Is depreciation under section 32 allowable in respect of emergency spares of plant and machinery, which though acquired during the previous year, have not been put to use in that year?

CIT v. Insilco Ltd. (2009) 179 Taxman 55 (Del.)

On this issue, the Delhi High Court observed that the expression used for the purposes of business appearing in section 32 also takes into account emergency spares, which, even though ready for use, yet are not  consumed or used during the relevant period. This is because these spares are specific to a fixed asset, namely  plant and machinery, and form an integral part of the fixed asset. These spares will, in all probability, be useless once the asset is discarded and will also have to be disposed of. In this sense, the concept of passive  use which applies to standby machinery will also apply to emergency spares. Therefore, once the spares are  considered as emergency spares required for plant and machinery, the assessee would be entitled to capitalize the entire cost of  such spares and claim depreciation thereon.

Note: One of the conditions for claim of depreciation is that the asset must be used for the purpose of  business or profession . In the past, courts have held that, in certain circumstances, an asset can be said to be  in use even when it is kept ready for use . For example, depreciation can be claimed by a transport company  on spare engines kept in store in case of need, though they have not actually been used by the company.  Hence, in such cases, the term use embraces both active use and passive use. However, such passive use  should also be for business purposes.


The Contributor is CA. Priya Subramanian