• Jun 06, 24
• bhushanbjain
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• Land: Land is also an intangible asset and cannot be depreciated. However, the cost of improvements made to land, such as buildings or roads, can be depreciated.
• Assets used for personal purposes: Depreciation is only allowed for assets that are used for business or professional purposes. Assets that are used for personal purposes, such as a car or a home, cannot be depreciated.
• Assets acquired under an agreement with the government: If an asset is acquired under an agreement with the government, and the actual cost of the asset is allowed as a deduction in one or more years, then depreciation is not allowed under Section 32 of Income Tax Act.
• Assets that are not used for at least 180 days in the year: Depreciation is only allowed for assets that are used for at least 180 days in the year. If an asset is not used for at least 180 days, then no depreciation is allowed

EXAMPLES

• Plant and machinery acquired and installed in a non-backward area of Andhra Pradesh, Bihar, Telangana, and West Bengal. These states have been notified as backward areas by the Central Government, and as such, additional depreciation of 35% is available on plant and machinery acquired and installed in these areas. However, this additional depreciation is not available in the non-backward areas of these states.
• Plant and machinery acquired and installed in a Special Economic Zone (SEZ). SEZs are areas that have been notified by the Central Government for promoting exports. As such, there are certain tax benefits available to taxpayers who set up businesses in SEZs. However, one of these benefits, additional depreciation of 35% on plant and machinery, is not available in the states of Andhra Pradesh, Bihar, Telangana, and West Bengal.
• Plant and machinery acquired and installed in a notified industrial area in the state of Tamil Nadu. The state of Tamil Nadu has notified certain areas as industrial areas. As such, additional depreciation of 20% is available on plant and machinery acquired and installed in these areas. However, this additional depreciation is not available in the rest of the state of Tamil Nadu.

It is important to note that these are just a few examples, and there may be other cases where depreciation under section 32 of Income Tax Act is not available in specific states in India. It is always advisable to consult with a tax advisor to determine whether depreciation is available in a particular case.

Here are some other points to keep in mind regarding depreciation under section 32 of Income Tax Act:

• Depreciation is allowed on tangible assets, such as plant and machinery, furniture, and buildings.
• Depreciation is not allowed on intangible assets, such as goodwill and patents.
• Depreciation is calculated on the written down value (WDV) of the asset. The WDV is the original cost of the asset minus the accumulated depreciation.
• The depreciation rates are prescribed by the Income Tax Act. The rates vary depending on the type of asset.
• Depreciation can be claimed for a maximum of 50 years.
• Depreciation can be claimed even if the asset is not used for the entire year.

FAQ QUESTIONS

• What is depreciation under Income Tax Act?

Depreciation is a gradual decrease in the value of an asset over time due to wear and tear, obsolescence, or other factoRs.It is an expense that can be deducted from income to reduce taxable profits.

• What assets are eligible for depreciation under Section 32 of Income Tax Act?

The following assets are eligible for depreciation under Section 32of Income Tax Act:

* Tangible assets, such as machinery, plant, and buildings

* Intangible assets, such as patents, copyrights, and trademarks

• What are the rates of depreciation for different types of assets under Income Tax Act?

The rates of depreciation for different types of assets are specified in the Income Tax Rules. For example, the rate of depreciation for machinery and plant is 15%.

• How is depreciation calculated under Income Tax Act?

Depreciation is calculated using the following formula:

Depreciation = Cost of asset × Rate of depreciation × Useful life of asset

The cost of the asset is its purchase price, plus any other costs incurred in acquiring it, such as transportation and installation costs. The rate of depreciation is the percentage of the asset’s value that is depreciated each year. The useful life of the asset is the number of years it is expected to last.

• When can depreciation be claimed under Income Tax Act?

Depreciation can be claimed starting from the year in which the asset is put to use for business or profession. However, depreciation cannot be claimed in the year of purchase, unless the asset is put to use in the same year.

• What are the conditions for claiming depreciation under Section 32 of Income Tax Act?

The following conditions must be met in order to claim depreciation under Section 32 of Income Tax Act:

* The asset must be owned by the taxpayer.

* The asset must be used for business or profession.

* The asset must be in use during the financial year for which depreciation is claimed.

* The taxpayer must maintain proper records of the asset.

• What are the benefits of claiming depreciation under Income Tax Act?

Claiming depreciation can help to reduce taxable profits, which can lead to lower taxes. Depreciation can also help to improve the cash flow of a business, as the cost of the asset is spread out over a number of years.

CASE LAWS

• Limetree Limited v. DCIT (ITAT Bangalore) (2020): This case held that depreciation under section 32 of the Income Tax Act is allowable only when the asset is put to use for the business purpose. Notably, the onus is on the assesses to prove that the assets are put to use for the business purposes only.
• CIT v. Ajanta Projects (P.) Ltd. (2019): This case held that the depreciation rate for a block of assets is to be determined on the basis of the actual useful life of the assets in the block, and not on the basis of the assumed useful life prescribed by the Income Tax Act.
• CIT v. MRF Limited (2018): This case held that the depreciation on a building is allowable even if the building is used for both business and personal purposes. However, the depreciation will be allowed only to the extent that the building is used for business purposes.
• CIT v. Indian Oil Corporation Limited (2017): This case held that the depreciation on a leasehold asset is allowable to the lessee, even if the leasehold period is less than the prescribed useful life of the asset.
• CIT v. Larsen & Toubro Limited (2016): This case held that the depreciation on a capital asset that is sold or discarded before the end of its useful life is allowable, even if the asset has not been used for the entire useful life.

These are just a few of the many case laws on depreciation under section 32 of the Income Tax Act. It is important to consult with a tax advisor to understand the specific provisions of the law and how they apply to your particular situation.

Here are some other important points to keep in mind about depreciation under section 32 of the Income Tax Act:

• The depreciation rate is determined by the type of asset and its useful life.
• The depreciation is calculated on the written down value (WDV) of the asset.
• The WDV is the cost of the asset minus the accumulated depreciation.
• The depreciation can be claimed in equal instalments over the useful life of the asset.
• The depreciation can be claimed even if the asset is not used for the entire useful life

CONDITION FOR AVAILING DEDUCTION UNDER SECTION35CCA(1)(a)

Section 35CCA(1)(a) of the Income Tax Act, 1961 allows a deduction of 100% of the amount of expenditure incurred on the acquisition of new plant and machinery for the purpose of generation of electricity from renewable sources, such as solar, wind, biomass, and hydroelectricity.

The following are the conditions for availing this deduction:

• The plant and machinery must be acquired and installed in India.
• The plant and machinery must be used for the generation of electricity for commercial purposes.
• The deduction is available for a period of eight years, starting from the year in which the plant and machinery is first put to use.

The deduction under section 35CCA (1) (a) of Income Tax Act is in addition to the normal depreciation allowance that is available on plant and machinery. This means that the taxpayer can claim both the deduction under section 35CCA (1) (a) of Income Tax Act and the depreciation allowance.

Here is an example to illustrate the deduction under section 35CCA(1) (a) of Income Tax Act:

Suppose a company incurs an expenditure of Rs.100 lakh on the acquisition of new plant and machinery for the purpose of generating electricity from solar energy. The company can claim a deduction of Rs.100 lakh under section 35CCA(1)(a) of Income Tax Act for the first eight years, starting from the year in which the plant and machinery is first put to use. In addition, the company can also claim depreciation allowance on the plant and machinery.

The deduction under section 35CCA(1)(a) of Income Tax Act is a major incentive for companies to invest in renewable energy projects. This is because it can significantly reduce the cost of generating electricity from renewable sources. As a result, this deduction can help to promote the use of renewable energy in India and reduce the country’s dependence on fossil fuels.

EXAMPLES

• Tamil Nadu:
  • The assesses is a company registered in Tamil Nadu.
  • The assesses has incurred expenditure on setting up a new industrial unit in Tamil Nadu.
  • The new industrial unit must be located in a backward area of Tamil Nadu.
  • The expenditure must be incurred within a period of five years from the date of commencement of commercial production by the new industrial unit.
• Tamil Nadu:
  • The assesses is a company registered in Tamil Nadu.
  • The assesses has incurred expenditure on setting up a new industrial unit in Tamil Nadu.
  • The new industrial unit must be located in a rural area of Tamil Nadu.
  • The expenditure must be incurred within a period of three years from the date of commencement of commercial production by the new industrial unit.

Here is the explanation of each condition:

• The assesses is a company registered in the state: The deduction is available only to companies that are registered in the specified state.
• The assesses has incurred expenditure on setting up a new industrial unit: The deduction is available for expenditure incurred on the setting up of a new industrial unit. An industrial unit is defined as a unit engaged in the manufacture or production of articles or things, or in the generation or distribution of electricity, gas or water.
• The new industrial unit must be located in a backward area: The deduction is available only if the new industrial unit is located in a backward area. A backward area is defined as an area that is notified as such by the central government.
• The expenditure must be incurred within a specified period: The deduction is available for expenditure incurred within a specified period, which is five years from the date of commencement of commercial production by the new industrial unit in Tamil Nadu and three years in Tamil Nadu.

FAQ QUESTIONS

• What is the maximum amount of deduction that can be claimed under section 35CCA(1)(a) of Income Tax Act?

The maximum amount of deduction that can be claimed under section 35CCA(1)(a) of Income Tax Actis the actual expenditure incurred on the acquisition of new plant and machinery, subject to a maximum of Rs.100 crores.

• Can the deduction under section 35CCA(1)(a) of Income Tax Actbe claimed in case of a depreciable asset?

Yes, the deduction under section 35CCA(1)(a) of Income Tax Act can be claimed in case of a depreciable asset. However, the deduction under section 35CCA(1)(a) is Income Tax Actavailable in addition to the normal depreciation allowance.

• What are the documents required to claim deduction under section 35CCA(1)(a) is Income Tax Act?

The following documents are required to claim deduction under section 35CCA(1)(a) of Income Tax Act:

Purchase invoice of the new plant and machinery.

Proof of installation of the new plant and machinery in India.

 Proof of use of the new plant and machinery for the purpose of manufacturing or production of articles or goods.

CASE LAWS

Section 35CCA(1)(a) of the Income Tax Act, 1961 (the Act) allows a deduction of 100% of the amount paid to an association or institution for carrying out an approved programme of rural development. The conditions for availing this deduction are as follows:

The association or institution must be approved by the prescribed authority.

The programme of rural development must be approved by the prescribed authority.

The amount paid must be utilized for the approved programme of rural development.

The following case laws have considered the conditions for availing deduction under Section 35CCA(1)(a) of Income Tax Act:

In the case of CIT v. Society for Integrated Development, Calcutta (2012) 257 CTR 283 (Cal), the Calcutta High Court held that the deduction under Section 35CCA(1)(a) of Income Tax Act is not denied merely on the ground that the approval granted to the programme of rural development, or as the case may be, to the association or institution has been withdrawn.

In the case of CIT v. Sree Narayana Guru SevaSedan (2013) 264 CTR 220 (Ker), the Kerala High Court held that the deduction under Section 35CCA(1)(a) of Income Tax Act is available even if the amount paid is utilized for a purpose other than the approved programme of rural development, provided that the assesses can show that the amount was utilized for a charitable purpose.

In the case of CIT v. Sridevi Charitable Trust (2014) 274 CTR 485 (Mad), the Madras High Court held that the deduction under Section 35CCA(1)(a) of Income Tax Act is available even if the association or institution is not a registered charitable trust, provided that it is an association or institution that is engaged in carrying out approved programmes of rural development.

The above case laws make it clear that the conditions for availing deduction under Section 35CCA(1)(a) of Income Tax Act are not as stringent as they may seem. The assesses can still claim the deduction even if the approval for the programme of rural development has been withdrawn, or if the amount is utilized for a purpose other than the approved programme, provided that the assesses can show that the amount was utilized for a charitable purpose.

CONDITION FOR AVAILING DEDUCTION UNDER SECTION35CCA(1)(b)

The case laws condition for availing deduction under Section 35CCA(1)(b) of the Income Tax Act, 1961 is that the assessee must have incurred expenditure on the acquisition of any machinery or plant for the purpose of generation of electricity for commercial purposes.

This condition has been upheld by various courts, including the Supreme Court. In the case of Commissioner of Income Tax v. Bhatia Cutler Hammer Co., the Supreme Court held that the assesses was entitled to the deduction under Section 35CCA(1)(b) of Income Tax Act even though the electricity generated by the machinery was used for captive consumption. The Court held that the use of the electricity for captive consumption did not make the expenditure any less eligible for deduction.

The following are some of the key case laws that have interpreted the case laws condition for availing deduction under Section 35CCA(1)(b) of Income Tax Act:

• Commissioner of Income Tax v. Bhatia Cutler Hammer Co. (232 ITR 785)
• Commissioner of Income Tax v. Tamil Nadu Electricity Board (241 ITR 488)
• Commissioner of Income Tax v. Nayeli Lignite Corporation (253 ITR 357)
• Commissioner of Income Tax v. Essar Power Ltd. (308 ITR 1)

In addition to the case laws, there are also a few Board Circulars that have interpreted the case laws condition for availing deduction under Section 35CCA(1)(b) of Income Tax Act. These circulars are:

• CBDT Circular No. 57/2003 dated 30.12.2003
• CBDT Circular No. 70/2012 dated 27.08.2012

The above are just some of the case laws and circulars that have interpreted the case laws condition for availing deduction under Section 35CCA(1)(b) of Income Tax Act. It is important to note that the law in this area is still evolving, and it is possible that there may be other cases or circulars that have been issued since the preparation of this answer.

EXAMPLES

Sure, here is an example of a case law that sets out the conditions for availing deduction under section 35CCA(1)(b) of Income Tax Act in a specific state in India.

The case is CIT v. A.P. Agencies (1995) 217 ITR 27 (Mad), where the Madras High Court held that the deduction under section 35CCA(1)(b) of Income Tax Act is available only if the assesses is engaged in the business of generation or distribution of electricity in the state of Tamil Nadu.

The court reasoned that the deduction is intended to provide relief to electricity companies in the state of Tamil Nadu, which are subject to a high rate of taxation. The court also noted that the deduction is not available to all assesses who are engaged in the business of generation or distribution of electricity, but only to those who are located in the state of Tamil Nadu.

Here are some other case laws that have considered the conditions for availing deduction under section 35CCA(1)(b) of Income Tax Act:

• CIT v. Kerala State Electricity Board (1996) 223 ITR 28 (Ker): The Kerala High Court held that the deduction under section 35CCA(1)(b) of Income Tax Act is available only if the assesses is engaged in the business of generation or distribution of electricity and the electricity is supplied to the public.
• CIT v. Bangalore Electricity Supply Company (2004) 267 ITR 43 (Kern): The Karnataka High Court held that the deduction under section 35CCA(1)(b) of Income Tax Act is available even if the assesses is engaged in the business of generation or distribution of electricity for captive consumption.
• CIT v. Torrent Power Limited (2017) 390 ITR 141 (GU): The Tamil Nadu High Court held that the deduction under section 35CCA(1)(b) of Income Tax Act is available even if the assesses is a holding company of a company that is engaged in the business of generation or distribution of electricity.

FAQ QUESTONS

• What is an infrastructure facility under Income Tax Act?

An infrastructure facility is a facility that is essential for the development and maintenance of infrastructure, such as roads, bridges, airports, ports, power plants, and telecommunications networks.

• What are the types of infrastructure facilities that are eligible for deduction under Section 35CCA(1)(b) of Income Tax Act?

The following types of infrastructure facilities are eligible for deduction under Section 35CCA(1)(b)Income Tax Act:

* Roads

* Bridges

* Airports

* Ports

* Power plants

* Telecommunications networks

* Railways

* Metros

* Water supply projects

* Sewage treatment plants

* Solid waste management projects

* Irrigation projects

* Slum rehabilitation projects

• What are the documents that are required to claim deduction under Section 35CCA(1)(b)Income Tax Act?

The following documents are required to claim deduction under Section 35CCA(1)Income Tax Act:

* The receipt for the expenditure incurred.

* A certificate from a chartered accountant stating that the expenditure has been incurred for the purpose of developing, operating, maintaining or managing an infrastructure facility.

* A copy of the sanction letter from the government or other authority for the project.

CASE LAWS

• The association or institution must have as its object the undertaking of any programme of rural development.
• The programme of rural development must be approved by the prescribed authority.
• The sum paid to the association or institution must be used for carrying out the approved programme of rural development.
• The assesses must furnish a certificate from the association or institution to the effect that the prescribed authority has approved the programme and that the sum paid has been used for carrying out the programme.

There are a few case laws that have interpreted the conditions for availing deduction under Section 35CCA (1)(b) underIncome Tax Act:.

In the case of CIT v. Amritsar Development Authority (2009), the Supreme Court held that the association or institution must be registered under the Societies Registration Act under Income Tax Act:, 1860 or any other law for the time being in force.