Page 277 - DCOM301_INCOME_TAX_LAWS_I

Income Tax Laws – I

Notes g. The Finance Act, 1995 has deleted w.e.f. assessment year 1996–97 the provision pursuant
to which one could write off the entire cost of plant and machinery in the very first
previous year in which it was put to use provided its actual cost did not exceed
` 5,000, to prevent the widespread misuse of the concession.
h. The Finance (No. 2) Act, 1996 has rationalised the depreciation provisions, inter alia
as follows:
In case of joint ownership of an asset, depreciation would be allowed to each
of the owner in proportion to the contribution to the total cost of the asset; and
In case of amalgamation during the course of a previous year, the amalgamating
company and the amalgamated company shall share the depreciation in
proportion to the number of days during which the assets remained under
their respective ownership.

Similarly, in case of demerger during the course of a previous year (w.e.f.
1.4.2000), the demerged company and the resulting company shall share the
depreciation in proportion to the number of days during which the assets
remained under their respective ownership.

9.7.2 Basis of Depreciation

As stated in the earlier section of this unit the depreciation is provided in respect of “Block of
assets” which, as per Section 2(11): means a group of assets falling within a class of assets, being
tangible assets such as buildings, machinery, plant or furniture and intangible assets, being
know-how, patents, copyrights, trademarks, licences, Franchises or any other business or
commercial rights of similar nature, in respect of which the same percentage of depreciation is
prescribed.
Moreover depreciation is now allowed on the written down value of all types of assets. Again,
no deduction shall be allowed under this clause in respect of any motor car manufactured
outside India, where such motor car is acquired by the assessee after the 28th day of February,
1975, and is used otherwise than in a business of running it on hire for tourists or,
a. outside India in his business or profession in another country, and
b. in respect of any machinery or plant if the actual cost thereof is allowed as a deduction in
one or more years under an agreement entered into by the Central Government under
Section 42 of the Act.
For the purposes of depreciation, the following terms are important:

1. Actual Cost
2. Written Down Value
3. Classification of Depreciation

9.7.3 Classification of Depreciation

The classification of depreciation for computation of income from business and profession can
be stated as under:
1. Normal Depreciation [Section 32(1) Rule 5]: Normal depreciation is calculated at the
specified percentage on the written-down value of block of assets (including ocean going

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