1996 (4) TMI 43 - HC - Income Tax

Court allows depreciation claim for buses transferred as capital contribution

The court ruled in favor of the Hindu undivided family assessee, allowing the depreciation claimed for buses used during the first three months of the ... Accounting Year, Capital Gains, For The Purpose Of Business, Previous Year Issues:1. Whether the assessee, a Hindu undivided family, is entitled to depreciation allowance under section 32(1)(ii) of the Income-tax Act for the assessment year 1980-81.2. Whether the transfer of buses to a firm as capital contribution constitutes a sale, discard, demolition, or destruction under section 34(2)(ii) of the Act.3. Whether the assessee being the owner of the buses for only part of the previous year affects the eligibility for depreciation allowance under section 32(1).Analysis:1. The judgment involves a dispute regarding the entitlement of a Hindu undivided family, the assessee, to depreciation allowance under section 32(1)(ii) of the Income-tax Act for the assessment year 1980-81. The assessee sought the allowance for buses used during the first three months of the previous year. The contention was based on the interpretation of ownership and usage criteria under the Act.2. The transfer of buses by the assessee to a firm as capital contribution was central to the dispute. The Commissioner of Income-tax had denied the depreciation allowance, considering the transfer as falling under section 34(2)(ii) of the Act, which restricts allowance for assets sold, discarded, demolished, or destroyed. The petitioner argued that the transfer did not constitute a sale, discard, or destruction, relying on legal precedents and the Partnership Act's provisions.3. Another issue addressed in the judgment was whether the assessee's partial ownership of the buses during the previous year affected the eligibility for depreciation allowance. The Act stipulates ownership as a requirement for claiming depreciation. The petitioner contended that being the owner for a part of the year sufficed, as the buses were used for business purposes during that period, aligning with the legislative intent of allowing depreciation for wear and tear of assets used in business.4. The judgment extensively analyzed legal precedents, including the interpretation of 'transfer' under the Act and the applicability of depreciation rules in cases of partial ownership. Reference was made to relevant sections of the Income-tax Act and the Partnership Act to determine the nature of the transfer and ownership criteria for depreciation allowance eligibility.5. Ultimately, the court ruled in favor of the assessee, quashing the Commissioner's order and directing the allowance of depreciation claimed. The judgment emphasized that ownership for the entire previous year was not a prerequisite for depreciation allowance, as long as the asset was used for business purposes during the relevant period, aligning with the legislative intent of granting due allowance for wear and tear of business assets.