2014 (9) TMI 391

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....as in them and distribute to the customers. In the returns submitted by them for the Assessment Years 1993-94 (respondent in I.T.T.A.No.8 of 2002) and 1994-95 (respondent in I.T.T.A.No.44 of 2002), they claimed 100% depreciation on the value of the cylinders purchased by them. It was pleaded that the value of each cylinder is less than Rs. 5,000/- and in terms of first proviso to Section 32 of the Income Tax Act, 1961 (for short the Act), they are entitled to claim depreciation. The assessing authorities, however, applied third proviso to Section 32 of the Act. On finding that the cylinders were kept to use for less than 180 days, only 50% depreciation was allowed. Aggrieved by the orders passed by the respective assessing authorities, t....

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....urchased by the respondents must be dealt with under the first or the third proviso, to Section 32 of the Act as they stood at relevant point of time. Section 32 of the Act deals with the grant of depreciation on the plant and machinery or other items acquired by the assessee during the previous year. The extent of depreciation is not uniform. The factors such as cost and the extent to which the item has been put to use, become irrelevant and depreciation of different percentages is permitted. The provisos 1 and 3 of Section 32 of the Act read as under: Provided that where the actual cost of any machinery or plant does not exceed five thousand rupees, the actual cost thereof shall be allowed as a deduction in respect of the previous y....

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....e test of the extent of use. However, on close analysis of the relevant provisions as well as the clarifications that are issued from time to time, it becomes clear that if the cost of the item is less than Rs. 5,000/-, it need not even be entered in the block of assets at all and that in turn would keep such article outside the field of taxation. The third proviso on the other hand covers the items which form part of the block of assets which obviously are the articles or items whose cost for each unit exceeds Rs. 5,000/-. The Gujarat High Court in Commissioner of Income Tax v. Dhall Enterprises and Engineers (P) Ltd (2006) 287 ITR 435 (Guj) explained the purport of these very provisions and held that an article whose cost is less than ....