Court restricts depreciation allowance under Income-tax Act emphasizing actual usage for income generation

Commissioner of Income-Tax Versus Jiwaji Rao Sugar Co. Limited.

Commissioner of Income-Tax Versus Jiwaji Rao Sugar Co. Limited. - [1969] 71 ITR 319 Issues:
1. Allowance of depreciation under section 10(2)(vi) of the Income-tax Act.
2. Deductibility of specific expenditure under section 10.

Analysis:
The judgment by the High Court of Madhya Pradesh involved two main issues. The first issue pertained to the allowance of depreciation under section 10(2)(vi) of the Income-tax Act for the assessment year 1955-56. The assessee, a public limited company engaged in sugar manufacturing, had entered into an agreement with another entity, resulting in the non-operation of its factory for that year. The Tribunal allowed the assessee's claim for full depreciation on the machinery, considering it was kept ready for use, even though not actively utilized. However, the High Court disagreed with this interpretation, emphasizing that depreciation should result from actual usage in income generation. Citing relevant precedents, the court highlighted that the machinery must be actively employed in income-earning activities to qualify for depreciation allowance under section 10(2). Consequently, the court answered the first question in the negative, denying the full depreciation claim.

The second issue revolved around the deductibility of a specific expenditure of Rs. 10,804 under section 10 of the Income-tax Act. The Tribunal, following a previous ruling, allowed the assessee to raise this question, even though it was not part of the initial reference. However, the High Court declined to address this issue, emphasizing the procedural requirements for raising additional questions under section 66(1) of the Act. The court highlighted that an application for reference must comply with specific rules, including the prescribed form, timely submission, and accompanying deposit. Since the assessee did not formally apply for the second question to be referred, the court refused to entertain it. This decision underscored the importance of adhering to procedural requirements for raising additional legal queries in tax matters.