Brief introduction of the claim of deprecation: 

• Condition for claiming depreciation 
• Method Of Depreciation – Straight line method (SLM) – Allowed to undertaking engaged in generation or generation and distribution of power, 
• Written Down Value Method (WDV) – other Assesse
• Rate of Depreciation – Refer to Rule 5 of the income tax rules and Appendix I and Appendix 1A.
• For power generation or distribution undertaking -the SLM method rate as per section 32 read with rule 5 and the rate of depreciation as per Appendix 1A. However, they may opt for the WDV method also, and if so opted they continue to follow the WDV method. 
• Claiming depreciation is mandatory.  Even if depreciation is not claimed, WDV Shall be reduced by the amount of depreciation. 

Condition for claiming depreciation 

• tangible assets or intangible assets 
• Depreciable assets 
• Used for the purpose of business or profession
• Used may active used or passively used Capital bus service pvt ltd vs CIT Delhi high court 1980 123 ITR 404
• Assets owned by the assessee 
• Ownership is not necessarily legal/registered ownership but must be right to own and used in the business or profession – substance over form – Example Depreciation on hire purchase assets or installment purchase assets- Mysore minerals ltd vs CIT, 1999 SC
• Vehicle registered in the name of directors but used for the business of the company – depreciation allowed to the company but not at a higher rate. CIT vs Arvali Finlease Ltd (2012) 341 ITR 282 (GUJ.
• Assets put to use for the purpose of business or profession 
• Unabsorbed depreciation could be carryforward in the succeeding year 
• In the case of leasing of assets, depreciation is allowed to the lessor if the leasing business but not to other assessees.

Computation of Depreciation Following WDV Method 

• Block of Assets – Sec 2(11)
• Class of Assets
• Actual Cost – Section 43 (1) 
• Notional Actual Cost – Explanation to sec 43(1) 
• Written Down Value section 43 (6)
• Rate of Depreciation 
• Additional Depreciation
• Depreciation in the case of assets acquired during the year
• Depreciation in the case of the sale or disposal of assets during the year 
• Unabsorbed Depreciation 
• Capital Gain on the sale of all the assets of a block.
• Whether Depreciation claim is mandatory? 

Block of Assets  Section 2(11)

“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, licences, franchises, or any other business or commercial rights of similar nature, 3[not being goodwill of a business or profession,]

in respect of which the same percentage of depreciation is prescribed ;

Section 32(1)  In respect of the depreciation of

(i) buildings, machinery, plant or furniture, being tangible assets;

(ii) know-how, patents, copyrights, trademarks, licenses, franchises, or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April 1998,

owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed

(i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed;

(ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed:

Provided  that no deduction shall be allowed under this clause in respect of

(a) any motor car manufactured outside India, where such motor car is acquired by the assessee after the 28th day of February, 1975  but before the 1st day of April 2001, unless it is used

(i) in a business of running it on hire for tourists; or

(ii) outside India in his business or profession in another country; and

(b) 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:

Assets acquired and put to use during the PY for less than 180 days: 50% of depreciation allowable for the whole year.

Provided further that where an asset referred to in clause (i)  or clause (ii) or clause (iia)  or the first proviso to clause (iia), as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under this sub-section in respect of such asset shall be restricted to fifty percent. of the amount calculated at the percentage prescribed for an asset under clause (i)  or clause (ii) or clause (iia), as the case may be:

Provided also that where an asset referred to in clause (iia) or the first proviso to clause (iia), as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business for a period of less than one hundred and eighty days in that previous year, and the deduction under this sub-section in respect of such asset is restricted to fifty percent. of the amount calculated at the percentage prescribed for an asset under clause (iia) for that previous year, then, the deduction for the balance fifty per cent. of the amount calculated at the percentage prescribed for such asset under clause (iia) shall be allowed under this subsection in the immediately succeeding previous year in respect of such asset:

Provided also that where an asset being commercial vehicle is acquired by the assessee on or after the 1st day of October 1998 but before the 1st day of April, 1999 and is put to use before the 1st day of April 1999 for the purposes of business or profession, the deduction in respect of such asset shall be allowed on such percentage on the written down value thereof as may be prescribed.

Explanation.For the purposes of this proviso,

(a) the expression commercial vehicle means heavy goods vehicle, heavy passenger motor vehicle, light motor vehicle, medium goods vehicle, and medium passenger motor vehicle but does not include maxi-cab, motor-cab, tractor, and road-roller;

(b) the expressions heavy goods vehicle, heavy passenger motor vehicle, light motor vehicle, medium goods vehicle, medium passenger motor vehicle, maxi-cab, motor-cab, tractor, and road roller shall have the meanings respectively as assigned to them in section 2 of the Motor Vehicles Act, 1988 (59 of 1988):

Provided also that, in respect of the previous year relevant to the assessment year commencing on the 1st day of April 1991, the deduction in relation to any block of assets under this clause shall, in the case of a company, be restricted to seventy-five percent. of the amount calculated at the percentage, on the written down value of such assets, prescribed under this Act immediately before the commencement of the Taxation Laws (Amendment) Act, 1991 (2 of 1991):

Depreciation in the case of amalgamation, demerger, etc in the hands of predecessor and successor: 

Provided also that the aggregate deduction, in respect of depreciation of buildings, machinery, plant or furniture, being tangible assets or know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets allowable to the predecessor and the successor in the case of succession referred to in  clause (xiii), clause (xiiib) and clause (xiv) of section 47 or section 170 or to the amalgamating company and the amalgamated company in the case of amalgamation, or to the demerged company and the resulting company in the case of demerger, as the case may be, shall not exceed in any previous year the deduction calculated at the prescribed rates as if the succession or the amalgamation or the demerger, as the case may be, had not taken place, and such deduction shall be apportioned between the predecessor and the successor, or the amalgamating company  and the amalgamated company, or the demerged company and the resulting company, as the case may be, in the ratio of the number of days for which the assets were used by them.

Explanation 1. Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee.

Explanation 2.For the purposes of this sub-section written down value of the block of assets shall have the same meaning as in clause (c) of sub-section (6) of section 43.

Explanation 3. For the purposes of this sub-section,  the expression assets shall mean

(a) tangible assets, being buildings, machinery, plant, or furniture;

(b) intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature.

Explanation 4.For the purposes of this sub-section, the expression “know-how” means any industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine, oil well or other sources of mineral deposits (including searching for discovery or testing of deposits for the winning of access thereto).

Explanation 5. For the removal of doubts, it is hereby declared that the provisions of this sub-section shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income;

Additional depreciation -20%-  section 32(1)(iia):

(iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March 2005, by an assessee engaged in the business of manufacture or production of any article or thing or in the business of generation, transmission or distribution of power, a further sum equal to 20% of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii):

Higher Additional depreciation @ 35%  to notified backward area undertaking:

Provided that where an assessee, sets up an undertaking or enterprise for manufacture or production of any article or thing, on or after the 1st day of April 2015 in any backward area notified by the Central Government in this behalf, in the State of Andhra Pradesh or in the State of Bihar or in the State of Telangana or in the State of West Bengal, and acquires and installs any new machinery or plant (other than ships and aircraft) for the purposes of the said undertaking or enterprise during the period beginning on the 1st day of April 2015 and ending before the 1st day of April 2020 in the said backward area, then, the provisions of clause (iia) shall have the effect, as if for the words “20%.”, the words “35%.” had been substituted:

Additional depreciation to those who are in printing and publishing Kerala HC/Delhi HC: 

CIRCULAR NO.15/2016 [F.NO.279/MISC/140/2015/ITJ]

SECTION 32 OF THE INCOME-TAX ACT, 1961 – DEPRECIATION – ADDITIONAL DEPRECIATION UNDER SECTION 32(1)(iia) FOR ASSESSEES ENGAGED IN BUSINESS OF MANUFACTURE OR PRODUCTION OF AN ARTICLE OR THING

CIRCULAR NO.15/2016 [F.NO.279/MISC/140/2015/ITJ], DATED 19-5-2016

An assessee, engaged in the business of manufacture or production of an article or thing, is eligible to claim additional depreciation under clause (iia) of sub-section (1) of section 32 of the Income-tax Act, 1961 (hereinafter referred to as the Act) in addition to the depreciation allowance under sub-section (1) of section 32 of the Act.

2. Whether or not an assessee engaged in printing or printing and publishing is eligible for grant of additional depreciation under clause (iia) of sub-section (1) of section 32 of the Act, has been a contentious issue. In other words, whether printing or printing and publishing amounts to the manufacture or production of an article or thing has been contested in legal forums.
3. The Hon’ble Kerala High Court in the case of Mathrubhoomi Printing & Publishing Co. vide its judgment dated 16.2.2015 in ITA No 23 of 2015 relied upon the Hon’ble Delhi High Court judgment dated 31.5.2013 in ITA No 49 of 1996 in the case of Delhi Press Patra Prakashan Ltd.1 and held that printing and publishing activity is a manufacturing activity and therefore, the assessee is eligible for grant of additional depreciation u/s 32(1)(iia).
4. The Board has accepted the position that printing or printing and publishing amounts to the manufacture or production of an article or thing. The judgments of the Hon’ble Delhi and Kerala High Courts on this issue have been accepted. Thus the issue relating to the grant of deprecation u/s 32(1) (iia) has not been further contested, though the Delhi High Court judgment has been contested on other issues.
5. It is, therefore, a settled position that the business of printing or printing, and publishing amounts to the manufacture or production of an article or thing and is accordingly eligible for additional depreciation u/s 32(1)(iia) of the Act. Henceforth, appeals may not be filed on this ground by officers of the Department, and those already filed, in Courts/Tribunals may be withdrawn/not pressed upon.
6. The above may be brought to the notice of all concerned.

No additional depreciation: 

Provided further that no deduction shall be allowed in respect of—

(A) any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person; or

(B) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house; or

(C) any office appliances or road transport vehicles; or

(D) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of business or profession” of any one previous year;

Assets sold, demolished, etc, and  consideration & money payable received is less than WDV- actual deficiency allowed as deprecation

(iii) in the case of any building, machinery, plant or furniture in respect of which depreciation is claimed and allowed under clause (i) and which is sold, discarded, demolished or destroyed in the previous year (other than the previous year in which it is first brought into use), the amount by which the money payable in respect of such building, machinery, plant or furniture, together with the amount of scrap value, if any, fall short of the written down value thereof:

Provided that such deficiency is actually written off in the books of the assessee.

Explanation.—For the purposes of this clause,—

(1) “money payable” in respect of any building, machinery, plant or furniture includes—

(a) any insurance, salvage or compensation money payable in respect thereof;

(b) where the building, machinery, plant, or furniture is sold, the price for which it is sold,

so, however, that where the actual cost of a motor car is, in accordance with the proviso to clause (1) of section 43, taken to be twenty-five thousand rupees, the money payable in respect of such motor car shall be taken to be a sum which bears to the amount for which the motor car is sold or, as the case may be, the amount of any insurance, salvage or compensation money payable in respect thereof (including the amount of scrap value, if any) the same proportion as the amount of twenty-five thousand rupees bears to the actual cost of the motor car to the assessee as it would have been computed before applying the said proviso;

(2) “sold” includes a transfer by way of exchange or a compulsory acquisition under any law for the time being in force but does not include a transfer, in a scheme of amalgamation, of any asset by the amalgamating company to the amalgamated company where the amalgamated company is 26 an Indian company or in a scheme of amalgamation of a banking company, as referred to in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949) with a banking institution as referred to in sub-section (15) of section 45 of the said Act, sanctioned and brought into force by the Central Government under sub-section (7) of section 45 of that Act of any asset by the banking company to the banking institution.

Carryforward of unabsorbed deprecation and set off in succeeding previous years:

Section 32 (2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years.

Depreciation- Rule 5 and Appendix 1 and 1A.

Rule 5. (1) Subject to the provisions of sub-rule (2), the allowance under clause (ii) of sub-section (1) of section 32 in respect of the depreciation of any block of assets shall be calculated at the percentages specified in the second column of the Table in Appendix I to these rules on the written down value of the such block of assets as are used for the purposes of the business or profession of the assessee at any time during the previous year :

Depreciation above 40% is limited to 40% in certain cases:

Provided that the allowance under clause (ii) of sub-section (1) of section 32 in respect of depreciation of any block of assets entitled to more than forty percent shall be restricted to forty percent on the written down value of the such block of assets in case of—

(i) a domestic company which has exercised an option under sub-section (4) of section 115BA, or under sub-section (5) of section 115BAA, or under sub-section (7) of section 115BAB; or

(ii) an individual or Hindu undivided family which has exercised an option under sub-section (5) of section 115BAC; or

(iii) a co-operative society resident in India which has exercised an option under sub-section (5) of section 115BAD:

Provided further that, for the purposes of section 115BAA, if the following conditions are satisfied, namely:—

(i) option under sub-section (5) thereof is exercised for a previous year relevant to the assessment year beginning on the 1st day of April 2020;

(ii) there is a depreciation allowance, in respect of a block of asset, from any earlier assessment year or allowance of unabsorbed depreciation deemed so under section 72A, which is attributable to the provisions in clause (iia) of sub-section (1) of section 32; and

(iii) such depreciation or allowance for unabsorbed depreciation is not allowed to be set off under clause (ii) or clause (iii) of sub-section (2) thereof, the written down value of the block of asset as on the 1st day of April, 2019 shall be increased by such depreciation or allowance for unabsorbed depreciation not allowed to be set off:

WDV shall be increased by depreciation not allowed to be set off:

Provided also that, for the purposes of section 115BAC and section 115BAD, if the following conditions are satisfied, namely:—

(i) the option under sub-section (5) of the respective section is exercised for a previous year relevant to the assessment year beginning on the 1st day of April 2021;

(ii) there is a depreciation allowance, in respect of a block of asset, from any earlier assessment year which is attributable to the provisions in clause (iia) of sub-section (1) of section 32; and

(iii) such depreciation is not allowed to be set off under sub-clause (a) of clause (ii) of sub-section (2) of section 115BAC or clause (ii) of sub-section (2) of section 115BAD,

the written down value of the block of asset as on the 1st day of April 2020 shall be increased by such depreciation not allowed to be set off.

Deprecation to undertaking engaged in generation or generation and distribution of power:

Rule 5 (1A) The allowance under clause (i) of sub-section (1) of section 32 of the Act in respect of the depreciation of assets acquired on or after 1st day of April 1997 shall be calculated at the percentage specified in the second column of the Table in Appendix IA of these rules on the actual cost thereof to the assessee as are used for the purposes of the business of the assessee at any time during the previous year :

Provided that the aggregate depreciation allowed in respect of any asset for different assessment years shall not exceed the actual cost of the said asset :

Option to avail depreciation by specified undertaking as per appendix-1 instead of appendix1A:

Provided further that the undertaking specified in clause (i) of sub-section (1) of section 32 of the Act may, instead of the depreciation specified in Appendix IA, at its option, be allowed depreciation under sub-rule (1) read with Appendix I, if such option is exercised before the due date for furnishing the return of income under sub-section (1) of section 139 of the Act,

1. for the assessment year 1998-99, in the case of an undertaking which began to generate power prior to 1st day of April 1997; and
2. for the assessment year relevant to the previous year in which it begins to generate power, in case of any other undertaking :

Provided also that any such option once exercised shall be final and shall apply to all the subsequent assessment years.

(2) Where any new machinery or plant is installed during the previous year relevant to the assessment year commencing on or after the 1st day of April 1988, for the purposes of the business of manufacture or production of any article or thing and such article or thing—

1. is manufactured or produced by using any technology (including any process) or other know-how developed in, or
2. is an article or thing invented in,

a laboratory owned or financed by the Government or a laboratory owned by a public sector company or a University or an institution recognized in this behalf by the Secretary, Department of Scientific and Industrial Research, Government of India,

such plant or machinery shall be treated as a part of a block of assets qualifying for depreciation at the rate of [40] percent of written down value, if the following conditions are fulfilled, namely:—

(i) the right to use such technology (including any process) or other know-how or to manufacture or produce such article or thing has been acquired from the owner of such laboratory or any person deriving title from such owner ;

(ii) the return furnished by the assessee for his income, or the income of any other person in respect of which he is assessable, for any previous year in which the said machinery or plant is acquired, shall be accompanied by a 95certificate from the Secretary, Department of Scientific and Industrial Research, Government of India, to the effect that such article or thing is manufactured or produced by using such technology (including any process) or other know-how developed in such laboratory or is an article or thing invented in such laboratory ; and

(iii) the machinery or plant is not used for the purpose of the business of manufacture or production of any article or thing specified in the list in the Eleventh Schedule to the Act.

Explanation.—For the purposes of this sub-rule,—

1. “laboratory financed by the Government” means a laboratory owned by anybody [including a society registered under the Societies Registration Act, 1860 (21 of 1860)], and financed wholly or mainly by the Government ;
2. “public sector company” means any corporation established by or under any Central, State or Provincial Act or a Government company96 as defined in section 617 of the Companies Act, 1956 (1 of 1956) ; and
3. “University” means a University established or incorporated by or under a Central, State or Provincial Act and includes an institution declared under section 3 of the University Grants Commission Act, 1956 (3 of 1956), to be a University for the purposes of that Act.

NEW APPENDIX I

[Effective from the assessment year 2006-07 onwards]

[See rule 5]

TABLE OF RATES AT WHICH DEPRECIATION IS ADMISSIBLE

Notes: