Inclusion of Leasehold Premium in Building Cost for Depreciation Allowance

The court held that the premium paid on leasehold land should be included in the cost of the building for depreciation allowance. This decision was based on a Supreme Court precedent. Regarding the deduction for the PAN catalyst, the court ruled that the assessee could not claim it as a deduction in the assessment year as it had not been sold or disposed of, emphasizing that deductions could only be claimed in the year of sale or disposal, not through writing off the value. The court ruled in favor of the Revenue for both issues.

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Issues involved:
1. Inclusion of premium paid on leasehold land in the cost of building for depreciation allowance.
2. Eligibility of the assessee for deduction of the cost of PAN catalyst written off during the assessment year 1975-76.

Issue 1 - Premium on Leasehold Land:
The court held that the premium paid on leasehold land was includible in the cost of the building constructed on it for allowance of depreciation to the assessee for the relevant accounting period. This decision was based on the precedent set by the Supreme Court in CIT v. Alps Theatre [1967] 65 ITR 377. Therefore, the court answered question No. 1 in the negative and in favor of the Revenue.

Issue 2 - Deduction for PAN Catalyst:
The controversy revolved around the deduction claimed by the assessee for the cost of a PAN catalyst written off during the assessment year 1975-76. The Income-tax Officer disallowed the claim, stating that the assessee was not entitled to claim obsolescence allowance under section 32(1)(iii) of the Act for a plant that was never used for business purposes.
The Commissioner of Income-tax (Appeals) allowed the deduction, considering the catalyst as a current asset used in production, not a fixed asset. The Revenue appealed to the Tribunal, which upheld the Commissioner's decision.
The court analyzed the situation and concluded that the assessee could not claim deduction for the PAN catalyst's cost in the assessment year under consideration as it had not been sold or disposed of, despite becoming obsolete. The court emphasized that the deduction could only be claimed in the year of sale or disposal, not merely by writing off the value. Therefore, the court answered question No. 2 in the negative and in favor of the Revenue.

Separate Judgment:
The judgment was delivered by DR. B. P. SARAF.

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