Depreciation claim on school receipts required fresh examination after incorrect classification under income from other sources.

Depreciation on fixed assets could not be denied merely because the return was shown under income from other sources, where the assessee's receipts arose from running a school and the correct head of income was business income. The classification under section 56 was found incorrect on the facts, and depreciation under section 32 was therefore potentially available. Since the lower authorities had not examined the eligibility conditions for depreciation and had rejected the claim without addressing the proper computation issue, the disallowance was set aside and the matter remitted for fresh consideration by the Assessing Officer in accordance with law.

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Issues: Whether the assessee's claim for depreciation on fixed assets, rejected in processing under section 143(1) and in rectification under section 154, required fresh examination and could not be denied merely on the ground that the return was filed under the head "income from other sources".

Analysis: The income and expenditure account showed that the assessee was running a school and its receipts arose from educational activity. The classification of such receipts under section 56 was found to be incorrect on the facts noted. The proper computation of income was held to be under the head "profits and gains of business or profession" under section 14, and depreciation under section 32 was therefore potentially available. The lower authorities had not examined the eligibility conditions for depreciation and had declined relief without addressing the substantive computation issue. The matter was therefore required to be reconsidered on merits by the Assessing Officer.

Conclusion: The depreciation disallowance was set aside for fresh consideration, and the issue was remitted to the Assessing Officer to decide the assessee's entitlement to depreciation in accordance with law.

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