Landmark Cases on Depreciation and Allowances

Depreciation on an asset forming part of a block of assets must be allowed in subsequent years if it was allowed in an earlier year. The opening written down value in a year cannot be disputed if it was correctly carried forward.

An assessee engaged in the business of rendering services to mineral oil concerns for drilling operations on a charter hire basis using its own oil rigs is eligible for the higher rate of depreciation under Section 32 for plant and machinery used in mineral oil exploration.

An asset can be considered 'used' for business purposes, entitling the assessee to depreciation, even if it was only passively used or kept ready for use. The definition of 'used' for depreciation purposes is broader than actual physical employment.

Depreciation is not allowed on goodwill if it arises from book entries and has no identifiable cost of acquisition. This applies even when goodwill is acquired as part of a scheme of arrangement or amalgamation.

The Delhi High Court determines that the initial assessment year for calculating written down value (WDV) must be the year in which the asset was first put to use by the assessee. This ensures accurate depreciation calculations based on the asset's actual commencement of use.

Commercial vehicles, as defined in light of the Motor Vehicles Act, include light motor vehicles, entitling them to higher depreciation rates.

The jurisdictional High Court has held that certain issues related to depreciation under Section 32 of the Income Tax Act are decided in favour of the Revenue.

Unabsorbed depreciation pertaining to assessment years prior to April 1, 1997, can be carried forward and set off. The substitution of Section 32(2) by the Finance Act, 2001, restored the earlier regime where unabsorbed depreciation could be carried forward indefinitely.

Unabsorbed depreciation available as on April 1, 2002, can be carried forward indefinitely under Section 32(2) of the Income Tax Act, 1961.

In a slump sale of a business undertaking, the slump purchase price cannot be apportioned amongst individual assets for the purpose of claiming depreciation if no item-wise value was assigned in the purchase agreement.

Depreciation on computer software expenses is allowable at a rate of 60%. The revenue's acceptance of this claim in prior proceedings supports its validity.

Depreciation is not allowable on toll roads when treated as 'Plant & Machinery' or 'building'.

Depreciation is allowable on non-compete fees when a businessman pays another to restrain them from competing, as this constitutes an intangible asset.

Where a capital investment subsidy is provided to accelerate industrial development, it is not to be reduced from the cost of assets for the purpose of calculating depreciation. Explanation 10 to Section 43(1) does not apply in such cases if the scheme's object is to accelerate industrial development.

Coal mines are considered plant and machinery and are therefore eligible for investment allowance under Section 32A.

A jurisdictional High Court decision in favour of the Revenue on the allowability of additional depreciation cannot be ignored by the Tribunal. The Tribunal should consider such jurisdictional High Court decisions, even if they were not brought to its notice.

Disallowance of depreciation on a windmill is deleted if there is no documentary evidence to prove that the assessee paid excess money for its purchase which was subsequently returned. Additions cannot be made based on conjectures and surmises.

Unabsorbed depreciation of an amalgamating company cannot be added to the written down value of assets in the hands of the amalgamated company. The Supreme Court has dismissed a special leave petition against a High Court decision on this point, implicitly upholding this proposition.

Depreciation is not allowable on non-compete fees if they represent the acquisition of a business or commercial right, rather than an identifiable intangible asset.

Assets used in laboratory premises for chemical tests leading to stock production are categorized as plant and machinery, eligible for depreciation.

Depreciation is allowable on capital assets for charitable trusts even if expenditure was allowed as deduction, as long as it doesn't amount to double deduction. The principles of commercial accountancy apply when computing business income.

An asset is considered 'used for the purpose of business' under Section 32 of the Income Tax Act if it is kept ready for use, even if not actually put to use during the relevant period. This interpretation allows for depreciation claims in such scenarios.

Depreciation is allowable on goodwill, even if it's considered an intangible asset representing future profits, following the Supreme Court's decision in CIT v. SMIFS Securities Ltd.

Unabsorbed depreciation can be set off against income from other sources, even if the business is no longer carried on. The omission of a proviso regarding the continuance of the same business dispensed with this requirement.

Depreciation is allowable for assets if the assessee is the owner and uses the assets for business purposes, irrespective of whether the transaction is hire purchase or leasing.

This case discusses the allowability of depreciation on leased assets in finance leases, a matter that has been addressed by the Supreme Court in ICDS Ltd vs CIT.

Toll roads are not considered 'buildings' for the purpose of claiming depreciation. The right to collect toll fees over a toll road built and maintained under a concessionaire agreement may be considered an intangible asset for depreciation purposes.

The 'written-down value' of an asset for depreciation purposes is determined by subtracting the depreciation 'actually allowed' in previous years from the actual cost. The word 'actually' signifies a real, not speculative, allowance.

No disallowance under section 14A of the Income Tax Act is required if the assessee has not earned any exempt income in the relevant assessment year.

A beneficial owner of a car is entitled to depreciation on it, even if the concept of dominion ownership is distinguished.

A UPS (Uninterruptible Power Supply) is considered an integral part of a computer system, entitling it to depreciation at the higher rate applicable to computers, typically 60%.

The trial production or short duration use of machinery is sufficient to claim depreciation and investment allowance as the statute does not prescribe a minimum time limit for 'use'.

Additional depreciation under section 32(1)(iia) is allowable if the assessee is engaged in the business of manufacture or production, even if the new machinery or plant is not directly used in the manufacturing or production process.

Expenditure directly related to coal mining activities, such as that for mines and shafts, is considered a cost incurred towards extracting coal and qualifies for depreciation as plant and machinery.

Depreciation is allowed on a building used for business purposes, following the rule of consistency, especially when depreciation was allowed in earlier assessment orders. Depreciation is granted on the block of assets, not individual assets, under section 32(1).

Additional depreciation under section 32(1)(iia) that is not claimed in the year of purchase can be allowed in a subsequent year, even if the claim is made during assessment proceedings.

Consideration paid by an amalgamated company in excess of the net assets of the amalgamating company is to be considered as goodwill arising on amalgamation and is eligible for depreciation.

Dumpers exceeding permissible dimensions on public roads cannot be taxed under the Taxation Act as they cannot be used on public roads.

The 5th proviso (now 6th proviso) to Section 32 is applicable only when both the amalgamated and the amalgamating company claimed depreciation for the same asset. Non-compliance with provisions of Sec. 2(19AA), Explanation 3 and Explanation 7A to Sec. 43(1) can be a basis for challenge.

The issue involved in an appeal is no longer res integra if it has been previously decided by the jurisdictional High Court. This principle is affirmed by referencing the Madras High Court's decision in Harvey Heart Hospitals Ltd. v. ACIT.

Unabsorbed depreciation from one assessment year can be carried forward and added to the depreciation allowance of the subsequent year, becoming the allowance for that subsequent year.

The actual cost of an asset for depreciation purposes is the cost to the assessee, reduced by any portion of that cost met by another person. Revaluation of assets motivated by inflating depreciation claims, rather than genuine business needs, is not permissible.

A lessor is entitled to depreciation even if the agreement involves only a finance lease, provided the facts of the assessee's case are distinguishable from those where such claims were denied.

The written down value of an asset once fixed cannot be re-determined in subsequent assessment years as there is no estoppel or res judicata involved in such re-determination.

The case is cited for the proposition that if a lease agreement contains a specific stipulation for repossession of plant and machinery by the lessor in case of lessee's default, the lessor is empowered to do so upon termination of the lease.

Depreciation is allowable on intangible assets, including customer contracts and non-compete fees, if they are acquired for a consideration and fall within the scope of Section 32(1)(ii) of the Income Tax Act.

Depreciation is allowable on assets that are kept "ready for use," not just those in "actual use." This interpretation applies to the term "use" in Section 32 of the Income Tax Act.

Once depreciation on an asset is allowed in the first year, the revenue is debarred from denying depreciation on the written-down value carried forward in subsequent years, absent a change in facts or law.

An asset kept ready for use in business, even if not actually put to use, is considered 'used' for the purposes of business under Section 32 of the Income Tax Act. This includes situations of forced idleness, such as machinery ready for use but unable to be operated due to labour unrest.

Assets forming part of a block of assets are entitled to depreciation, even if they are in passive use.