Court rules active use necessary for depreciation allowance on machinery not put to use under Income-tax Act, 1961

The High Court of Madhya Pradesh ruled in a case concerning the interpretation of depreciation allowance under section 32 of the Income-tax Act, 1961 for trucks not put to use. The court held that machinery must be actively used in business activities to earn income for depreciation claims. Emphasizing the requirement for actual use in income generation, the court decided in favor of the Revenue, stating that since the trucks were not utilized during the accounting year, no depreciation allowance was applicable. The decision highlighted the importance of actual usage of machinery for claiming depreciation under the Income-tax Act, 1961.

---

---

Issues involved: Interpretation of depreciation allowance u/s 32 of the Income-tax Act, 1961 for trucks not put to use.

Summary:
The High Court of Madhya Pradesh addressed a reference u/s 256(1) of the Income-tax Act, 1961, regarding the entitlement to depreciation u/s 32. The assessee, a registered firm, claimed depreciation for new trucks not put to use. The Assessing Officer disallowed the claim, leading to appeals and ultimately the Tribunal accepting the depreciation claim.

The Revenue argued that machinery must be actually put to use for depreciation, citing relevant case law. The court examined various High Court decisions on the interpretation of "used for the purposes of the business" and the requirement for machinery to be actively used to earn income. Notably, the court emphasized that machinery should be actually used in business activities for profits, as per the Supreme Court's stance.

Referring to past cases, including decisions from Allahabad, Madras, and Bombay High Courts, the court highlighted conflicting opinions on the interpretation of "used." Ultimately, the court upheld its previous view that depreciation should result from actual use in income generation. Considering the differing opinions among High Courts, the court ruled that since the trucks were not used during the accounting year, no depreciation allowance applied.

In conclusion, the court answered the question in favor of the Revenue, emphasizing the necessity for actual use of machinery for depreciation claims under section 32 of the Income-tax Act, 1961.

---