The Delhi High Court in CIT v. Brawn Pharmaceuticals Ltd, held that a company, which is not a power generation company, cannot avail depreciation on “assets written off” under section 32(1) (iii) of the Income Tax Act.
The AO, vide his order, rejected the claim of the Assessee that it was entitled to write off the sum shown under the head “assets written off” from its taxable income.
On appeal, the first appellate authority and the Appellate Tribunal concluded the matter in favour of the assessee and held that the claim is allowable under section 32(1)(iii) of the Income Tax Act.
The division bench comprising of Justice S. Muralidhar and Justice Chander Shekhar noticed that the fact that the Assessee is not a power generation company, is crucial to answer the issue. While analyzing the provisions of section 32, the bench said that “it is seen that there are two sub-clauses (i)‟ under Section 32(1). The first sub-clause (i) generally talks of deprecation being available in respect of tangible assets, like “buildings, machinery, plant or furniture”. However, the operative portion actually concerning the deductions that would be allowed in respect of such deprecation is spelt out in the second sub-clause (i). The second sub-clause (i) applies only to “undertaking engaged in generation or generation and distribution of power…” This is crucial because Section 32 (1) (iii) makes an express reference to “building, machinery, plant or furniture in respect of which depreciation is claimed and allowed under clause (i) and which is sold, discarded, demolished or destroyed in the previous year…” Clearly, the only sub-clause (i) under which the deprecation could be claimed and allowed is second sub-clause (i) and not the first sub-clause (i).”
The bench futher noticed the decision in Commissioner of Income Tax v. Zoom Communication Pvt. Ltd., the claim of the Assessee do not fell within the scope of Section 32 (1) (iii) of the Income Tax Act.
Read the full text of the order below.
