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Unit 9: Income under the Head Business and Profession

b. Ownership vs lease: Depreciation is allowable to the assessee only in respect of those Notes
capital assets which are owned by him. In case of a building, the assessee must be
owner of the super-structure and not necessarily of the land on which it is constructed.
If the assessee is only a tenant of the building but not its owner he is not entitled for
allowance in respect of depreciation thereof. Where the land on which the building
is constructed has been taken on lease by the assessee, the allowance of depreciation
would be admissible only if, according to the lease deed, the assessee is entitled to
be the owner of the super-structure. The fact that as part of the terms of the lease
deed, the building, after expiry of the lease is to be transferred to the lessor of the
land would not affect the allowance for depreciation.

Notes In the case of assets acquired on hire-purchase e.g., plant and machinery taken on
hire, the assessee would not be the owner thereof and consequently would not be entitled
for depreciation in respect of the same. But if the plant and machinery had been acquired
on instalment basis, the assessee becomes the owner of the assets the moment the purchase
or sale is concluded and consequently is entitled to depreciation although a part or whole
of the price is payable in future.
c. Used for the purpose of Business or Profession: The allowance for depreciation is subject
to the condition that the assets on which depreciation is claimed are actually used by
the assessee for the purposes of his business or profession during the accounting
year.
The allowance for depreciation, however, is not subject to the condition that the
asset in question must be used throughout the relevant accounting year in order to
enable the assessee to claim depreciation.
Thus, even if the asset is used for a very small fraction of the accounting year, the
assessee would be entitled to depreciation in respect of the full amount allowable as
if the asset had been used throughout the accounting year. Even in the case of
seasonal factories (e.g., sugar manufacturing companies), the full amount of
depreciation is allowable if the asset had been used at any time during the accounting
year in the factory.

In cases where the depreciable asset is used partly for business purposes and partly
for other purposes, the deduction towards depreciation allowable under Section 32
would be of a sum proportionate to the depreciation allowance to which the assessee
would have otherwise been entitled, in the year in which the depreciable asset is
sold, destroyed, discarded or demolished, no depreciation at the rates prescribed in
the Income-tax Rules would be allowable.
d. Amount of deduction shall not exceed actual cost: The total amount of all items of
depreciation allowance allowed to the assessee from year to year shall not exceed
the actual cost of the block of assets to the assessee No deduction on sold assets to the
assessee.
e. No depreciation is allowable in respect of the depreciable asset if the asset concerned
is sold, destroyed, discarded or demolished in the same year in which it was acquired.
f. In order to be entitled to allowance towards depreciation, the assessee must furnish
the prescribed particulars contained in Annexure ‘B’ attached to the Form of the
Return of Income-tax. Any failure on the part of the assessee to furnish fully and
truly all material facts, including the particulars prescribed for this purpose, would
entitle the income-tax authorities to refuse to allow deduction towards depreciation.

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