10/01/2019
Depreciation [Sea 32] In order to claim depreciation, an assessee has to fulfil the following conditions :-
- The asset should be owned‘ be the assessee. Where, however, an assessee carries on business or profession in a building not owned by him but taken on lease, he is entitled to depreciation in respect of the capital expenditure by him after March 3 l, 1970 on the construction of any structure or any work in relation to the bullding by way of Improvement, renovation or extension.
- The asset, in respect“ Of which depreciation is claimed, must have been used for the purpose of business. Where, however, the asset“ is Partly used for business or profession and partly used for private and personal purposes. A reasonable proportion of the depreciation attributable to the business user of the asset is allowed [sec. 38].
- Under the Income-tax Act, one can claim depreciation in respect of the following assets .
The following potnts should be noted :-
1. Depreciation is available even in respect of a fractional ownership of an asset.
2. Accounting Standard on 'Leases' issued by the Institute of Chartered Accountants of India requires capitalization of the asset by the lessees in financial lease transaction. By itself, the accounting standard will ban: no implication on the allowance of depreciation on assets under the provisions of the Income-tax Act Circular 2/2001, dated February 9, 2001. However, it cannot be concluded that after Circular 2/ 2001, lessee cannot claim depreciation in the case of financial lease. If lessee (in the case of financial lease) can exercise the tights of the owner not on behalf of lessor but in his own right, depreciation is available to the lessee.
3. From the assessment year 2002-03, depreciation under section 32(1) will be available whether (or not) the ssessee has claimed, the deduction for depreciation while computing his total income.
4. In cases of CITv. General Industries Corpn. [1985] 155 ITR 430 as well as CITV. Nagpur Golden Transport .I998 233 ITR 389, the Delhi High Court had held that in a hire purchase scheme, the hirer would be "ltllléd to claim depreciation. These judgments clearly go against the contention that until the last instalment pagd the ownership vests in the seller and not in the hirer VLS Finance Ltd v. Dy. C1T[2006] S SOT 363.
Consequently, if the following conditions are satisfied, depreciation can be claimed by hirer;
a. the hire purchase agreement must show that as long as hirer discharges his obligation. he has an uninterrupted right over the asset for all practical purposes; and
b. the seller will eventually lose all rights, title and interest in asset if the hirer discharges his obligation (Le, Payment of all instalments)
If the above conditions are satisfied, depreciation will be available to the hirer (and not seller). It is incorrect to state that in such a case depreciation is available to the seller until the last instalment is paid.
5. Building" means the superstructure only and does not include site CIT v. Alps Theatre [1967] 65 ITR 377 )”Plant" includes ships, vehicles, books (including technical know-how report), scientific apparatus and surgical equipments used for the purpose of business or profession but does not include tea bushes or livestock or (from the assessment year 2004-05) building, furniture and fittings.
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