Income tax: Block of assets for Depriciation

Friends,   Block os assets is important when we are going to charge depreciation on assets.   Detail of the same is given below :- 

 "Block of assets"[Section 2(11)]  means a group of assets forming 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, in respect of which the same percentage of depreciation is prescribed.

Class of Assets

Assets eligible for depreciation have been classified into four classes i.e.-

(a) building;

(b) plant & machinery;

(c) furniture;

(d) intangible assets of the type discussed above.

               Each class of assets other than intangible assets may have different blocks or groups on which separate rates of depreciation are prescribed and for each such rate, separate block will be formed.In the case of intangible assets there will be only one block as only one rate i.e. 25% has been prescribed for all such intangible assets.

The following blocks can be formed on the basis of class of assets and rates of depreciation:-

(a) Buildings

Block 1    Buildings which are used mainly for residential purposes                                   5%

                 except hotels and boarding houses                                                  

                    

Block 2    Buildings other than those used mainly for residential purposes                        10% 

                and not covered by sub-items(1) above and (3) below                                    

Block 3    (i) Buildings for installing machinery and plant forming part of water               100%                                             

                   supply project or water treatment system and which is put to use

                   for the purposes of business of providing infrastructure facilities 

                   under section 89-1A(4)(i) 

                              

               (ii) purely temporary erection such as wooden structures

(b) Furniture and fittings

Block 1     Furniture and fittings including electrical fitting.                                               10%

(c) Machinery and plant

Block 1    Motor cars, other than those used in a business of running                              15%
                them on hire.
                Machinery and plant other than those covered by block nos.
                2 to 8 below

Block 2  Ships;

             (i) Ocean-going ships including dredgers, tugs, barges, survey                           20%
              launches and other similar ships used mainly for dredging purposes
             and fishing vessels with wooden hull.
            (ii) Vessels ordinarily operating on inland waters, not covered by
            sub-item (c) below.
            (iii) Vessels ordinarily operating on inland waters being speed boats

Block 3
            (i) Motor buses, motor lorries and motor taxis used in a business of                   30%
                 running them on hire
            (ii) Moulds used in rubber and plastic goods factories                                        30%
            (iii) Machinery and plant, used in semi-conductor industry covering all                30%
                  integrated circuits (ICs) (excluding hybrid integrated circuits) ranging
                 from small scale integration (SSI) to large scale integration/very large
                 scale integration (LSI/VLSI) as also discrete semi-conductor devices
                such as diodes, transistors, thyristors, triacs. etc. ) other than those
                entitled to 80% rate of depreciation given in bloc 7 below.

Block 4  
            (i)  Aeroplanes- Aeroengines                                                                             40%
            (ii) Commercial vehicle which is acquired by the assessee on or after                  40%
                 1.10.1998, but before 1.4.99 and is put to use for any period before
                 1.4.1999 for the purposes of business or profession.

Block 5
            (i)  Containers made of glass or plastic used as re-fills.                                       50%
            (ii)  new commercial vehicle which is acquired on or after 1.1.2009 but              50%
                  before 1.10.2009 and is put to use before 1.10.2009 for the purposes
                  of business or profession.

Block 6
           (i) Computers including computer software                                                         60%
           (ii) Books, (other than books, (a) being annual publications, or (b) books            60%
                owned by assesses carrying on business in running lending libraries
           (iii) Gas cyclinders including valves and regulators.  Direct fire glass melting         60%
                 furnaces used in Glass manufacturing concerns, Plant used in field
                 operation (above ground) distribution, and Plant used in field operations
                (below ground), but not including kerbside pumps including underground
                tanks and fittings used in field operation (distribution) by mineral oil concerns.

Meaning of Computer Software is any computer programme recorded on any disc, tape perforated media or other information storage device. 

Block 7   Rollers used in Flour mills, Rolling mill rolls used in Iron and steel                  80%
                industry, Rollers used in suger works, Energy saving devices, and
                Renewal energy devices.

Block 8   (i)  Machinery and plant, acquired and installed in a water supply project     100%  
                   or a water treatment system and which is put to use for the purpose of
                   business of providing infrastructure facility under section 80-IA(4)(i).
              (ii)  Wooden parts used in artificial silk manufacturing machinery.                  100%
              (iii)  Cinematograph films - bulbs of studio lights.                                          100%
              (iv)  Match factories- Wooden match frames.                                              100%
              (v) Tubs, winding ropes, haulage ropes and sand slowing pipes, and             100%  
                    Safety lamps used in Mines and quarries.
              (vi) Salt works- Salt pans, reservoirs and condensers, etc., made of             100%
                    earthy sandy or clayey material or any other similar material.
              (vii) Books owned by assessees carrying on a profession, being annual         100%
                     publications.
             (viii) Books owned by assessees carrying on business in running lending         100%
                     libraries.
             (ix)   Air pollution control equipment, Water pollution control equipment,       100%
                     Solid waste control equipments, Solid waste recycling and resource
                     recovery systems.

 
 1. Machinery and plant includes pipes needed for delivery from the source of supply of raw
     water to the plant and from the plant to the storage facility.
2.  Plant shall not include building, furniture and fittings and as such the building, electrical
     fittings etc. cannot be treated as plant.

(d)   Intangible Assets.

Block 1        Know-how, patents, copyrights, trademarks, licences, franchises or         25%
                    any other business or commercial rights of similar nature.
     

             It may be observed that for the above four classes of assets, there can be 13 blocks of assets according to different rates of deprecation prescribed.

 (a)  buildings                       - 3 block (5%,10% and 100%).
 (b) furniture & fittings          - 1 block (10%)
 (c) plant and machinery       - 8 blocks (15%,20%,30%,40%,50%,60%,80% and 100%)
 (d) intangible assets.            - 1 block (25%)

              How to form blocks :- Since building is one of the class of assets which has three rates of depreciation, there will be three blocks of buildings.   All buildings owned by the assessee and used for business, carrying 5% depreciation will be grouped as Block-1.  These will be residential buildings given to the employees of the assessee.  All buildings owned by the assessee and used for business carrying 100% depreciation will be grouped under Block-II.  Similarly, all buildings owned by the assessee and used for business carrying 100% depreciation will be grouped under Block -III.

           Similar procedure will be followed for making blocks of plant and machinery.   However, for intangible assets and furniture and fittings there will be only one block in each case. 

Download free simple Depreciation Calculator (click here)

Rectification of Depreciation

Rectification of wrongly claimed depreciation, through filing of a letter to AO, is allowed when no fresh claim is made

The assessee claimed the depreciation on a newly installed windmill on the basis of WDV method at the rate of 15%. Subsequently, when assessee realised the mistake that correct rate of depreciation would be 80%, it filed a letter before assessing officer to rectify the claim and to provide deprecation at the rate of 80%. The assessing officer rejected the claim considering the principle laid down by the Supreme Court in Goetze (India) Ltd. vs. CIT [2006] 157 Taxman 1 that a fresh claim cannot be made by the assessee other than by filing a revised return.

The Tribunal held that the assessee was not making a fresh claim before the assessing authority. Infact, the assessee had made a claim for depreciation but the rate chosen was not a correct one. Thus, the judgment of the Supreme Court in the Goetze (India) Ltd. (Supra) would not apply to the present case. Further, as per Explanation 5 to Section 32(1), the depreciation would be allowed whether or not the assessee has claimed the depreciation in computing the total income. Therefore, the assessing officer was duty bound to allow the depreciation computed at the correct rate provided under the Act. - ITO v. SRI BALAJI SAGO AND STARCH PRODUCTS [2012] 19 taxmann.com 313 (Chennai - Trib.)

Income Tax Rules- No. 5 regarding Deprciation

C.—Profits and gains of business or profession

⁸⁴[Depreciation⁸⁵.

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 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 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.

⁸⁶[(1A) The allowance under clause (i) of sub-section (1) of section 32 of the Act in respect of 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 :

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,

          (a)  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

          (b)  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 business of manufacture or production of any article or thing and such article or thing—

          (a)  is manufactured or produced by using any technology (including any process) or other know-how developed in, or

          (b)  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 recognised 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 block of assets qualifying for depreciation at the rate of ⁸⁷[40] per cent 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 ⁸⁸certificate 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 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,—

          (a)  “laboratory financed by the Government” means a laboratory owned by any body [including a society registered under the Societies Registration Act, 1860 (21 of 1860)], and financed wholly or mainly by the Government ;

          (b)  “public sector company” means any corporation established by or under any Central, State or Provincial Act or a Government company⁸⁹ as defined in section 617 of the Companies Act, 1956 (1 of 1956) ; and

          (c)  “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.]