High Court allows depreciation on idle construction equipment. Tribunal decision overturned.

The High Court ruled in favor of the assessee, allowing depreciation on capital construction equipment kept ready for use, despite not being actively used. The Court found the Tribunal's decision erroneous as there was no evidence that the machinery was intended for power generation post-project completion. The judgment favored the assessee for the assessment years 1979-80 and 1980-81, with no order as to costs.

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Issues:
- Entitlement to depreciation in respect of capital construction equipment acquired by the assessee and kept ready for use by the contractor.

Analysis:
1. Background and Facts: The assessee, a public sector undertaking, purchased construction equipment for contractors working on power plant projects. The equipment was hired out, and depreciation was claimed on both used and unused machinery.

2. Assessment by Authorities: The Assessing Officer allowed depreciation for equipment used in projects but disallowed it for machinery not directly used, confirmed by CIT(Appeals) and Tribunal for both years under reference.

3. Tribunal's Decision: The Tribunal rejected the claim, stating that machinery kept ready but not used did not qualify for depreciation, citing Capital Bus Service Pvt. Ltd. Vs. CIT (1980) 123 ITR 404, emphasizing the need for active use.

4. Legal Interpretation: Under Section 32 of the Income Tax Act, depreciation requires ownership and use for business purposes, including readiness for use. Precedents like Capital Bus Service P. Ltd. vs. CIT support depreciation claims for machinery kept ready for use.

5. Judgment: The High Court found no evidence that the unused machinery was for power generation post-project completion. The Tribunal's misconception led to the rejection of the claim. The Court ruled in favor of the assessee, allowing depreciation on capital construction equipment kept ready for use, despite not being actively used.

6. Conclusion: The Court held that the Tribunal erred in denying depreciation on machinery kept ready for use. The common question of law was answered in favor of the assessee for the assessment years 1979-80 and 1980-81, with no order as to costs.

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