Court upholds depreciation allowance for unused film rolls & assets, applying passive user theory

The court dismissed the appeal, upholding the allowance of depreciation on film rolls leased out but not used by the lessee and on an asset that was neither used nor kept ready for use. The judgment emphasized the application of the passive user theory, stating that assets kept ready for use, even if not actively utilized due to external factors like labor unrest, are eligible for depreciation benefits. The court found no substantial question of law and affirmed the lower tribunal's decision based on established legal precedents.

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Issues:
- Whether depreciation can be allowed on film rolls leased out but not used by the lessee and returned in the same yearRs.
- Whether depreciation can be allowed on an asset that was neither used nor kept ready for use, applying the theory of passive userRs.

Analysis:

*Issue 1: Depreciation on film rolls leased out but not used*

The case involved the Revenue appealing against the Income Tax Appellate Tribunal's order allowing depreciation on film rolls leased out but not used by the lessee. The assessee, engaged in hire purchase and leasing finance, bought film rolls and leased them to a company. Due to a strike, the lessee returned the film rolls, claiming they were unusable. The Assessing Officer initially disallowed depreciation but later allowed it under Section 143(1) of the Act. The Commissioner upheld the claim, citing a previous court ruling that assets "kept ready for use" are eligible for depreciation. The Tribunal affirmed the Commissioner's decision, leading to the Revenue's appeal.

*Issue 2: Depreciation on an asset not used or kept ready for use*

The second issue revolved around whether depreciation could be allowed on an asset that was neither used nor kept ready for use, based on the theory of passive user. The Revenue contended that the machinery must be actively used to qualify for depreciation. However, previous court decisions, such as Commissioner of Income Tax v. Vayithiri Plantation Ltd., held that assets kept ready for use, even if not actively utilized due to external factors like labor unrest, could still be considered used for the purpose of business. The court emphasized that forced idleness of machinery should not disqualify an assessee from depreciation benefits. In the present case, the film rolls, although not actively used, were kept ready for use but remained idle due to industry strike, making the assessee a deemed active user for depreciation purposes.

In conclusion, the court dismissed the appeal, finding no substantial question of law. The judgment highlighted the application of the passive user theory in allowing depreciation on assets kept ready for use, even if not actively utilized, based on established legal precedents.

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