Law:

Section:

Section 32 of the Income-tax Act, 1961 [Corresponding to section 10(2)(vi) of the Indian Income-tax Act, 1922] - Depreciation - Allowance of - Assessment year 1950-51 - Whether since in order that assessee can be entitled to depreciation under section 10(2)(vi) of 1922 Act, he must carry on a business which should yield profits and in respect of which allowance can be claimed - Held, yes - Building of assessee's factory was completed before 31-3-1950 and major portion of plant and machinery was also installed in that factory but actual production was not started till four months after 31-3-1950 - Whether since activities which were calculated to produce profits did not start till four months after close of year of account, factory was not used for purpose of business in year of account and, consequently assessee was not entitled to initial depreciation - Held, yes FACTS The assessee set up a factory for the manufacture of certain textile spinning machinery. The building of the factory was completed before 31-3-1950, the major portion of the plant and machinery was also installed in this factory, but the actual production of textile machinery was not started till four or five months after 31-3-1950. The assessee's claim for initial depreciation for the year of account ending on 31-3-1950 was disallowed and the disallowance was upheld by the Tribunal. The substantial reason for this disallowance was that the assessee-company did not carry on the business of manufacturing textile machinery in the year of account. On reference : HELD Just as for the purpose of being entitled to normal depreciation the building, machinery or plant must be used for the purpose of the business, similarly in order to be entitled to initial depreciation the building, machinery or plant must be used for the purpose of the business. Now, the building, machinery or plant must be used for the purpose of the business and the business contemplated was the business, the profits of which were being assessed to tax, because section 10(1) provided that the tax shall be payable by the assessee under the head "Profits and gains of business, profession or vocation" in respect of the profits and…

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