Depreciation on assets under sale agreement: substantial question of law held referable, with merits left open.

Depreciation on assets purchased under an agreement of sale, where substantial consideration had been paid and possession delivered, raised a substantial question of law under section 32 of the Income-tax Act. The Rajasthan High Court held that the issue could not be finally decided at the reference stage, as the cited authorities were not directly governing the depreciation claim and there was no direct Supreme Court or High Court ruling on the point. The Tribunal was therefore required to state the case and refer the question for determination, while the merits of the assessee's entitlement were left open.

---

---

Issues: Whether a substantial question of law arose so as to require the Tribunal to state the case and refer the question whether the assessee was entitled to depreciation on assets purchased under an agreement of sale while possession had been delivered.

Analysis: The assessee had paid a substantial part of the sale consideration and had been put in possession, but the Tribunal had refused reference on the footing that the answer followed from the interpretation of section 32 of the Income-tax Act and the cited authorities. The Court held that the question raised could not be finally answered at the reference stage, that the authorities relied upon were not directly governing the issue of depreciation under section 32, and that the controversy disclosed a substantial question of law. The Court therefore declined to examine the merits and found that the absence of a direct decision of the Supreme Court or of the Court justified a reference.

Conclusion: The question was held to be referable and the Tribunal was directed to state the case and refer the question to the Court for answer, in favour of the assessee.

---