Court denies depreciation on R&D equipment post deduction under Income-tax Act, 1961.

The court ruled against the assessee, determining that depreciation on scientific research and development equipment was not permissible due to an amended provision under the Income-tax Act, 1961. The Tribunal's decision to allow depreciation was deemed incorrect as the specific amendment precluded depreciation claims once a deduction was granted under section 35. The court sided with the Revenue, concluding that the assessee was not entitled to depreciation benefits for the equipment in question. Judges D. M. Patnaik and Arijit Pasayat concurred with the judgment, and the references were disposed of without costs.

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Issues:
Interpretation of provisions regarding depreciation on scientific research and development equipment under the Income-tax Act, 1961.

Analysis:
The case involved two reference applications related to assessment years 1978-79 and 1979-80, concerning the allowance of depreciation on scientific research and development equipment. The Income-tax Appellate Tribunal referred the question of whether the assessee was entitled to depreciation on such equipment. The assessee claimed depreciation, but the Income-tax Officer and Inspecting Assistant Commissioner rejected the claim, stating that the equipment did not fall under the category of "plant" for depreciation benefits. The Commissioner of Income-tax (Appeals) directed to allow depreciation based on a Tribunal order. The Tribunal upheld this decision, citing a Special Bench decision. The key issue was whether the assessee was entitled to depreciation on scientific research and development equipment.

The relevant provisions of section 35(1)(iv) and section 35(2)(iv) were crucial in determining the dispute. The court highlighted the specific provision inserted by the Finance (No. 2) Act of 1980, which altered the deduction rules for assets represented by expenditure under section 35. The amendment stated that if a deduction is allowed for an asset under section 35, no depreciation can be claimed under section 32 for the same or any other previous year in respect of that asset. This change impacted the allowance of depreciation on scientific research equipment, as once 100% deduction is granted under section 35(1)(iv), there is no scope for depreciation in subsequent years. The Tribunal had overlooked this amendment, leading to an incorrect allowance of depreciation.

In conclusion, the court ruled against the assessee, stating that the Tribunal was not justified in allowing depreciation on scientific research and development equipment due to the amended provision. The court's decision was in favor of the Revenue and against the assessee. The references were disposed of with no costs incurred. Both judges, D. M. Patnaik and Arijit Pasayat, concurred with the judgment.

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