Depreciation and deduction principles: ownership, business use, and non-material tax amendments support assessee claims.

A substituted tax provision did not materially differ from the earlier text for the relevant deduction, so the amendment could not be used to deny an already available benefit. Depreciation was allowable where machinery was owned by the assessee and used in its business, even though it was installed at a contractor's premises for manufacturing the assessee's products. Expenditure on demonstration equipment was treated as revenue in nature because the equipment formed part of stock-in-trade and was used to promote sales, rather than acquiring the character of a capital asset. The assessee's claims for deduction and depreciation were therefore upheld on the stated legal principles.

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Issues: (i) Whether the substituted Section 40(a)(i) of the Income-tax Act applied so as to deny deduction for the relevant assessment years; (ii) whether depreciation was allowable on machinery owned by the assessee and installed at the contractor's premises for manufacturing the assessee's products; (iii) whether the expenditure on demonstration equipment was revenue expenditure and not a capital asset.

Issue (i): Whether the substituted Section 40(a)(i) of the Income-tax Act applied so as to deny deduction for the relevant assessment years.

Analysis: The pre-amendment and substituted versions of Section 40(a)(i) were compared and it was found that there was no substantial difference in the language relevant to the benefit claimed by the assessee. The legislative change did not take away a benefit that was already available under the earlier provision.

Conclusion: The issue was answered in favour of the assessee and against the Revenue.

Issue (ii): Whether depreciation was allowable on machinery owned by the assessee and installed at the contractor's premises for manufacturing the assessee's products.

Analysis: Depreciation under Section 32 requires ownership and use of the machinery for the assessee's business or profession. The fact that the machinery was installed at the contractor's premises did not matter, because the machinery was owned by the assessee and was used in the manufacturing activity undertaken for its business. The finding that the machinery was so used was supported by the record.

Conclusion: The issue was answered in favour of the assessee and against the Revenue.

Issue (iii): Whether the expenditure on demonstration equipment was revenue expenditure and not a capital asset.

Analysis: The equipment formed part of stock-in-trade and was used to promote sales. On the facts found, the equipment did not acquire the character of a capital asset merely because it was supplied for demonstration purposes, and the write-off over its useful life was consistent with revenue treatment.

Conclusion: The issue was answered in favour of the assessee and against the Revenue.

Final Conclusion: The appeals failed on all questions actually decided, and the assessees' claims for deduction and depreciation were upheld.

Ratio Decidendi: For depreciation under Section 32, ownership of the asset and its use in the assessee's business are sufficient, and a statutory amendment that does not materially alter the relevant benefit cannot be applied to defeat an already available deduction.

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