Capital Asset - Uncertainty among COVID 19

India is under Lockdown since 25 March, 2020 due to Covid 19 Crisis. And it seems that Capital asset is one of the aspect that has been affected in the presence of lockdown.

Let us understand whether a new asset which is lying idle due to the CoronaVirus Pandemic can be said to be “used” for business purposes so to be eligible for depreciation under section 32 of the Income-tax Act, 1961.

Let us first head to Section 32 in order to check for the conditions :

• Deprecation is allowed only if the asset is put to use in the year of purchase.
• Degree of utilisation of assets will not be considered while determining whether the asset is put to use or not. For example if the asset is used for trial run then it is considered the asset is put to use.
• If asset is put to use for less than 180 days then amount equal to 50% of the amount calculated using normal depreciating rates is allowed as depreciation. i.e Asset put to use on or before 3rd oct of the year (4th oct in case of leap year) then 100% depreciation is allowed, otherwise 50%.

Thus accordingly referring to Section 32 we can derive a conclusion that we need to Put the Asset to Use in order to claim the depreciation. But this unprecedented Covid 19 situation happens to be beyong our Control.

This situation may drastically affect our Tax Liability for A.Y. 2020-21 and may even impact the same for A.Y. 2021-22.

There are many instances where Hon'ble Courts have pointed out that "Any "forced idleness" of the machinery cannot disentitle the assessee from getting the benefit of the allowance."

But this Covid 19 crisis doesn't seems to gain the benefit of Forced Idleness since in the majority of the cases it has been noticed that Hon'ble Court has taken into consideration the point that Asset was in put to use before such Forced Idleness.

So, what to do?

Let us head to Section119(2)(b) and see if the same could be in help in this situation.

What is Section 119(2)(b)?

“The Board may, if it considers it desirable or expedient so to do for avoiding genuine hardship in any case or class of cases, by general or special order, authorise any income-tax authority, not being a Commissioner (Appeals) to admit an application or claim for any exemption, deduction, refund or any other relief under this Act after the expiry of the period specified by or under this Act for making such application or claim and deal with the same on merits in accordance with law.”

Interpretation

Section 119(2)(b) empowers CBDT to direct  income tax authorities to allow any claim for exemption, deduction, refund and any other relief under the income tax act even after the expiry of the time limit to make such claim. However, such claims will only be allowed by the income tax authority provided, making such a claim within the prescribed due date was genuinely out of the control of the taxpayer.

Section 119(2)(b) covers the following aspects -

• Exemption
• Deduction
• Refund
• Any other relief under Income Tax Act

Conclusion 

Considering the genuine hardship and considering the fact into place if the Covid 19 crisis wouldn't have been in place the asset would have been Put to Use an application can be made under Section 119(2)(b) since this default happens to be beyond the control of the assesse.

Accordingly it  is preferred that CBDT issues necessary clarification and puts at rest further deliberation.

The views expressed by the author is based on his understanding of law and the prevailing circumstances. Taxpayers are requested to use the views judiciously and author shall not be liable for any gain/loss which might arise by referring his article.

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