1928 (2) TMI 3 - HC - Income Tax

Clarification on Machinery Depreciation Rules: Active Use for Income Generation Required.

N.D. Radha Kishen and Sons of Rawalpindi Versus The CIT Punjab and N.W. Frontier Province

The court clarified that for depreciation allowance under the Income-tax Act, machinery must be actively used for income generation during the accounting ... - Issues: Interpretation of 'used for the purposes of the business' in section 10 (2) (iv) of the Income-tax Act and allowance for depreciation. Admissibility of allowance under section 10 (2) (vii) for discarded machinery.In the judgment, the court addressed the interpretation of the phrase 'used for the purposes of the business' in section 10 (2) (iv) of the Income-tax Act. The Income-tax Commissioner sought clarification on whether an allowance for depreciation is permissible for buildings, machinery, plant, or furniture not actively utilized by the assessee during the relevant accounting year. The court emphasized that the tax is levied on profits or gains of the previous year, indicating that deductions should correspond to the same period. The court opined that the allowance for depreciation is granted based on the machinery's use in generating income. Therefore, if the machinery remained idle and did not contribute to income generation, depreciation allowance cannot be claimed. The court concluded that the phrase 'used for the purposes of the business' necessitates actual utilization during the accounting year.Regarding the admissibility of an allowance under section 10 (2) (vii) for discarded machinery, the court aligned its decision with the previous interpretation. The court emphasized that any claim for discarded machinery should pertain to machinery actually discarded within the accounting year. The court reiterated that deductions under the Income-tax Act should be directly linked to the relevant accounting period.Furthermore, the court addressed the petitioner's request for a reference to three additional questions, which the Commissioner declined to refer. The petitioner argued that since the Commissioner referred one question, all points raised in the application should be considered. However, the court disagreed, stating that they are only seized with questions raised by the Commissioner. The court highlighted that the petitioner had the opportunity to challenge the Commissioner's decision within the prescribed time frame but failed to do so, resulting in the loss of the remedy. Consequently, the court declined to entertain the remaining questions raised in the application.In conclusion, the court provided its answers to the issues raised, emphasizing that no costs were awarded due to a deposit made by the parties that had not been refunded.