1981 (4) TMI 79 - HC - Income Tax

Depreciation denied for building pre-machinery installation. Production commencement crucial.

The High Court of GUJARAT ruled against the claim for depreciation on a building constructed during the erection of a new plant for manufacturing ... Building, Depreciation Issues involved: Interpretation of depreciation allowance u/s 32(1) and r. 5 for a building constructed during the erection of a new plant, regarding the period for which depreciation can be claimed before machinery installation and functionality.Summary:The High Court of GUJARAT considered a case where an existing company erected a building for housing machinery during the installation of a new plant for manufacturing dyestuffs and pigments. The question was whether depreciation could be claimed for the building before machinery installation completion and functionality. The Tribunal held that the date of machinery installation, not functionality, was crucial for claiming depreciation. The relevant provisions were s. 32(1) and r. 5, focusing on the actual use of the building in the business. The Court emphasized that mere preparation for use does not constitute actual use, requiring a real and effective connection with the business. The user must be linked to the business's core activities, such as production. The Court rejected the argument that installation commencement equated to use, highlighting the necessity of production commencement for claiming depreciation. Drawing parallels with a previous case, the Court concluded that depreciation could not be claimed before the business commenced operations. Therefore, the Tribunal's decision in favor of the assessee was reversed, ruling against the claim for depreciation on the building. The Court answered the referred question in the negative, favoring the revenue and rejecting the claim for depreciation on the building used for less than a month in the relevant accounting year. No costs were awarded in the matter.