Depreciation : S. 32 of I. T. Act, 1961 : A. Y. 1992-93 : Condition precedent : User of machinery : Machinery installed but found defective : Amounts to user of machi-nery : Assessee entitled to depreciation.

20. Depreciation : S. 32 of I. T. Act, 1961 : A. Y. 1992-93
    : Condition precedent : User of machinery : Machinery installed but found
    defective : Amounts to user of machi-nery : Assessee entitled to depreciation.

[CIT vs. Chamundeshwari Sugar Ltd; 309 ITR 326
(Karn)].

The assessee company was running a sugar factory. For the
A. Y. 1992-93, the assessee company installed pollution control machinery as
per the mandate of the Pollution Control Board. The assessee claimed
depreciation to the extent of the value of the machinery installed. The
Assessing Officer found that the machinery that was installed was found to be
defective during the trial runs, and therefore, held that the machinery was
not used for the purpose of business as required u/s. 32 of the Income-tax
Act, 1961. Accordingly, the Assessing Officer disallowed the claim for
depreciation. The Tribunal allowed the claim of the assessee and held that the
assessee was entitled to depreciation because the machinery was installed and
merely because it did not effectively function that was not a ground to reject
depreciation.

On appeal by the Revenue, the Karnataka High Court upheld
the decision of the Tribunal and held as under :

“i) The interpretation of ‘used for the purpose of
business’ by the Supreme Court in Liquidator of Pursa Ltd. vs. CIT
(1954) 25 ITR 265 lays down that machinery should be installed. The purport
and object of law relating to depreciation as envisaged u/s. 32 of the
Income-tax Act, 1961, has to be meaningfully interpreted, consistent with
the object. When the assessee bona fide installs any machinery but it
becomes defective and non-functional, it cannot be said that it is not put
to use for the purpose of business.

ii) The assessee was entitled to depreciation on the
pollution control machinery.”