Law:

Section:

Section 32 of the Income-tax Act, 1961 [Corresponding to section 10(2)(vi) of the Indian Income-tax Act, 1922] - Depreciation - Additional depreciation - Assessee, a transport operator, purchased two new diesel engines and installed them in two buses in replacement of petrol engines - It claimed normal, initial and extra depreciation - ITO allowed only normal depreciation under section 10(2)(vi) of 1922 Act and refused to allow initial and extra depreciation on ground that same were admissible only on new plant - Whether since expenditure incurred by assessee in purchasing diesel engines was capital expenditure, assessee was entitled to initial and extra deprecation allowances as well which were in nature of investment allowance - Held, yes FACTS The assessee was a transport operator with a fleet of eight buses. During the accounting year ending on 16-8-1954, she purchased two new diesel engines, one on 16-3-1954, for Rs. 9,990 and the other on 15-7-1954, for Rs. 9,946. These engines were installed in two buses in replacement of the petrol engines and for the accounting year ending on 16-8-1954, she claimed normal depreciation under section 10(2)(vi) of 1922 Act, initial depreciation under section 10(2)(vi) of 1922 Act, and extra depreciation under section 10(2)(via) of 1922 Act. The Income-tax Officer allowed normal depreciation under section 10(2)(vi) of 1922 Act, paragraph (1), for five months in the case of one of the buses and for one month in the case of the other and refused to allow initial and extra depreciations under section 10(2)(vi) paragraph (2) and section 10(2)(via) of 1922 Act. This order was upheld both by the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal. According to the department initial and extra depreciations under section 10(2)(vi) of 1922 Act and under section 10(2)(via) of 1922 Act were admissible only on new plant. If new machinery was fitted to old plant, on such new machinery no initial or extra depreciation was allowable unless the new machinery was such that by itself it constituted a separate plant or unit. In this case since the assessee had not purchased new buses she was not entitled to initial and…

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