2016 (1) TMI 402 - AT - Income Tax

Tribunal limits depreciation claim on leased assets to 50% due to delayed assembly

The Tribunal upheld the decision to limit the depreciation claim on boilers and windmill leased out by the assessee to 50%. The Tribunal found that the ... Depreciation on the boilers and windmill leased out by the assessee disallowed to the extent of 50% - Held that:- In the case before us, it is not in dispute that the boiler and windmill are not available in the market as such. It is an admitted fact that the assessee has to purchase various components and accessories of boiler and windmill and it has to be assembled and installed to make it as an asset, namely, boiler and windmill so as to enable the same to lease out to the lessee. Therefore, mere purchase of components and accessories of boiler and windmill cannot be construed as delivery of asset. It is for the assessee to bring into existence the asset, namely, boiler and windmill. The material available on record clearly shows that even though the components and accessories of boiler and windmill were delivered in the month of August, 1996, the assembling and installation were completed in the months of January, 1997 and March, 1997 respectively. Therefore, the boiler could have been delivered to the lessee only in the month of January, 1997 and the windmill in the month of March, 1997. In other words, unless various components and accessories of the boiler and windmill are assembled and constituted to fullfledged boiler and windmill, this Tribunal is of the considered opinion that there cannot be any delivery of the asset, namely, boiler and windmill. Therefore, full-fledged asset, namely, boiler and windmill came into existence only on 21.03.1997 and 31.03.1997 respectively. Therefore, this Tribunal do not find any infirmity in the order of the lower authority. Accordingly, the same is confirmed. - Decided against assessee Issues:Depreciation claim on boilers and windmill leased out by the assessee.Analysis:The appeal concerns the depreciation claim on boilers and windmill leased by the assessee. The representative for the assessee argued that once the asset is delivered to the lessee, it should be considered as put to use for the assessee's business, entitling them to claim 100% depreciation. The Assessing Officer and CIT(Appeals) limited the depreciation to 50%, stating the asset was not put to use for the required period. The representative emphasized that the act of delivering the asset to the lessee should suffice for considering it as put to use. However, the Departmental Representative contended that the components of the boiler and windmill must be assembled and constituted into a full-fledged asset before delivery to be eligible for depreciation. The authorities found that the full-fledged assets were delivered in January and March 1997, not earlier as claimed by the assessee.The Tribunal noted that the asset must be brought into existence before delivery to the lessee to qualify for depreciation. The assembling and installation of the components were completed in January and March 1997 for the boiler and windmill, respectively. The full-fledged assets were delivered only after this process. Therefore, the Tribunal upheld the lower authority's decision to limit the depreciation claim to 50%. The appeal by the assessee was dismissed, confirming the lower authority's order.This judgment highlights the crucial aspect of when an asset can be considered put to use for depreciation purposes in leasing businesses. The decision emphasizes the necessity for the asset to be fully assembled and constituted before delivery to the lessee to qualify for depreciation benefits. The case underscores the importance of establishing the timeline of asset delivery and the completion of necessary processes before claiming depreciation, ensuring the accurate determination of depreciation entitlement in leasing arrangements.