Depreciation on Idle machinery

[velayutham panchatcharam]

Please clarify whether depreciation is applicable or not for idle machinery as per income tax act? Expecting your feedback with details.

[CAGOPALJI AGRAWAL]

Depreciation is allowed only if the asset is used for the purpose of business or profession at least for sometime during (not necessarily throughout) the previous year. It is not necessary that the asset should have been used for the purpose of business or profession throughout the previous year. Even use during any part of the year would be sufficient to enable the assessee to claim depreciation for the whole year. Once an asset is part of a block of assets and depreciation is granted on that block, it cannot be denied in its subsequent year on the ground that one of the assets is not used by the assessee in some of years; user of assets has to apply upon block as a whole instead of an individual asset—Unitex Products Ltd. v. ITO [2008] 22 SOT 430 (Mum.).

[DEV KUMAR KOTHARI]

In addition to reply by learned Shri GOPALJI AGRAWAL, I want to add that an idle machine can also be considered as used as it may be required as and when need arise For example, standby power units, standby machines, etc. may not be used but they are kept ready to use as and when requried. There are different sitations like 'idle'/ 'unused'/ 'not usable'/ 'discarded'. For example, in my librarty, it is not necessary that each of books should have been used , some books are kept for as and when required use (e.g.old editions of IT Act and Rules), some very old books may be not usable in normal course, but some time need may arise when we have to look into old provisions becasue now-a-days more then ten years old archieves are not given in many books. Some books are kept as standby arrangements extra sets- one may be out of office so the other one can be used.- entire liabry is consdired as used so long the books are kept ready for use. You can examine active and passive tests in overall context of facts and circumstances.

AI Summary

Depreciation eligibility extends to idle or standby machinery if used for business during any part of the year.
Depreciation is allowable if an asset is used for the purpose of business or profession during any part of the previous year; continuous use is not necessary. When assets form part of a block of assets and depreciation is allowed on that block, the entitlement applies to the block as a whole and cannot be denied for an individual asset that was unused in some years. Standby or idle machinery kept ready for use may be regarded as used; distinctions among idle, unused, not usable or discarded items depend on facts and circumstances and application of active and passive tests.