Section 32 of the Income Tax Act
Income-tax Act, 2025: s.33
Section 32 of the Income-tax Act, 1961 corresponds to section 33 (Deduction for depreciation) of the Income-tax Act, 2025.
Read section 33 of the 2025 Act
Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.
The decision most relied on for Section 32 is CIT v. Smifs Securities Ltd. (348 ITR 302), cited in 540 of the 2,762 judgments on BharatTax that turn on this section.
Leading authorities on Section 32
Goodwill, whether arising from an amalgamation or a slump sale, is an intangible asset eligible for depreciation under Section 32(1) of the Income-tax Act. While the assessee must prove the existence and valuation of such goodwill, it is recognized as a depreciable asset.
A subsidy is treated as a revenue receipt if the assessee is free to use the money in its business as it likes and is not obligated to spend it for a specific capital purpose, such as acquiring assets or repaying loans.
A gain arising from the cancellation of a forward exchange contract entered into for the acquisition of a capital asset constitutes a capital receipt. Income-tax liability for such transactions is determined by the specific provisions of the Income Tax Act, independent of the accounting treatment in the books of account.
Income from immovable property, such as unsold flats or shops, held by an assessee as stock-in-trade in their business of acquiring and holding properties is taxable as 'business income' and not 'income from house property'. Consequently, notional annual letting value under Section 23 cannot be attributed to such stock-in-trade.
Interest earned during the pre-commencement period of a project, on advances made to contractors or on unutilized borrowed funds, if inextricably linked to the setting up of the plant, constitutes a capital receipt. Such interest is not taxable as income but can be reduced from the capital work-in-progress.
Expenditure that provides a commercial advantage of an enduring nature may still be classified as revenue expenditure if its purpose is to facilitate existing trading operations, improve business efficiency, or upgrade existing products, depending on the specific context and objective.
For income tax purposes, the 'owner' of a property is the person who is entitled to receive income in their own right, bears the risks incidental to ownership, and utilizes the asset, even if the sale deed is not formally registered. This beneficial ownership is sufficient for claiming depreciation or capital gains exemption under relevant sections.
A Commissioner can revise an assessment order under Section 263 if it is erroneous and prejudicial to the interests of the revenue. This includes cases where the Assessing Officer fails to make further inquiries before accepting the assessee's statements in the return.
The Supreme Court established the foundational test for distinguishing between capital and revenue expenditure, holding that the aim and object of the expenditure and whether it brings into existence an asset or an advantage of an enduring nature determines its character, irrespective of the payment method. An advantage lasting five years or more can be considered enduring.
This Supreme Court decision clarifies the conditions under which a capital subsidy received by an assessee should be reduced from the 'actual cost' of an asset for computing depreciation under Section 43(1) of the Income-tax Act, depending on whether the subsidy directly meets the cost of the asset.
