Court rules depreciation as necessary deduction for computing business income under section 32.

The court ruled in favor of the Revenue, emphasizing that depreciation is a necessary deduction for computing business income under section 32. Withholding information to claim set-off of earlier losses does not justify denying depreciation allowance when the necessary particulars are available. The court held that current depreciation is a first charge on profits and that the assessee cannot withdraw the claim solely for setting off previous losses. The Income-tax Officer's assessment, including depreciation allowance, was deemed correct, and the court answered the question referred in the negative, favoring the Revenue.

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Issues involved: Assessment of depreciation allowance and set-off of business loss against current profit.

Assessment of Depreciation Allowance:
The assessee, a company, filed a revised return withdrawing the claim for deduction of depreciation for the assessment year 1979-80. The Income-tax Officer initially computed a net loss after allowing depreciation. The Commissioner of Income-tax (Appeals) accepted the assessee's claim and directed the Income-tax Officer to withdraw the depreciation allowance. However, the Income tax Appellate Tribunal upheld the Commissioner's order, citing relevant case law. The Revenue contended that depreciation is a necessary deduction to ascertain true income from business, as supported by legal precedents. The court analyzed the statutory provisions and held that depreciation is a proper deduction under section 32 for computing business income. It emphasized that withholding information to claim set-off of earlier losses does not justify denying depreciation allowance when the particulars are available. The court ruled in favor of the Revenue, stating that the Income-tax Officer must allow depreciation when the necessary information is provided, as per the Income-tax Act.

Set-off of Business Loss:
The assessee's motivation to withdraw the claim for depreciation was to set off business losses from earlier years. However, the court emphasized that current depreciation is a first charge on profits, as established by the Supreme Court. The court held that the assessee cannot withdraw the claim for depreciation solely for the purpose of setting off previous losses, especially when the necessary particulars are available. The court concluded that the Income-tax Officer's assessment, which included depreciation allowance, was correct and in accordance with the law. Therefore, the court answered the question referred in the negative, favoring the Revenue and against the assessee.

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