Landmark Cases on Depreciation and Allowances

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.

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).

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.

Rule 8D of the Income Tax Rules, 1962, is applicable only when the Assessing Officer records a finding that he is not satisfied with the assessee's method of disallowing expenditure incurred in relation to income not chargeable to tax.

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 leasing company in the business of hiring out machinery is entitled to investment allowance under Section 32A of the Income Tax Act. Furthermore, Explanation 4A to Section 43(1), introduced by the Finance (No. 2) Act, 1996, suggests that the lessor is entitled to depreciation in sale and lease-back transactions.

Goodwill arising on amalgamation is a capital asset. Depreciation is allowable on goodwill if it has been acquired by the assessee. The cost of acquisition for depreciation purposes is the amount paid for goodwill at the time of amalgamation.

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.

Goodwill and commercial rights acquired before April 1, 2012, are not eligible for depreciation under Section 32(1)(ii) if they are not block assets. The depreciable nature of an asset depends on its inclusion in the block of assets.

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 is allowed based on the rule of consistency if the Assessing Officer has not raised doubts about its business use in earlier assessments. Depreciation is permitted on the block of assets, and individual assets do not have a separate existence for the purpose of Section 32(1).

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.

An assessee is entitled to depreciation on connected components or equipment.

The 'actual cost' of an asset under Section 43(1) is reduced by any portion of the cost met by another person or authority, even if that portion represents a waived liability.

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.

Coal mining is considered 'production' for the purposes of the Income Tax Act. This definition is used to determine eligibility for additional depreciation.

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.

Unabsorbed depreciation available to the assessee on April 1, 2002, is dealt with under Section 32(2) as amended by the Finance Act, 2001.

The Supreme Court's dismissal of the department's SLP upholds the Delhi High Court's decision that additional depreciation can be claimed on plant and machinery acquired on or after April 1, 2005, provided conditions in Section 32(1)(iia) are met. This decision is relevant for the second and subsequent years of claim.

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.

A non-compete fee is an eligible business or commercial right for depreciation under Section 32(1)(ii) of the Income Tax Act, 1961, similar to copyrights and patents.

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.

Additional depreciation not allowed in the year an asset is put to use can be allowed in a subsequent year.

The Supreme Court held that simply because depreciation has been allowed, it cannot be presumed that the balance of the sale consideration represents the excess amount between the price and the written-down value (WDV) of assets.

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 royalty has already been allowed as a deduction and no payment was made for acquiring the lease.

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) of the Income-tax Act is allowable every year, and the condition of it being allowed only in the initial assessment year ceased to exist from April 1, 2006. This decision distinguished the case of DCIT vs. Gloster Jute Mills Ltd.

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.

Items like stainless steel tables, stools, trolleys, and racks used in a laboratory for the production or processing of chemicals and vaccines are considered plant and machinery, not furniture, entitling them to depreciation as such. The functional test, focusing on their role in the production process, determines their classification.