Introduction - Depreciation ,Taxation | Income Tax for assessment (Inter Level) PDF Download

Section 2(11). Meaning of Block of assets (BoA)
The term ‘block of assets’ means a group of assets falling within a class of assets in respect of which same percentage of depreciation is prescribed. (Similar assets having same rate of depreciation).

Asset on which depreciation is allowed
There are four classes of assets on which depreciation is allowed. They are :

1. Building : It means superstructure only and does not include site. However it includes roads, bridges, wells, tube wells, railway track etc.
General rate of depreciation is 10%. (Office building, factory building, godown or warehouse etc)
Special rates : Residential building used by employees : 5%; Building used as hotel : 10%; Building acquired and put to use for the purpose of providing infrastructure facilities u/s 80IA(4)(i) : 100%; Temporary superstructure : 100%.

2. Any furniture or fittings including electrical fittings : Furniture is not defined in the Act. It means article of convenience or decoration used to furnish a house, apartment, place of business or of accommodation. General rate of depreciation is 10%. No Special rates.

3. Plant & Machinery : Section 43(3) - “Plant” includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession. It does not include tea bushes or livestock or buildings or furniture and fittings.

General rate of depreciation is 15%.
Special rates : Motor cars : 15%; Motor car used as taxi : 30% Computers including computer software : 60%.
Books owned by professional : 100% (annual publication) 60% (not annual publication); Books (annual or otherwise owned by an assessee carrying on business in running lending libraries : 100%; Pollution control equipment : 100%; Ships : 20%; Aeroplanes or aero engines : 40%. Oil wells : 15%
Note : Books owned by business 15% General Rate.

4. Intangible assets : Know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired after 31-3-1999. [KPC TLF b/c r] Depreciation is allowed on goodwill of the business or profession and broker ship rights. General rate of depreciation is 25%. No Special rates.

P1: Find out the Block of Assets from the following informations.

Ans: 5 Block; 3 Block; 4 Block; 5 Block

Section 32. conditions for claiming Depreciation
1. Such asset is ‘owned’ wholly or partly by the assessee; and
2. Such asset is ‘put to use’ in the relevant previous year
3. for the purpose of business or profession.
To claim depreciation it is not only necessary to purchase the asset but a further condition is necessary that asset should be ‘put to use’ in the relevant PY (actual use not necessary) i.e. Depreciation is charged from the day when asset is put to use and not from the day of its acquisition.

Once the asset is ‘put to use’ depreciation is allowed whether the use of the asset is active or passive. ‘Passive use’ means asset remains idle due to lock-outs or strike. In passive use depreciation is available.

P1: Questions and answers.
a. Depreciation is allowed on individual assets. (True or False)
b. Depreciation can be claimed if the asset is used for personal purpose. (True or False)
c. If there are two joint owners of any asset then each of them shall get deduction of depreciation in respect of his own share in the property. (True or False)
d. Is it mandatory to claim depreciation ?

Solution
a. False. Depreciation is not allowed on individual assets but on a group of assets known as block of assets.
b. False. Depreciation can be claimed if the asset is used for the purpose of business or profession.
c. True.
d. Yes. It means WDV shall get reduced since depreciation is deemed to be allowed.

Section 43(6). computation of written down value

Note 1 : Section 43(1). Actual Cost :
1. “Actual cost” means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority. [Invoice price – Subsidy]

2. The accepted accountancy rule for determining the cost of fixed assets is to include all expenditure
a. Directly relatable to acquisition of the asset. (invoice price + duties and taxes). Duties and taxes not part of actual cost if CCR or ITC is available and claimed.
b. Expenses necessary to bring the asset to site, install it and make it fit to use (transportation cost, insurance freight etc is a part of actual cost on which depreciation is required to be claimed), and
c. Expenses incurred to facilitate the use of asset. (Training of employee’s)
d. As per explanation 8 to section 43(1) interest pertaining to the period till the asset is put to use shall be treated as part of the actual cost of the asset. Also called capitalisation of interest on which depreciation is claimed. However interest relatable to any period after the asset is put to use cannot be included in actual cost. It can be claimed as deduction u/s 36(1)(iii).
e. Travelling expenditure for acquiring depreciable asset is a part of actual cost. (Cost of survey of asset)

3. Section 32 Explanation 1: Any capital expenditure incurred by the assessee for the purposes of the business or profession in a building not owned by him then, such capital expenditure incurred shall be treated as deemed building for which the assessee (tenant) can claim depreciation.

Note 2 : Sale of assets : Where any building, machinery, plant or furniture is sold, discarded, demolished or destroyed in the previous year, the amount by which the moneys payable in respect of such building, machinery, plant or furniture, together with the amount of scrap value, shall be deducted from the opening W.D.V.

Moneys payable in respect of any building, machinery, plant or furniture includes—
(a) any insurance, salvage or compensation moneys payable in respect thereof;
(b) where the building, machinery, plant or furniture is sold, the price for which it is sold,
Sold includes a transfer by way of exchange or a compulsory acquisition under any law for the time being in force.

Different Rates of Depreciation
1. Full rate : It is rate of depreciation specified for whole year.
2. Half rate : It means half of full rate. Suppose full rate of depreciation is 15%, half rate shall be 50% of full rate i.e. 50% of 15% = 7.5%.
3. Nil depreciation.

Half Rate of Depreciation
Where the asset is purchased and put to use in the same previous year for less than 180 days then half rate of depreciation is applicable. If both the above conditions are not satisfied then depreciation is charged at the full rate.

P1: Compute whether half rate or full rate?

Ans: (a) Half in 2016-17 (b) Full in 2016-17 (c) Full in 2016-17 (d) Full in 2017-18