Section 34 of the Income Tax Act, 1961–Conditions for depreciation allowance and development rebate

Section 34 of the Income Tax Act, 1961 lays down conditions for depreciation allowance and development rebate. Sub-sections 1 and 2 have been omitted.

As per section 34 (3) (a) the deduction mentioned in Section 33 will not be permitted unless a sum equal to 75% of the development rebate that will actually be permitted is debited to the profit and loss account of the previous year for which the deduction is to be permitted under section 33 (2) or any previous year (being a previous year not earlier than the year in which the ship was acquired, the machinery or plant was installed, or they were first used) and credited to a reserve account to be used by the assessee throughout the course of the next eight years for the undertaking’s business, except for the following two purposes:

1. Distribution through dividends or profits
2. Creation of any asset outside of India or for remittance of profits outside of India

However, this will not be applicable if the assessee is a company that is a licensee under the Electricity (Supply) Act of 1948, or if the ship was acquired or the machinery or plant installed prior to January 1st, 1958. Also if a ship is acquired after February 28th, 1966, this will apply to that ship as if the term “fifty” were substituted for “seventy-five.”

According to clause b any allowance made under Section 33 or the corresponding provisions of the Indian Income-Tax Act, 1922, in respect of any ship, machinery, or plant shall be deemed to have been made in error for the purposes of this Act and the provisions of section 155 (5) if the assessee sells or otherwise transfers the ship, machinery, or plant to any person before the expiry of eight years from the end of the previous year in which it was acquired or installed. However, this clause does not apply when-

1. the ship was acquired or the machinery or plant was installed prior to January 1st, 1958
2. the assessee sells or otherwise transfers the ship, machinery, or plant to the government, a local authority or a corporation created by a central, state, or provincial act, or a government company as defined in section 2 (45) of the Companies Act, 2013
3. the sale or transfer of the ship, machinery, or plant is made in association with the amalgamation or succession mentioned in section 33 (3) or (4).