1994 (1) TMI 82 - HC - Income Tax

Depreciation not allowed during lock-out period if assets are not used for business purposes

Commissioner Of Income-Tax Versus Oriental Coal Co. Limited

Commissioner Of Income-Tax Versus Oriental Coal Co. Limited - [1994] 206 ITR 682, 120 CTR 202, 76 TAXMANN 240 Issues:The judgment involves the question of whether depreciation can be allowed on plant and machinery that were under lock-out and not used during the relevant previous year for the business of the assessee company.Summary:The High Court of Calcutta considered a reference made by the Revenue regarding the allowance of depreciation on assets at the Barakar Unit of an assessee company, which was under lock-out throughout the relevant previous years for the assessment years 1983-84 and 1984-85. The Assessing Officer disallowed the depreciation claim as the assets were not used during the lock-out period. However, the Appellate Assistant Commissioner and the Tribunal allowed the depreciation based on precedents like Capital Bus Service (P.) Ltd. v. CIT [1980] 123 ITR 404.The court analyzed Section 32(1) of the Income-tax Act, 1961, which requires that plant and machinery must be owned and used for the business to claim depreciation. The key issue was whether assets not actively used due to lock-out could still be considered used for business purposes. Precedents like Capital Bus Service (P.) Ltd. v. CIT [1980] 123 ITR 404 were cited to support the argument that passive use, such as keeping machinery ready for operation, could constitute usage for business purposes.The court distinguished cases like Liquidators of Pursa Ltd. v. CIT [1954] 25 ITR 265 and CIT v. Vayithri Plantations Ltd. [1981] 128 ITR 675, where passive usage was allowed for depreciation claims. It noted that in the present case, the entire factory remained under lock-out, and none of the assets were used during the relevant previous years. The court emphasized that actual usage for business purposes is a prerequisite for claiming depreciation under Section 32(1).Ultimately, the court held that since the plant and machinery were not actually used for business purposes during the lock-out period, no depreciation could be allowed under Section 32(1). The question was answered in the negative, in favor of the Revenue.This judgment highlights the importance of actual usage of assets for business purposes in claiming depreciation under the Income-tax Act, 1961.