Landmark Cases on Depreciation and Allowances

Deduction under section 35(2AB) cannot be denied for in-house R&D facilities when the assessee has complied with the requirements, even if there is a delay or non-issuance of Form 3CL by DSIR. The expenditure eligible for deduction under section 35(2AB) is not restricted to the amount certified by DSIR in Form 3CL.

Electrical installations, including wiring, call bells, buzzers, and door locks, are considered furniture and fittings, not plant and machinery, and are thus eligible for depreciation at the rate of 10%.

The conversion of slabs into sizes can be considered as constituting an 'industry'.

Additional depreciation under Section 32(1)(iia) is available for plant and machinery in the business of generation and distribution of power, provided there is operational connectivity with the article manufactured. The insertion of specific language regarding power generation in Finance Act 2012, effective from 01.04.2013, does not preclude eligibility for earlier periods.

Purchasing an asset towards the end of a financial year to claim depreciation for that year is considered tax planning.

An assessee is entitled to claim depreciation under Section 32 if they prove ownership of the assets and that the income generated from their use is treated as business income. This applies even to assets leased out to earn income, provided the income is accepted as business income.

Depreciation can be claimed on a capital asset even if its cost of acquisition was treated as an application of income in the year of acquisition, and claiming depreciation does not amount to double deduction.

Depreciation may be allowed even if machinery is not actively in use or is kept idle. The term 'used for the purposes of the business' can be interpreted broadly to include passive use.

A golf course is not plant and machinery and is to be categorized as a building. This case is cited in support of the proposition that a golf course is not plant and machinery.

Electricity generated by an assessee is considered 'goods', and therefore, the generation of electricity constitutes the production of an 'article or thing'. Consequently, an assessee cannot be denied the admissibility of additional depreciation on electricity generated solely on the grounds that it is not an article or thing manufactured in an industrial undertaking.

Depreciation on intangible assets like computer software is limited to 25% as per Section 32 of the Income Tax Act, and higher rates are contrary to the decision in Dinamalar v. CIT.

Incentives received by an assessee are in the nature of capital receipts and are not chargeable to tax, a position affirmed by the Supreme Court.

Unabsorbed depreciation cannot be carried forward and set off beyond the statutory period of eight years. The Income Tax Appellate Tribunal (ITAT) has held that a claim for set-off of brought forward unabsorbed depreciation is not permissible if the period of eight years for carrying forward such depreciation has expired.

The expression 'used' in relation to assets for tax purposes can be interpreted to mean 'ready for use', not necessarily actual user. This interpretation can extend even to periods of non-user for a number of years.

Depreciation is allowable on assets not registered in the name of the company or firm, but in the names of directors or partners, provided the asset is used for business purposes.

The waiver of a loan does not equate to reimbursement for the cost of capital assets, and therefore, Explanation (10) to section 43(1) concerning cost met by others does not apply.

The generation of power/electricity is considered the manufacturing and production of an article or thing, qualifying for deductions such as additional depreciation under Section 32(1)(iia).

The principle of beneficial interpretation applies only when there is a genuine doubt or two equally reasonable interpretations of a statutory provision; it cannot be used to misinterpret a clear provision to grant an unintended benefit to the taxpayer.

The Assessing Officer is obligated to grant eligible depreciation to an assessee when computing total income, irrespective of whether the assessee claimed it in their return. This principle applies even if subsequent amendments to depreciation provisions were intended to clarify existing law.

Depreciation at 60% is allowable on a UPS used exclusively for computers, as it is considered an integral part of the computer. This is because a UPS is essential for the continuous and stable functioning of computer systems.

Depreciation is allowable on the cost of civil works and electrical works integral to the installation and operation of a windmill, at the rate applicable to the windmill itself.

Depreciation is allowable on windmills commissioned on March 27, 1995, if a trail run was undertaken, as evidenced by power supply to the electricity board and relevant certificates.

Depreciation on goodwill, if purchased, is not eligible for depreciation as it represents the difference between the purchase consideration and the net asset value. However, this ruling may no longer be considered good law post the Supreme Court decision in Smifs Securities Ltd.

Depreciation is not allowable on a non-compete fee as it is considered a revenue expenditure and not an intangible asset that is eligible for depreciation.

Depreciation is allowable on a vehicle even if it was plied without a proper permit under the Motor Vehicles Act. The taxing authorities are justified in treating an investment as unexplained under section 69 if the assessee fails to prove its source.

The written down value (WDV) of assets cannot be disturbed in a succeeding year if they were part of a block of assets in the previous year.

Expenditure incurred to construct a road is not revenue expenditure, and depreciation is not allowed on the cost of construction if the road itself is the only construction and not associated with other buildings.

Depreciation can be claimed even for assets that are in passive use, meaning they are not actively generating income but are kept in readiness for use.

Light fittings used in multiple shifts in a factory are considered plant and machinery for the purpose of depreciation allowances.

A lessor is eligible for investment allowance and extra shift depreciation, even when the lease transaction is effectively a finance transaction.

An assessee is not legally required to file a return within the time prescribed under Section 139(1) to carry forward and set off unabsorbed depreciation.

Depreciation cannot be disallowed on an estimation basis; it must be based on the cost evidenced by documentary proof of the specific asset.

Sale and leaseback (SLB) transactions are not automatically considered sham. The High Court dismissed reasons cited by the department and tribunal for holding such transactions as sham.

A subsidy granted on capital investment in land, building, and machinery, which is not directly related to the actual acquisition of assets, falls outside the scope of Explanation 10 to Section 43(1) and cannot be reduced for depreciation calculation.

Depreciation cannot be claimed on assets that have been claimed as application of income by a charitable trust.

Compensation received for damaged or destroyed property that exceeds the difference between its written down value and scrap value is deemed to be the profits of the previous year in which it is received, even though it represents a capital asset.

The cost of acquiring business or commercial rights, including a client base and licenses, can be considered intangible assets eligible for depreciation under Section 32(1)(ii) of the Income Tax Act.

An assessee is entitled to claim additional depreciation in the year of installation, especially when following Accounting Standards and where the Assessing Officer has not denied this.

The functional test is applied to determine if an asset qualifies as 'plant' for depreciation purposes, by inquiring what operation it performs and if it acts as a tool in the assessee's business activities.

Input tax credit is allowed for capital goods like electrical and electronic goods, such as a Speeder System used in manufacturing, if they have a nexus to the manufacturing process under the relevant VAT Act provisions.

Depreciation on intangible assets like commercial rights can be claimed at the rate of 25% if they are considered to be in the nature of 'machinery' or 'plant' for the purpose of Section 32(1)(ii) of the Income Tax Act, 1961.

Section 32(2) of the Income Tax Act exclusively governs the carry forward and set-off of depreciation allowance, meaning there is no time limitation for setting off unabsorbed depreciation.

The extraction and processing of iron ore, even if not amounting to the manufacture or production of an article or thing, can constitute 'production' for the purposes of claiming deductions under Section 80-IA and depreciation under Section 32-A of the Income Tax Act, 1961.

Assets like stools, tables, and stainless steel racks used in a laboratory for production or processing are considered "plant" for depreciation purposes, based on their functionality.

Depreciation is not allowed at a higher rate if the dominant purpose for which an asset is used is for the assessee's own business, not for hiring out.

Explanation 3 to section 43(1) of the Income Tax Act does not apply where the main purpose of the transfer of assets was not the reduction of tax liability, even if the assets were transferred between partners at market value.

Cranes attached to trucks are considered an integral part of the truck, allowing for depreciation at the rate applicable to the truck.

The assessee's claim for depreciation can be denied in the absence of evidence to support it.

Additional depreciation, when restricted to 50% in the preceding year due to the asset being used for less than 180 days, can be claimed in the subsequent assessment year for the remaining eligible amount.