Company took a building on lease for 50 years. Consequent to increase in the business activities, company added two rooms to this building at company cost with the permission of the lessor. can company entitled to depreciation on the investment made for constructing these rooms?
Dear vasanth,
yes Depreciation shall be allowed.
Explanation 1 to Sec 32(1).—Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee.
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Dear,
Yes. The Explanation (1) to Section 32(1)(ii), which took effect from April 1, 1988, provides that where the business is carried on in a building in respect of which assessee holds a leaser or other right of occupancy and any capital expenditure is incurred by the assessee for the purpose of business on construction of any structure or doing of any work in relation to renovation and extension, then it shall be assumed that the structure is owned by the assessee. |
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stress : Prior to the introduction of this Explanation, there was a controversy as to the allowance of depreciation on assets of this nature. Now, there is no doubt that company can claim depreciation on the addition made to leased property. |
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