Depreciation ruled mandatory business cost, Tribunal decision set aside. Assets to be depreciated per acquisition date.

The court ruled in favor of the department, affirming the mandatory nature of depreciation as a business cost. The Tribunal's decision was set aside, and the matter was remanded to the Assessing Officer to allow depreciation on assets based on the acquisition date schedule, following a year-to-year basis. The appeal by the department was allowed for statistical purposes.

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Issues:
Interpretation of Section 10 of the Income Tax Act 1961 regarding computation of total income for exempted persons.
Allowability of depreciation claimed by an assessee for the first time after exemption withdrawal.
Applicability of Explanation 5 to Section 32(1) for depreciation deduction.
Comparison between straight-line method and written down value method for depreciation calculation.
Claiming notional depreciation for earlier years when income was exempted under Section 10(29).

Interpretation of Section 10:
The case involved a dispute regarding the interpretation of Section 10 of the Income Tax Act 1961, specifically related to the computation of total income for individuals exempted under this section. The Tribunal's decision was challenged by the department, arguing that exempted individuals are still required to compute total income as per the Act, including depreciation on written down value.

Allowability of Depreciation:
The dispute centered around the allowance of depreciation claimed by an assessee for the first time after withdrawal of exemption. The department contended that depreciation is a mandatory charge on income, while the assessee argued that depreciation is a factual cost incurred in business operations, especially in the context of assets' wear and tear. The Tribunal had allowed the depreciation claim, which was contested by the department.

Applicability of Explanation 5 to Section 32(1):
The department relied on Explanation 5 to Section 32(1) to support their argument that depreciation is a necessary charge on income, irrespective of whether it is claimed by the assessee. This provision was cited to emphasize the mandatory nature of depreciation as a business cost.

Depreciation Calculation Methods:
The debate between the straight-line method and the written down value method for depreciation calculation was crucial in this case. The straight-line method allows a fixed percentage of original cost as depreciation annually, while the written down value method calculates depreciation on the asset's diminishing value. The court analyzed the differences between these methods and their implications for depreciation allowance.

Claiming Notional Depreciation:
The assessee claimed depreciation using the straight-line method for the first time after exemption withdrawal, arguing that it was the initial opportunity to do so. The court highlighted the necessity of claiming depreciation on a year-to-year basis, even if income was previously exempted, emphasizing the importance of adhering to accounting principles for each assessment year.

Judgment:
After considering the arguments and legal precedents, the court set aside the Tribunal's decision and remanded the matter to the Assessing Officer to allow depreciation on assets based on the schedule from the acquisition date, following a year-to-year basis. The court ruled in favor of the department, affirming the mandatory nature of depreciation as a business cost. The appeal by the department was allowed for statistical purposes.

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