Written down value of depreciable asset.

41(1)

For the purposes of different provisions for computation of income under the head “Profits and gains of business or profession”, written down value for the tax year shall be as mentioned in column C of the Table below:—

Here is the content converted into a Markdown table:

SI. No.	Circumstances	Written down value
1	In case the asset is acquired in the tax year.	Actual cost to the assessee.
2	In case the asset is acquired before the tax year.	Actual cost to the assessee less depreciation actually allowed under this Act or the Income-tax Act, 1961.
3	In case of block of assets.	[(A-D)+ B-C]-E

Note:–– In column C,—

• A = the written down value of the block of assets in the immediately preceding tax year;
• B = actual cost of any asset falling within that block, acquired during the tax year;
• C = moneys payable together with scrap value, if any, in respect of any asset falling within the block, which is sold, transferred, demolished, destroyed or discarded during the tax year, where “C” shall not exceed (A-D)+B;
• D = depreciation actually allowed in respect of block of assets in relation to the said immediately preceding tax year;
• E = in the case of a slump sale, the actual cost of the asset falling within that block as reduced by depreciation allowable from the tax year 1988-1989 onwards, as if the asset was the only asset in the relevant block of assets, which shall not exceed [(A-D)+B-C].

SI. No.	Circumstances	Written Down Value
4	Where any block of asset is transferred by— (a)(i) a holding company to its subsidiary company; or (ii) a subsidiary company to its holding company and the conditions of section 70(J)(c) and (d) are satisfied; or (b) amalgamating company to the amalgamated company being an Indian company.	Written down value in the hands of the transferee company or amalgamated company is the same as written down value in the hands of transferor company or amalgamating company, as the case may be, at the beginning of the tax year in which such transfer took place.
5	Where any asset, forming part of a block of assets is transferred by a demerged company to a resulting company.	Written down value of block of assets— (a) for demerged company (for the immediately preceding tax year), shall be the written down value in the immediately preceding tax year as reduced by the written down value of the assets transferred to the resulting company pursuant to such demerger; (b) for resulting company, shall be the written down value of the assets transferred from the demerged company immediately before such demerger.
6	Where any block of assets is transferred by a private company or unlisted public company to a limited liability partnership and the conditions in section 70(J)(ze) are satisfied.	Written down value in the hands of limited liability partnership shall be written down value in the hands of said company as on the date of conversion of the company into limited liability partnership.
7	Where any asset forming part of the block of assets is transferred to a company under the scheme of corporatisation of a recognised stock exchange in India approved by the Securities and Exchange Board of India.	Written down value of the block of assets in the hands of resulting company, shall be the written down value of the assets transferred immediately before such transfer.
8	In a case of succession in business or profession under section 313, where an assessment is made in the hands of successor under section 313 (2).	Written down value of any asset or block of assets shall be the amount which would have been taken as its written down value, if the assessment had been made directly on the person succeeded to.

41(2)

Any allowance in respect of any depreciation carried forward under section 33(11) shall be deemed to be the depreciation actually allowed.

41(3)

Where an assessee was not required to compute his total income for the purposes of this Act for any tax year or tax years preceding the tax year under consideration,—

• (a) the actual cost of an asset shall be adjusted by the amount attributable to the revaluation of such asset, if any, in the books of account;
• (b) the total amount of depreciation on such asset provided in the books of account of the assessee in respect of such tax year or tax years preceding the tax year under consideration shall be deemed to be the depreciation actually allowed under this Act for the purposes of this clause; and
• (c) the depreciation actually allowed under clause (b) shall be adjusted by the amount of depreciation attributable to such revaluation of the asset.

41(4)

For the purposes of this section, where the income of an assessee is derived, in part from agriculture and in part from business chargeable to income-tax under the head “Profits and gains of business or profession”, for computing the written down value of assets acquired before the tax year, the total amount of depreciation shall be computed as if the entire income is derived from the business of the assessee under the head “Profits and gains of business or profession” and the depreciation so computed shall be deemed to be the depreciation actually allowed under this Act or under the Income-tax Act, 1961.

41(5)

In this section, “sold” shall have the meaning assigned to it in section 38(6)(a).

Explanation

Section Summary:

This section outlines the rules for determining the written down value (WDV) of depreciable assets for the purpose of calculating income under the head "Profits and gains of business or profession." It specifies how WDV is calculated in various scenarios, such as when assets are acquired, transferred, or part of a block of assets. The section also addresses special cases like succession, demerger, and conversion of companies into limited liability partnerships (LLPs).

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Key Changes:

1. Clarification on WDV Calculation: The section provides a detailed formula for calculating WDV for a block of assets, including adjustments for acquisitions, sales, and depreciation.
2. Special Cases: New provisions address WDV in cases of:
   • Transfers between holding and subsidiary companies.
   • Demergers.
   • Conversion of companies into LLPs.
   • Corporatisation of stock exchanges.
   • Succession in business or profession.
3. Revaluation Adjustments: If an asset is revalued in the books of account, the actual cost and depreciation are adjusted accordingly.
4. Agricultural Income: Depreciation is computed as if the entire income is from business, even if part of the income is agricultural.

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Practical Implications:

1. For Businesses:
   • Businesses must accurately track the WDV of assets, especially when assets are acquired, sold, or transferred.
   • Special rules apply for group companies, demergers, and LLPs, ensuring continuity in WDV calculations.
2. For Taxpayers with Mixed Income:
   • Taxpayers deriving income from both agriculture and business must compute depreciation as if all income is from business.
3. For Compliance:
   • Detailed records of asset acquisitions, sales, and depreciation must be maintained to comply with the WDV calculation rules.

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Critical Concepts:

1. Written Down Value (WDV): The value of an asset after deducting depreciation allowed under the Income Tax Act.
2. Block of Assets: A group of assets falling within the same class (e.g., machinery, buildings) for which depreciation is calculated collectively.
3. Slump Sale: Sale of a business undertaking as a whole, without assigning individual values to assets.
4. Revaluation Adjustments: If an asset is revalued in the books, the actual cost and depreciation are adjusted to reflect the revalued amount.

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Compliance Steps:

1. Maintain Records:
   • Keep detailed records of asset acquisitions, sales, and depreciation.
   • Track revaluations of assets in the books of account.
2. Calculate WDV:
   • Use the formula provided for block of assets: [(A-D) + B - C] - E.
   • Adjust for special cases like demergers, transfers, or conversions.
3. Report Accurately:
   • Ensure WDV is correctly reported in tax returns, especially for assets transferred or sold during the year.

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Examples:

1. Asset Acquisition:
   • A business buys machinery for ₹10 lakh in the current tax year. The WDV is ₹10 lakh (actual cost).
2. Block of Assets:
   • A business has a block of machinery with a WDV of ₹50 lakh at the start of the year. It buys new machinery for ₹20 lakh and sells old machinery for ₹5 lakh. The WDV is calculated as:

     [(50 - 10) + 20 - 5] = ₹55 lakh

     (Assuming ₹10 lakh depreciation was allowed in the previous year.)
3. Demerger:
   • A demerged company transfers machinery with a WDV of ₹30 lakh to a resulting company. The WDV for the demerged company is reduced by ₹30 lakh, and the resulting company takes over the same WDV.

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This section ensures consistency in WDV calculations across various scenarios, helping taxpayers and businesses comply with tax laws while maintaining accurate records of asset values.