Depreciation for research laboratory assets remains available despite earlier section 35 deduction when retrospective amendment is invalid

Depreciation on plant, machinery and building used for a research laboratory could not be denied merely because deduction had earlier been allowed under section 35 of the Income-tax Act, 1961. The legal position turned on the retrospective amendment to section 35; proceeding on the basis that the retrospective element had already been held invalid, the HC treated the earlier research allowance as no bar to depreciation. On that footing, the assessee remained entitled to depreciation allowance, and the reference was answered in favour of the assessee.

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Issues: Whether the assessee was entitled to depreciation allowance on plant, machinery and building used for a research laboratory when deduction had been allowed in earlier years under section 35 of the Income-tax Act, 1961, in the light of the retrospective amendment to section 35.

Analysis: The answer depended on the validity of the retrospective operation of the amendment to section 35. The Court proceeded on the basis that the retrospective part of the amendment had already been held invalid and that, on that footing, the assessee could not be denied depreciation merely because the earlier research allowance had been granted under section 35. The reference jurisdiction was confined to answering the question posed on the legal position as it stood after excluding the invalid retrospective effect.

Conclusion: The assessee was entitled to depreciation allowance; the question was answered in the affirmative and in favour of the assessee.

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