Actual cost for depreciation can include attributable service payments connected with acquiring depreciable assets, even under a lump sum arrangement.

A payment made for services connected with obtaining plans, permissions, permits, materials, import licences and foreign exchange for depreciable assets may, to the extent attributable to those services, be included in the assets' actual cost for depreciation under section 10(2)(vi) read with section 10(5) of the Indian Income-tax Act, 1922. The fact that the remuneration was initially linked to gross annual income, or later commuted into a lump sum under a substituted arrangement, did not alter the character of the attributable portion as part of actual cost. Exact apportionment and timing of allowance depended on the facts.

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Issues: Whether any part of a lump sum paid to a service provider under a commutation agreement could be included in the actual cost of depreciable assets for the purpose of depreciation allowance under section 10(2)(vi) read with section 10(5) of the Indian Income-tax Act, 1922.

Analysis: The expression "actual cost to the assessee" was construed to mean what the assessee in fact expended or laid out for acquiring the depreciable assets. Services rendered in relation to obtaining plans, permissions, permits, materials, import licences, foreign exchange, and similar matters connected with acquiring or completing the assets could properly be regarded as attributable, at least in part, to the cost of those assets. The fact that the remuneration was initially structured as a percentage of gross annual income did not prevent the attributable portion from entering into actual cost, and the later agreement terminating the earlier arrangement did not change the character of the payment insofar as it represented substituted consideration for the original services. The exact apportionment and the year in which the attributable amount should be given effect were matters left for determination in accordance with the facts.

Conclusion: A part of the sum paid, to the extent attributable to services connected with acquisition of the depreciable assets, is includible in the actual cost for depreciation purposes; the assessee succeeds on the question of law.

Ratio Decidendi: A payment made as remuneration for services materially connected with acquiring depreciable assets may, to the extent so attributable, form part of the actual cost of those assets under the depreciation provisions, even if the payment is commuted or later substituted by a lump sum arrangement.

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