Report No. 12

Notes to clause 32

Sub-clause (1)- The various allowances in the nature of depreciation have been grouped together in this clause. To simplify the clause and make it brief, the conditions for depreciation allowance have been dealt within a separate clause1. In the interest of clarity, the various classes of assets have been dealt with separately.

1. Vide draft clause 34.

Draft clause 32(1) (i) & (ii)-Together exhaust the first para of existing section 10(2)(vi).

The second para of section 10(2)(vi), beginning with "and where " and ending with the words "cost thereof to the assessee" has been omitted, as its operation is limited to the year of erection of a building erected during the assessment years 1945-46 to 1955-56.

As regards the proviso to existing section 10(2)(vi), clauses (a) and (c) of the proviso have been transferred to the draft clause on conditions for depreciation1.

1. Vide draft clause 34(1) and 34 (2)(iii).

Clause (b) of the proviso has been transferred to the Chapter on Aggregation of income and Set off of loss, being relevant thereto.

Item 32(1) (ii)-See notes under item (i) above.

Item 32(1)(iii)-Existing section 10(2)(via) has been simplified as follows:-

(i) The main proviso finds a place in clause (iii) while the second parenthesis (for exclusion of extra allowance for double shift working) has been framed as an Explanation; this will avoid interruption in reading.

(ii) The first parenthesis-containing the words "(which shall be deductible in determining the written down value)" has been omitted. Since clause (via) now forms part of "depreciation", the allowance will naturally be deducted in determining the written down value under existing section 10(5) (b).

(iii) The time for the allowance-ending on the 31st day of March 1959, has been transferred to the clause relating to conditions for depreciation1. If this deduction becomes obsolete by the time the new Act comes into force, it may be deleted.

1. Vide draft clause 34(2)(ii).

Clause 32(1)(iv)-The propositions embodied in section 10(2)(vii) are these : -

1. A loss on the sale of an asset is allowed as a deduction. "Loss" here means the difference between the written down value and the sale price when the latter is lower than the former;

2. A profit on such sale is counted as income. "Profit" here means the excess of the sale price over the written down value. (If the sale price exceeds even the original cost, then such excess is a capital gain.)

3. In the case of asset not sold, but discarded, etc., the place of sale price is taken by its scrap value, as increased by insurance moneys, etc., if received.

Of these propositions, No. 2 has nothing to do with deductions, and relates to income by way of balancing charge.

An attempt has been made to simplify the section so as to embody these propositions in a simple form. Simplification of the section has proceeded on the following lines: -

(i) Only the "Loss" aspect has been dealt with here. The profit aspect (2nd, 4th and 5th provisos) has been dealt with in a separate clause relating to deemed profits1.

1. Vide draft clause 41(2).

(ii) Unnecessary repetition has been avoided. The 3rd proviso and the main para of section 10(2) (vii) have been combined in the draft in clause 32(1) (iv), since the principle is the same.

Much of the existing 4th proviso repeats parts of the 3rd proviso. The draft clause 32(1) (iv) expresses the principle behind these two provisions in such a manner as to render repetition unnecessary in the draft for the fourth proviso1.

1. Draft clause 41(2). (iii) Simplicity in expression in general has been attempted. For example, the 3rd proviso at present says that where insurance, etc., moneys are received, then the amount by which the difference between the written down value and the scrap value exceeds the amount of insurance moneys is allowed as a deduction. This merely embodies the simple proposition (vide proposition 3rd above), that insurance moneys are added to the scrap value.

Thus-the existing formula is-

Written down value minus scrap value minus Insurance - Allowed deduction (Shifting "scrap value", this becomes)

Written down value minus (Scrap value + Insurance) = Allowed deduction.

The draft adopts the second formula.

Sub-clause (2)-needs no comments.