High Court allows depreciation claim for assets ready but not used for business purposes

The High Court ruled in favor of the Assessee, Stitchwell Qualitex (RF), in a case concerning the interpretation of a depreciation claim for Unit-II for the Assessment Year 1990-91. The Court held that assets need not be actually used for business purposes to claim depreciation under Section 32 of the Income Tax Act, emphasizing ownership and readiness for use. The Court rejected the Revenue's argument requiring actual use, stating that assets kept ready for use can be considered used for business. Consequently, the Court allowed the Assessee's depreciation claim, setting aside the ITAT's decision.

---

---

Issues:
- Interpretation of depreciation claim for Unit-II
- Requirement of actual use for depreciation claim

Interpretation of depreciation claim for Unit-II:
The appeal by the Assessee, Stitchwell Qualitex (RF), under Section 260-A of the Income Tax Act, 1961, challenged the order passed by the Income Tax Appellate Tribunal regarding the depreciation claimed for Unit-II for the Assessment Year 1990-91. The Assessee, engaged in manufacturing bag stitching machines, claimed depreciation on the factory building and machinery installed in Unit-II. The Assessing Officer disallowed the depreciation claim citing lack of sales, minimal purchases, absence of manufacturing activity, and no separate staff or power bill for Unit-II. However, the Commissioner of Income Tax (Appeals) accepted that the assets were ready for use and profit-making apparatus, allowing the depreciation claim.

Requirement of actual use for depreciation claim:
The Revenue appealed the CIT (A) decision before the ITAT, which relied on the Supreme Court's decision emphasizing the actual use of assets for claiming depreciation. The ITAT concluded that the assets must be actually used for business purposes to claim depreciation, contrary to the CIT (A)'s decision. The High Court, referring to previous judgments, highlighted the necessity of ownership and user of assets for business to claim depreciation under Section 32 of the Act. The Court rejected the Revenue's argument that assets must be put to actual use, citing cases where assets kept ready for use were considered as used for business purposes. In the present case, the Court found that the building and machinery in Unit II were used for the Assessee's business during the relevant assessment year, justifying the depreciation claim.

In conclusion, the High Court answered the question of law in favor of the Assessee, setting aside the ITAT's order and allowing the appeal with no order as to costs.

---