Landmark Cases on Depreciation and Allowances

Electricity is considered 'goods' as it is capable of abstraction, transmission, transfer, delivery, possession, consumption, and use, similar to other movable property.

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.

Commercial rights for exploration of minerals or oil, obtained through agreements like production sharing agreements, are considered 'any other business or commercial rights of a similar nature' under section 32(1)(ii) of the Income-tax Act. These rights qualify as intangible assets eligible for depreciation.

Depreciation on self-generated goodwill is not allowable.

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.

Depreciation deduction under Section 32 is allowed only if the particulars prescribed by Section 34 are furnished.

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 of April 1, 2002, can be carried forward indefinitely, irrespective of the provisions of Section 32(2) before its amendment.

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.

Cranes do not fall within the ambit of commercial vehicles, motor lorries, or motor taxis for the purpose of claiming depreciation at a 30% rate.

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.

A non-compete fee is considered an intangible asset. The right acquired under a non-compete agreement is 'in personam'.

Generation and distribution of electricity is considered the production of goods. This classification makes assessees engaged in electricity generation eligible for additional depreciation under Section 32(1)(ii)(a) of the Income Tax Act.

A building or structure is considered 'plant' if it functions as an apparatus or tool by which business activities are carried on. If it merely serves as a place where business activities occur without being integral to them, it is not plant.

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.

For depreciation to be allowed under section 32, the conditions of ownership and user of the asset for business purposes must be met. The distinction between hire purchase and leasing does not negate these conditions.

A High Court decision has followed the Supreme Court's final decision in ICDS Ltd vs CIT regarding the allowability of depreciation on finance leases.

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.

An Uninterruptible Power Supply (UPS) is eligible for depreciation at the rate of 60%, as it is considered an integral part of a computer and falls under the classification of plant and machinery.

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.

Depreciation on a building used solely for business purposes is allowed, even if its initial use was not for business, especially when the Assessing Officer had not raised doubts in prior assessments and depreciation was consistently allowed. Depreciation is calculated on a block of assets under section 32(1), not on individual assets.

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 whose dimensions exceed permissible limits for public roads cannot be taxed under the Taxation Act because there is an embargo on their use on public roads.