Section 32 — Depreciation

Section 32 of the Income-tax Act, 1961, provides for the allowance of depreciation on tangible and intangible assets used for business or professional purposes. This section permits taxpayers to claim a deduction for the depreciation of assets, which is calculated based on the written down value method or the straight-line method, depending on the asset type. The depreciation rates are prescribed under the Income-tax Rules, 1962. This section is significant as it allows businesses to account for the wear and tear of their assets, thereby reducing their taxable income. The statutory test requires that the asset must be owned, wholly or partly, by the assessee and must be used for the purposes of the business or profession. The burden of proof lies on the taxpayer to demonstrate the asset's usage and ownership. Practically, this section encourages investment in business assets by providing tax relief through depreciation deductions.

Common Litigation Flashpoints

1. Classification of assets for depreciation rates
2. Ownership and usage of assets
3. Calculation of written down value
4. Eligibility of intangible assets for depreciation

Judgments on Section 32 — Depreciation

• Union of India & Anr. vs M/s. Ganpati Dealcom Pvt. Ltd. — SC,
  The 2016 Amendment Act cannot be applied retrospectively as it creates new offences and substantive changes, which cannot be applied to past transactions.
• Apollo Tyres Ltd vs Commissioner of Income Tax — SC,
  The Assessing Officer cannot go behind the net profit shown in the profit and loss account certified under the Companies Act for the purpose of Section 115-J.
• C.I.T., Kolkata vs SMIFS Securities Ltd. — SC,
  Goodwill is an asset under Explanation 3(b) to Section 32(1) of the Income Tax Act, 1961.