limit. The Gujarat High Court upheld the ITAT's view on this matter.

The dissemination of news and news reporting is covered under goods classified under specific clauses of the Schedule to the Trade Marks Rules, potentially impacting eligibility for additional depreciation. Export of television news software can be considered as envisaged under provisions related to export of computer software.

The term 'plant' for depreciation purposes under Section 32 includes items like fans installed in an administrative office, reflecting an extended meaning that can encompass business or professional use items.