Law:

Section:

Section 32 of the Income-tax Act, 1961 - Depreciation - Allowance/rate of - Assessment year 1998-99 - Whether after amendment of section 32 by Taxation Laws (Amendment) Act, 1986, depreciation is allowed on block of assets, and revenue cannot segregate a particular asset therefrom on ground that it was not put to use - Held, yes - For relevant assessment year, assessee claimed depreciation on its various assets which included claim of depreciation in respect of a closed unit - According to assessee, depreciation was to be allowed as assets of that unit remained part of block of assets and were ready for passive use, which was as good as real use - Assessing Officer disallowed depreciation on closed unit - Commissioner (Appeals) upheld disallowance - On second appeal, Tribunal, however, accepted assessee's claim and allowed depreciation on said unit - Whether when aforesaid unit remained non-functional for a number of years and there was no sign of that unit becoming functional, principle of 'passive user' could be extended to said unit - Held, no - Whether, however, as it was a case of depreciation on block of assets, assets of aforesaid closed unit could not be segregated for purpose of allowing depreciation and depreciation had to be allowed on entire block of assets - Held, yes Circulars & Notifications: CBDT Circular No. 469, dated 23-9-1986 FACTS For the relevant assessment year, the assessee claimed depreciation on its various assets which included the claim of depreciation in respect of a closed unit at Bhopal. The Assessing Officer asked the assessee to explain that on what basis it was claiming depreciation on that unit, which remained closed. In response, the explanation of the assessee was that the depreciation was to be allowed as the assets of that unit remained part of the block of assets and were ready for passive use, which was as good as real use. The Assessing Officer, however, was not impressed with the explanation of the assessee and disallowed the depreciation on that unit. The Commissioner (Appeals) dismissed the assessee's appeal. On second appeal, the Tribunal allowed the assessee's claim on two grounds, viz., (1) there was a passive…

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