Page 263 - DCOM301_INCOME_TAX_LAWS_I

Income Tax Laws – I

Notes

Notes Building - “Building” means the superstructure only and does not include site.
Plant - “Plant” includes ships, vehicle, books (including technical know-how report),
scientific apparatus and surgical equipment used for the purpose of business or profession.
It does not include tea bushes or livestock or buildings or furniture and fittings.
Consequences when above conditions are satisfied: If the above conditions are satisfied,
depreciation is available. Depreciation is available whether or not the assessee has claimed
the deduction for depreciation in computing his total income.
To understand method of computation of depreciation, one must know the meaning of the
following terms:
Block of assets
Written down value

Actual cost
Block of assets [sec. 2(11)]: The term “block of assets” means a group of assets falling within
a class of assets comprising —

a. tangible assets, being buildings, machinery, plant or furniture;
b. intangible assets, being know-how, patents, copyrights, trademarks, licenses,
franchises or any other business or commercial rights of similar nature, in respect of
which the same percentage of depreciation is prescribed. A taxpayer may have
19 different blocks of assets.

Written down value [sec. 43(6)]: Written down value for an assessment year will be determined
as under:
Step 1: Find out the depreciated value of the block on the April 1 of the Previous year.

Step 2: To this value, add “actual cost” of the asset (falling in the block) acquired during the
previous year.
Step 3: From the resultant figure, deduct money received/receivable (together with scrap
value) in respect of that asset (falling within the block of assets) which is sold, discarded,
demolished or destroyed during the previous year.

Notes Other points: The following points should be noted:
a. The resulting amount is the written down value of the block of assets on March 31
relevant for the assessment year.
b. The amount of reduction under Step 3 cannot exceed the value of assets computed
under Step 1 and Step 2.
c. One may determine written down value for other assessment years on similar basis.
d. In some cases, computation of written down value is based upon notional figures.

e. Under Step 3 only actual money (received or receivable in cash or by cheque or
draft) is deductible. In other words, any other things or benefit (which can be converted
in terms of money) cannot be deducted under Step 3.

258 LOVELY PROFESSIONAL UNIVERSITY