TaxTMI 
TaxTMI 
Depreciation - provisions of 1961 Act and 2025 Act compared in relation to 'block of asset', the first step about depreciation. Also some aspects about litigation and need to reduce litigation
Depreciation
Depreciation is a major aspect in computation of income or loss in any enactment relating to tax on income. It is a privileged statutory deduction and the allowance is allowable as per law irrespective of actual wear and tear.
Actual cost of any depreciable asset is allowed while computing income under head business and profession and in some circumstances under the heading 'other sources'.
The deduction can be considered as privileged deduction also for the reason that it can be carried forward for indefinite time as against other losses which can be carried forward for limited period.
Block of assets is first step in process of computing allowable depreciation. In this process or step we need to determine under which block any particular asset falls. This is important because block as per applicable rates once chosen is difficult to change, though not impossible.
Reasonable rules should be applied while choosing block of assets. Any particular asset should preferably fall as per its usages and understanding in commercial world.
In this write-up provisions of old and new enactment relating to 'block of asset ' are analysed. The analysis may be considered illustrative and not exhaustive because of complex nature.
Different rates are not considered in this part because that issue is more complex and can be considered as per actual facts.
Abbreviations used:
ITA 1961 or 61 Act - The income-tax Act, 1961
ITA 2025 or 25 Act - The income-tax Act, 2025
ITR 1962 or 62 Rules - Income Tax Rules 1962
ITR 2026 Or 2026 Rules - Income-tax rules 2026
On search in PDF books of ITA 1961 and ITA 2025 we find that :
In 1961 Act word Depreciation is found at 173 places and in 2025 Act 151 times.
These counts include appearance of word in index and foot notes also.
Foot notes in 1961 Act are more because of several amendments and 2025 Act have comparatively few amendments as it is newly enacted and few amendments have taken place.
Provisions which are redundant in 1961 Act do not find corresponding provision in 2025 Act.
Some active provisions contained in IT Rules 1962 are now incorporated in 2025 Act.
Therefore, it can be said that almost all provisions which relates to depreciation and which are active provisions are found in 2025 Act. On reading of provisions also this position can clearly be understood.
There seems some fundamental changes in provisions of 2025 Act, however, some of them are some old provisions of 1961 Act which were omitted earlier but find place in 2025 Act with or without some changes.
The term or expression used may be in singular or plural manner in the Act or Rules.
Provisions compared:
Remarks | ||
Section 2.11 2. Definitions.-In this Act, unless the context otherwise requires,-
[(11) 'block of assets' means a group of assets falling within a class of assets comprising- (a) tangible assets, being buildings, machinery, plant or furniture; (b) intangible assets, being know-how, patents, copyrights, trade-marks, licences, franchises or any other business or commercial rights of similar nature, in respect of which the same percentage of depreciation is prescribed;] |
Definitions. 2. In this Act, unless the context otherwise requires,- (17) 'block of assets' means a group of assets falling within a class of assets comprising of- (a) tangible assets, being buildings, machinery, plant or furniture; (b) intangible assets, being know-how, patents, copyrights, trade-marks, licences, franchises or any other business or commercial rights of similar nature, not being goodwill of a business or pro fession, in respect of which the same percentage of depreciation is prescribed; | In both enactments definition is subject to contextual requirement. Therefore significance of word 'means. Used in respective clause get diluted to the extent of requirement of the context. The section is similar except that in 2025 Act we find exclusion by uses of words 'not being goodwill of a business or pro fession, '
|
The expression find place at 37 places in the 1961 Act (PDF) including index and footnotes. | The expression find place at 35 places in the 2025 Act (PDF) including index and footnotes. | The expression find places in other provisions related with actual cost or cost of assets or block of assets, written down value of any asset or block of asset. |
In Rules: |
|
|
The expression find place11 times in IT Rules 1962 in context of depreciation and short-term capital gains on depreciable assets. And rate of depreciation in Annexures to Rules. |
| The expression find place 8 times in IT Rules 2026 in context of depreciation and rate of depreciation in Appendix to Rules and also deemed short term capital gains. |
Although 'meaning' is given for the term 'block of asset', it is subject to context. Therefore, in different period and circumstances and context meaning can be applied strictly or in a flexible manner.
We find litigation about 'block of asset' as per search on this website as follows:
Search results are as follows:
Showing Results for : Law: Income Tax Sort : default Search In : Main Text + AI Text
Searched Text : block of asset, law Income tax - all means Act and Rules both
all courts 7715 results/ cases
SC all - 73 results / cases
Sc - 69 results
High courts 1540 results/ cases
Appellate Tribunals 6087 Results.
All courts in favour of assessee 3904 cases
All courts in favour of revenue 937 cases
All courts - Partly in favour of Assessee 2488 cases
All courts - Partly in favour of revenue 275 cases
This shows that there have been considerable litigation on the first aspect in area of depreciation that is applicable 'block of asset'. This is mainly because of different rate of depreciation.
Unfortunately, in 2025 Act and 2026 Rules we find provisions to be more complex and ambiguous and it is likely to increase litigation.
Depreciation is a periodic allowance:
Depreciation is a periodic allowance, for a tax payer ( a smaller unit) it may make sense to avail depreciation quickly by claiming at higher rate however, for revenue ( a very large unit) in overall context it is not of much significance. Because if depreciation is allowed at higher rate, the annual allowance falls rapidly in case of WDV method. In case of SLM annual allowance is same. A small gain allowable / claimed by assessee on reasonable interpretation as per business usages should be allowed liberally.
The litigation policy of government need to change to avoid litigation only when there is some deferment of tax, which can be very important support to tax payer in initial years whereas for government a long-term perspective is important.
Besides results in favour of revenue vis a vis in favour of assessee also suggest that government should take a more practical and pragmatic view and avoid litigation on such and similar issues which only defer tax payable for short period. Other such issues can be about change in accounting method,stock valuation expenses relating to earlier or subsequent period claimed. Many of such issues involve one year deferment only. On such issues there should not be litigation by AO and then by higher authorities.