Saharanpur
Electric Supply Co. Ltd. Vs. Commissioner of Income-Tax etc [1992] INSC 7 (15 January 1992)
Rangnathan,
S. Rangnathan, S.
Ojha, N.D. (J)
CITATION:
1992 SCR (1) 117 1992 SCC (2) 736 JT 1992 (1) 287 1992 SCALE (1)16
ACT:
Income
Tax Act, 1961 : Section 43-Depreciation on service lines for Assessment Year
1962-63-Computation of- Written down value-Determination of.
Interpreation
of Statutes-Retrospective interpretation of a statute-When arises.
HEAD NOTE:
Under
the Indian Income-tax Act, 1922, while computing the income from business, an assessee
was entitled to an allowance of depreciation at a percentage of the actual cost
to the assessee or the written down value of the relevant asset owned by him,
and used for the purposes of business.
This
Act was replaced by the Income-tax Act, 1961. Under both the Acts, `written
down value' was defined with reference to `actual cost'. Initially between 1922
and 1952, the expression `actual cost' was defined to mean just the actual cost
of the asset to the assessee. However, consequent on the decision of some of
the High Courts that in ascertaining the actual cost of an asset to the assessee,
it was immaterial that someone else had recouped the assessee, wholly, or in
part, towards such cost, the 1922 Act was amended by the Income-tax Amendment
Act of 1953, with effect from 1.4.1952, nullifying the effect of the aforesaid
decision, and permitting only a limited exclusion. The Income-tax Act, 1961,
however, directed the exclusion in the computation of the actual cost, of all
amounts reimbursed to the assessee by any person whatsoever.
The
appellants in the appeals before this Court were all electric supply
undertakings in various parts of the country. They had installed service
connections during the relevant previous year to the assessment year 1962-63. A
part of the expenditure incurred in connection with the installation of these
lines was recovered by the companies from consumers of electricity. They
claimed that the depreciation to be allowed for the assessment year 1962-63 and
thereafter on the service connections installed in the previous years should be
based only on the actual cost and written down value determined earlier, and
there was no justification in disturbing the same. However, the Revenue was of
the view that 118 though the assets had been acquired in earlier previous
years, the statutory mandate of Section 43(b) was that the actual cost should
be determined afresh for each assessment year and this, for assessment year
1962-63 onwards, could only be in accordance with the definition contained in
the 1961 Act. Accordingly, it ignored the written down value of the assets as
per the earlier record, computed the actual cost of the service lines by
excluding therefrom the contributions of consumers, but gave credit thereafter
for all depreciation allowed in respect thereof (on the basis of the higher
actual cost as then determined) in all the earlier years.
On
appeal by the assesses, the concerned High Courts upheld the view of the
Revenue and held that the actual cost of all assets for purposes of assessment
year 1962-63 and onwards, whatever might have been the date of acquisition of
the assets, had to be computed in accordance with the new formula laid down by
the Income-tax Act, 1961.
In the
appeals before this Court, on behalf of the assessee companies it was contended
that the interpretation of the Revenue approved by various High Court, would
result in absurdities and anomalies, that the figure of the actual cost
ascertained in respect of any asset in any of the earlier previous years could
not be altered in a subsequent year, that both the 1922 Act as well as the 1961
Act envisaged a continuance of the figure of actual cost once arrived at in
respect of any plant or machinery, throughout the life-time of such plant or
machinery, that for the assessment year 1962-63, the question of determination
of actual cost could arise only in respect of assets acquired during the
relevant previous year under clause (a) of s.43(5), and so far as the assets which
had been acquired in earlier previous year were concerned, depreciation had to
be calculated on the basis of the written down value, and since the written
down value in respect of these assets had already been ascertained for the
assessment year 1961-62, all that had to be done further, to find out the
written down value for the assessment year 1962-63, was to deduct there from
the depreciation allowed for the assessment year 1961-62. It was further
contended that though the actual cost as determined for the earlier years was
not sacrosanct or untouchable and there may be circumstances in which it may
have to be modified in the light of subsequent events, and changes in actual
cost could be taken into account for purposes of the definition in s.43 (1) read
with sub. sec.
(6),
in certain situations, the actual cost could not be altered merely because a
subsequent legislation provided for a different formula for ascertainment of
actual cost, and that formula could not be retrospect- 119 tively made applicable
to assets which had been acquired much earlier and the actual cost of which had
already been determined in accordance with the earlier prevalent law, that the
legislation could not be given retrospective effect so as to affect existing
rights, unless the legislation stated so expressly or by necessary implication,
that there was an indication in the language of Section 43(6) itself to show
that it was available to be invoked only in respect of assets which had been
acquired in earlier years, and that if the intention had been that the actual
cost of assets which had been acquired earlier to the previous year should also
be covered, the legislature would have used the words "as had been
met" that the Revenue's interpretation may lead to the computation of a
negative written down value and consequent difficulties in applying various
other statutory provisions, and that it was also incompatible with the terms of
Explanations 2, 4 and 6 to Section 43(6), and would also lead to difficulties
in the calculation of assessable profits under Section 41(2) or the allowance
under Section 32(i)(iii).
Dismissing
the appeals, this Court,
HELD :
1.1 Though, in substance, depreciation on an asset for any assessment year is
calculated on its written down value which is normally carried forward from an
earlier assessment year, the phraseology of the Income Tax Act, 1961 does not
bear out that the actual cost of the asset has to be determined only once,
viz., in the previous year of its acquisition. S.43(6) of the Income-tax Act,
1961 specifically deals with two categories of assets: (i) those acquired
during the relevant previous year and (ii) those acquired earlier to that. Even
in respect of the latter class of assets, the Act envisages a computation of
the actual cost of the asset and the deduction therefrom of all depreciation
allowed in earlier years in respect of that asset. Thus, the first step,
statutorily prescribed, for the determination of the written down value of any
asset for any year, is for the Assessing Officer to determine its actual cost.
This is a mandatory step which the Officer cannot be prevented from taking
merely because the actual cost of the asset has already been determined in one
or more earlier years, though it may be true that in ninety nine (and perhaps
even more) percent of the cases, the result (barring mistakes and some special
situations) will just be the equivalent of the written down value taken for the
immediately preceding assessment year less the depreciation allowed for that
year. [129B-E]
1.2 In
the light of the clear language of the statute, it is not possible to accept
that in the instant case, the Income Tax Officer had no justification to
compute first the actual cost of an asset which had been 120 acquired before
the previous year. Besides, whatever its validity over the period of continuous
operation of the same Act (of 1922 or 1961) it can have no application for the
assessment year 1962-63. There is no provision in the 1961 Act which permits or
compels the adoption or continuance of the figure of Actual cost and written
down value determined under the provisions of the earlier statute which has
been repealed by the 1961 Act. Therefore, it cannot be accepted that the figure
of actual cost ascertained in respect of any asset in any of the earlier
previous years could not be altered in a subsequent year. [p129F-G, 128F-G] Maharana
Mills v. I.T.O., [1959] 36 I.T.R. 350; Habib Hussein v. C.I.T., [1963] 48
I.T.R. 859 (Bom.), relied on. Karnani Industrial Bank v. C.I.T., [1954] 25 I.T.R.
550, referred to.
2.1
The definition of the expression "actual cost" in S.43(1) envisages
the computation of the actual cost of each asset, for every assessment year,
not only in respect of assets acquired during the previous year but also in
respect of assets acquired during the previous year. This naturally has to be
done with reference to the factual or legal position that may prevail during
the relevant previous year and can be taken into account for the relevant
assessment year. The section does not say that the computation of the actual
cost of the asset has to be based only on the facts or law as they stood at the
time of acquisition of the asset and as could have been taken into account for
the assessment year relevant to the previous year of acquisition. Once it is
conceded that the figure of actual cost can require modifications it is not
possible to confine such modifications to only three situations viz.,
(a) subsequent
factual occurrences, which called for a modification of the figure of actual
cost as at the time of acquisition determined earlier;
(b) discovery
of arithmetical errors in the earlier computation of the actual cost or written
down value of any asset; and
(c) redetermination
of the original actual cost necessitated by a specifically retrospective
statutory provision. [131B-D, 130B-C]
2.3
Where subsequent information - factual or legal reveals that the actual cost
determined originally was wrong, there can be no doubt that the original figure
of actual cost has to be altered, if need be, and, if possible, by reopening
the earlier assessments and, if that be not be possible, at least for the
future. [131E] Maharana Mills v. I.T.O., [1959] 36 I.T.R. 350, referred to.
2.4
There are clearly situation in which the actual cost does get 121 altered
prospectively and not retrospectively. One such instance is where the cost of
an asset increases or decreases on account of a fluctuation in the value of the
currency. Another situation would be where, subsequent to the acquisition of
the asset, substantial capital expenditure has been incurred thereon (not
amounting to the addition of a separate asset on which depreciation etc.
could
be independently allowed). Such expenditure is added, under the rules, in
practice to the actual cost and allowance given thereon subsequently.
Therefore, it cannot be accepted that the actual cost cannot be determined year
after year on the factual or legal position applicable for the relevant
previous year and that the actual cost once determined cannot be altered except
in the aforesaid three situations, where the original figure itself requires a modification
. [133A, C-E] Habib Hussain v. C.I.T. [1963] 48 I.T.R. 859 (Bom.) referred to.
3.1
The rule as to the prospective application of statutes is wellsettled. A
retrospective operation is not to be given to a statute as to impair an
existing right or obligation otherwise than as regards a matter of procedure,
unless that effect cannot be avoided without doing violence to the language of
the enactment. If the enactment is expressed in language which is fairly
capable of either interpretation, it ought to be construed as prospective only.
[133G, 134B-C] Craies on Statute Law (7th Edition) page 389; Maxwell on
Interpretation of Statutes (12th Ed.) pp. 215-219;
Principles
of Interpretation of Statutes by G.P. Singh (Fourth Ed.) p. 81, referred to.
3.2
The instant case is not at all a case of retrospective operation of the
statute. It is not the case of the revenue that the actual cost as determined
in the assessment year 1962-63 should be applied to revise the computations for
earlier years. All that the department says is that, though in respect of these
particular assets the assess might have obtained depreciation for earlier
assessment years on the basis of a higher figure, that will no longer be
available in future and that the figure of actual cost should be taken not as
was originally calculated but only at a lower figure for the assessment years
1962-63 and onwards. It is just the case of a provision, a part of the
requisites for the operation of which is drawn from a time antecedent to its
passing.[134G, 135A-B]
3.3.
The interpretation of the Revenue does not operate against the well-known
principle that retrospective operation-assuming that the provision has a
retrospective effect-should not be presumed where existing or part rights are
interfered with. [137A] 122
4.1
There is no doubt or ambiguity about the provision.
It is
clear and explicit, that the actual cost has to be determined, in each
assessment year, even of assets acquired before the commencement of the
previous year relevant to the assessment year. Not only is this intention plain
and clear, it does not create any injustice or hardship; on the contrary, it is
only reasonable and just. The object of the provision dealing with the grant of
depreciation is, generally speaking, to enable an assessee to get the capital
expenditure incurred by him in acquring the asset written off to his profits
over the years though it is true that, in certain situations, the statute
specifically relaxes this rigidity. In earlier years, he had been obtaining
depreciation on a particular footing. But the language used lent itself to an
interpretation that he could get a deduction even in respect of expenditure he
did not incur.
There
is no doubt about the correctness of this interpretation. [137B-C]
4.2.
Where a person purchases an asset, it may be correct to say that the cost of
the asset does not change because a part of the cost is met by some one else.
But the legislature had to decide whether an assessee should be allowed to
claim an allowance of depreciation in respect of the asset on the artificial
basis of the cost of the asset rather than what he has actually spent to
acquire that asset and whether the wording of the original provision as
interpreted by courts, had not conferred an undue advantage or benefit on the assessee.
This was not considered by the legislature to be equitable and, therefore, it
was altered by legislation. It accords with reason that the provision should be
interpreted to say that, at least after the amendment, the assessee should not
be allowed depreciation on the basis of the earlier figure of actual cost. It
is, therefore, incorrect to describe this provision as creating any undue hardship
or injustice or inconvenience to an assessee. [137D-F] Govind Das v. I.T.O.
[1976] 103 I.T.R. 123 at p.132, distinguished.
5.1
When an assessee acquires an asset, he does not acquire a right to obtain
depreciation thereon equal to the actual cost of the asset a s originally
determined for tax purposes. The effect of clause (c) of proviso to Section
10(2) (vi) of the 1922 Act and Section 34(3) of the 1961 Act is that, while
allowing depreciation in respect of any asset, the officer should be careful to
see that the aggregate of the depreciation allowed to the assessee in respect
of that asset does not exceed the actual cost of the asset. In other words, as
and when the provision is applied for each and every assessment year and the
depreciation on any asset is calculated, it should be ensured that the
depreciation allowed does not exceed the actual cost of the asset. The `actual
cost' referred to is not the actual cost as originally determined at the time
of the acquisition. [136B-D] 123
5.2
Thus, in the instant cases, while examining whether a particular asset is
entitled to any depreciation for the assessment year 1962-63, the officer will
find that it has already secured depreciation much more than the actual cost of
the asset as determined by him and will grant no further depreciation in
respect thereof. It is no doubt true that in past years the asset had become
eligible to amounts of depreciation the aggregate of which exceeds the actual
cost as presently determined and, if that depreciation is deducted from the
actual cost subsequently arrived at, a negative figure may result. But such a
situation will arise even in the category of cases in which the revision of
actual cost is permissible [136E]
5.3.
In the instant case, there was no negative written down value in earlier years
and, equally, there will be none in the year of revision as the effect of the
proviso is not to produce a negative written down value but only to preclude
further grant of depreciation on the asset in future. Read thus a limitation on
the maximum amount of depreciation that an assessee can claim in respect of a
particular asset, there is no question of arriving at a negative written down
value. [136G]
5.4
The use of the words "has been met" is very appropriate and proper in
the present context once the mechanics of the provision are understood. It is
incontrovertible that, under S. 43(1) read with S. 43(6) the officer has to
determine the actual cost for all assets, new and old, and the definition in S.
43(1) only requires that, at the time of doing so, he has to examine whether
the actual cost has been fully laid out by the assessee or has been met by some
one else in whole or in part. The words "has been met" squarely fit
into this reading of the section and the use of the words "has been
met" does not restrict the definition in S. 43(1) to assets acquired in
the previous year. [138D-E] Carson v.
Carson and Stoyek, [1964]1 All England Law Reports 681, referred to.
5.5
The proviso to clause (c) really places a limitation on the depreciation
deductible at any point of time and hence, there can never be a negative
written down value. Explanations 2 and 4 to Section 43(6) fall in line with the
interpretation favoured by the Revenue once it is understood that the reference
to "depreciation actually allowed" should be read subject to the
limitation of clause (c) of proviso to S. 10(2) (vi). Explanation 6 offers no
difficulty as the relationship as "parent" and "subsidiary"
between the companies involved in the transfer for the purposes of this clause
has to be determined as at the time of the transfer 124 of the asset and will
not be a wobbling or fluctuating one. [138G-H, 139A]
5.6
There is no difficulty or anomaly resulting from the Revenue's interpretation
in the Calculation of assessable profits under Section 41(2) or the allowances
under Section 32(1)(iii). [139B, E] Birmingham Corporation v. Barnes [1935] 3
I.T.R. Supp. 26 (HL), referred to.
Riverside
(Bhatpara) Electric Supply Co. Ltd v. C.I.T., [1977] 109 I.T.R. 399 (Cal.); CIT
v. South Madras Electric Supply Corporation Ltd., [1977] 109 I.T.R. 426 (Mad.);
CIT v. Saharanpur Electric Supply Co. Ltd., [1977] 109 I.T.R. 545 (All); CIT v.
Bassein Electric Supply Co. Ltd., [1979] 118 I.T.R. 884 (Bom); Rohtak & Hissar
Districts Electric Supply Co. (P) Ltd., v. CIT, [1980] 128 I.T.R. 52 (Del.); Ambala
Electric Supply Co. Ltd., v. CIT. [1983] 139 I.T.R. 925 (Punj); CIT v. Bombay
Suburban Electricity Co. Ltd., v. CIT, [1983] I.T.R. 298 (Bom.);British
insulated Callendars Cables,v. CIT[1983] 142 .I.T.R. 300(Bom); CIT v. Panvel Taluka
Electrical Development Co. Ltd., [1983] Taxation 71(1_-14 (Bom.); Ranchi Electric Supply Co. Ltd., v. CIT [1984] 150 I.T.R. 95 (Pat.); CIT v. Lonawalla
Khandalla Electric Supply Co. Ltd., [1985] 22 Taxman 77 (Bom.); CIT v. Calcutta
Electric Supply Corporation Ltd., [1987] 166 I.T.R. 797 (Cal); CIT v. Bassein
Electric Supply Co. Ltd., [1989] 177 I.T.R. 482 (ker.); CIT v. Calcutta
Electric Supply Corporation Ltd., [1989] 179 I.T.R. 580 (Cal) and Ahmedabad
Electricity Co. Ltd. v. CIT [1991] 190 I.T.R. 413 (Bom.),
approved.
CIVIL
APPELLATE JURISDICTION : Civil Appeal No. 1861 of 1977 Etc. Etc.
From
the Order dated 27.8.1976 of the Allahabad High Court in I.T.R. No. 271 of
1973.
Dr Debi
Prasad Pal, S.D. Dastur, T.A. Ramachandran, D.P Mukherjee, Ms. Priya Hingorani,
C.N. Mistry, Mrs. A.K. Verma, D.N. Misra, V. Dholakia, R. Ayyam Peruman, P.D. Pardiwala,
Dushyant Dave, R.N. Karanjawala, Ms. Manik Karanjawala, Ms. V.S. Rekha, Sajai
Singh, Ms. Janaki Ramachandran, Kailash Pd. Gupta and H.K. Dutt for the
Appellants.
Dr. V.
Gauri Shankar, S.C. Manchanda, Ms. A. Subhashini and S. Rajappa for the Respondents.
The
Judgment of the Court was delivered by 125 RANGANATHAN, J. The appellants are
all electric supply undertakings situated in various parts of the country. All
the appeals relate to the assessment year 1962-63 or later.
They
raise a common question regarding the computation of depreciation on service
lines installed by the assesses, a part of the expenditure incurred in
connection with the installation of which is recovered by the assesses from
consumers of electricity.
Depreciation,
under the Income-Tax Act, is computed as a percentage of the "written down
value" of the asset in question. The Income-tax Act, 1961 came into force
on 1.4.1962. S. 43(6) of the Act defines "written down value" thus :
`Written
down value' means- "(a) in the case of assets acquired in the previous
year, the actual cost to the assessee;
(b) in
the case of assets acquired before the previous year, the actual cost to the assessee
less all depreciation actually allowed to him under this Act, or under the
Indian Income-tax Act, 1922(11 of 1922), or any Act repealed by that Act, or
under any executive orders issued when the Indian Income- tax Act, 1886 (2 of
1886), was in force." The Act also defines the expression `actual cost' in
Section 43(1). It reads thus :
"Actual
cost" means the actual cost of the assets to the assessee, reduced by that
portion of the cost thereof, if any, as has been met directly or indirectly by
any other person or authority :
It
will be seen from the main paragraph of sub-section (1) of Section 43 that it
does not really define what is meant by the actual cost of an asset to the assessee;
it only contains a gloss that, whatever the expression may mean, that figure
has to be reduced by that portion of it, if any as has been met directly or
indirectly by any other person or authority. The question before us arises
partly due to this circumstance and partly due to the earlier legislative
history of these provisions.
Under
Section 10(2)(vi) read with Section 10(5) of the Indian Income-tax Act, 1922,
an assessee was entitled to an allowance of depreciation at a percentage of the
actual cost to the assessee or the written down value of the relevant asset
owned by him and used for the purposes of business.
It is
common ground that the service lines constitute machinery or plant on which 126
the assesses are entitled to depreciation. Also, as under the present Act, so
under that Act, `written down value' was defined with reference to `actual
cost'. Initially, between 1922 and 1952, the expression `actual cost' was
defined to mean just `the actual cost of the asset to the assessee'.
As
already mentioned, a part of the cost of the assets in the present case viz.
service lines is met by the consumers with the result that, though the company
might have incurred a particular amount as expenditure towards the installation
of the service lines, `the actual cost' to it, of the service lines, could, in
a loose sense, be said to be the amount of expenditure incurred by it in this
behalf less the amount recovered from the consumers in respect thereof. The
Income-tax Department tried to adopt this layman's approach and restrict the
depreciation on the service lines on the basis of their cost less the amount
recovered from consumers. The Bombay High
Court in C.I.T v. Poona Electric Supply Company Ltd., [1946] 14 ITR 622, and in
C.I.T.V.
Bombay
Suburban Electric Supply Co. (p) Ltd.[1977] 106 ITR 752 the Kerala High Court
in C.I.T. v. Cochin Electric Co. Ltd. [1965] 57 ITR 82, the Punjab High Court in C.I.T. v. Ambala Cantt.
Electric Supply Co. Ltd., [1971] 82 ITR 217 and the Patna High Court in C.I.T.
v. Ranchi Electric Supply Co. Ltd. [1954] 26 ITR 89 disapproved of this line of
reasoning. Relying on the decision of the House of Lords in Birmingham
Corporation v. Barnes, [1935] 3 I.T.R. Supp.
26(HL),
they held that, in ascertaining the actual cost of an asset to the assessee, it
was immaterial that someone else has recouped the assessee, wholly or in part,
towards such cost. This general principle is well settled by these decisions
and is also not in issue before us now.
The
1922 Act was amended by the Income-tax Amendment Act, 1953 w.e.f. 1.4.1952 in
this respect. This amendment introduced an explanation to the definition of
`actual cost' to nullify the effect of the above decision. Though, at the stage
of the Bill, the proposal was to exclude from the concept of actual cost, any
moneys reimbursed to the assessee in this regard by any outside source vide
[1952] 21 ITR (SC) 40, the amendment, as finally effected, permitted only a
limited exclusion. The Explanation read as follows :
"For
the purposes of this sub-section, the expression `actual cost' means the actual
cost of the assets to the assessee reduced by that portion of the cost thereof,
if any, as has been met directly or indirectly by Government or by any public
or local authority........
When
enacting the Income-tax Act, 1961, however, the legislature revived the earlier
proposal of 1953 and the present Act directs the exclusion, in the computation
of the actual cost, of all amounts reimbursed to the assessee by any person
whatsoever.
127
Now the question which arises before us, in relation to the assessment year
1962-63, is this. This appellant companies had installed service connections
during the relevant previous year. So far as these are concerned, there is no
dispute that depreciation has to be allowed on them with reference to their
`actual cost' as defined in S. 43(1) i.e. by excluding contributions or
reimbursements from consumers. But the appellants have also to be granted
depreciation on service connections installed in earlier previous years and it
is only in respect of such assets that the present controversy arises. the
depreciation on those assets, under Section 43(6) of the 1961 Act, has to be
computed with reference to their written down value, that is, their `actual
cost' less all depreciation allowed in respect thereof under the 1922 Act till
the assessment year 1961-62. Since those assets had been acquired by the
assessment years, their actual cost had been duly ascertained for the previous
year of acquisition in accordance with the provisions of Section 10(5)(a) of the
Indian Income-tax Act, 1922. If the assets had been acquired earlier than the
previous year relevant to the assessment year 1952-53, the actual cost of the
assets to the assessee would perhaps have been taken without any deductions
whatever in respect of the contributions made by other persons towards the cost
of the asset. In the case of such of those assets as had been acquired during
the previous years relevant to the assessment years 1952-53 to 1961-62, the
actual cost would have been determined in accordance with the relevant law as
it stood at that time viz. by taking their actual cost and deducting therefrom
contributions made by the Government or any public or local authority to enable
the assessee to acquire the assets. The assesses' contention is that there is
no justification for disturbing the written down value as so determined and
that the depreciation for the assessment year 1962-63 and thereafter should be
based only on the actual cost and written down value so determined earlier.
They plead for the undisturbed continuance of the earlier depreciation sheets
in respect of these assets. On the other hand, the Revenue contends that,
though the assets have been acquired in earlier previous years, the statutory
mandate of section 43(6)(b) is that their actual cost should be determined
afresh for each assessment year and this, for assessment year 1962-63 onwards,
can only be in accordance with the definition contained in the 1963 Act. On
this view, the Department has ignored the written down value of these assets as
per the earlier record, computed the actual cost of the service lines by
excluding there from the contribution of consumers but given credit thereafter
for all depreciation allowed in respect thereof (on the basis of the higher
actual cost as then determined) in all the earlier years. The question is which
if these contentions is correct.
All
the High Courts have upheld the stand of the Revenue. They have 128 answered
the question by holding that the actual cost of all assets for purposes of
assessment year 1962-63 and onwards, whatever might have been the date of
acquisition of the assets in question, has to be computed in accordance with
the new formula laid down by the Income-tax Act of 1961.
These
decisions are : Riverside (Bhatpara) Electric Supply Co. Ltd. v. C.I.T. (1977] 109 I.T.R. 399 (Cal); C.I.T. v. South Madras Electric Supply Corporation
Ltd., [1977] 109 I.T.R. 426 (Mad); C.I.T. v. Saharanpur Electric Supply Co.
Ltd., [1977] 109 I.T.R. 545 (All); C.I.T. v. Bassein Electric Supply Co. Ltd.,
[1979] 118 I.T.R. 884 (Bom); Rohtak & Hissar Districts Electric Supply Co.
(P) Ltd., v. C.I.T., [1980] 128 I.T.R. 52 (Del); Ambala Electric Supply Co.
Ltd. v. C.I.T., (1983) 139 I.T.R. 925 (Punj); C.I.T. v. Bombay Suburban
Electricity Co. Ltd ., [1983] 142 I.T.R. 298 (Bom); British Insulated Callendars,
Cables Ltd., v. C.I.T., (1983) 142 I.T.R. 300 (Bom.); C.I.T. v. Panvel Taluka
Electrical Development Co. Ltd., [1983] Taxation 71(1)-14 (Bom.);' Ranch
Electric Supply Co. Ltd. v. C.I.T., [1984] 150 I.T.R. 95 (Pat.); C.I.T. v. Lonawalla
Khandalla Electric Supply Co.Ltd.,(1985) 22 Taxman 77 (Bom.); C.I.T v. Calcutta
Electric Supply Corporation Ltd., [1987] 166 I.T.R. 797 (Cal); C.I.T. v. Bassein
Electric Supply Co. Ltd., (1989) 177 I.T.R. 482 (Ker.); C.I.T. v. Calcutta
Electric Supply Corporation Ltd. [1989] 179 I.T.R. 580 (Cal); and Ahmedabad
Electricity Co. Ltd. v. C.I.T., [1991] 190 I.T.R. 413 (Bom.). The appellants
before us contest the correctness of this unanimous view of the High Courts. Indeed
some of the decisions above referred to form the subject matter of some of
these appeals.
Dr. Debi
Pal, Sri Dastur and Sri Ramachandran, who appeared for the assessees, submitted
that the various High Courts have not correctly appreciated the arguments put
forward before them and failed to see that the interpretation approved by them
will result in absurdities and anomalies. In view of the consensus of views of
the High Courts against them, they have taken considerable pains to address
elaborate arguments which merit serious consideration in these appeals.
We
may, at the outset, dispose of an argument raised by Dr. Pal. His point was
that the figure of actual cost ascertained in respect of any asset in any of
the earlier previous years cannot be altered in a subsequent year.
According
to him, both the 1922 Act as well as the 1961 Act envisage a continuance of the
figure of actual cost once arrived at in respect of any plant or machinery
throughout the life-time of such plant or machinery. He says that, for the
assessment year 1962-63, the question of determination of actual cost can arise
only in respect of assets acquired during the relevant previous year under
clause (a) of S. 43(5). So far the assets in question are concerned, which had
been acquired in earlier previous years, depreciation has to be calculated on
the basis of the written down value.
Since
the written 129 down value in respect of these assets had already been
ascertained for the assessment year 1961-62, all that has to be done further,
to find out the written down value for the assessment year 1962-63, is to
deduct therefrom the depreciation allowed for the assessment year 1961-62.
Attractive
as this argument appears, there are two difficulties in accepting it. The first
is the language of S.43(6) and, even, its predecessor s. 10(5)(a) of the 1922
Act. Though, in substance, depreciation on an asset for any assessment year is
calculated on its written down value which is normally carried forward from an
earlier assessment year, the phraseology of the Act does not bear out the
contention that the actual cost of the asset has to be determined only once
viz. in the previous year of its acqui- sition. S. 43(6) specifically deals
with two categories of assets :
(i) those
acquired during the relevant previous year and
(ii) those
acquired earlier to that. Even in re- spect of the latter class of assets, the
Act envisages a computation of the actual cost of the asset and the deduc- tion
therefrom of all depreciation allowed in earlier years in respect of the asset.
Thus the first step, statutorily prescribed, for the determination of the
written down value of any asset for any year, is for the Assessing Officer to
determine its actual cost. This is a mandatory step which the Officer cannot be
prevented from taking merely because the actual cost of the asset has already
been determined in one or more earlier years, though it may be true that in
ninety nine (and perhaps even more) percent of the cases, the result (barring
mistakes and some special situations) will just be the equivalent of the
written down value take for the immediately preceding assessment year less the
depreciation allowed for that year. This mechanics of the definition was
explained by the Calcutta High Court in Karnani Industrial Bank v. C.I.T.
[1954]25 I.T.R. 558, approved by this Court in Maharana Mills v. I.T.O.
[1959]36 I.T.R. 350 and followed in Habib Hussein v. C.I.T. [1963]48 I.T.R. 859
(Bom.). In the light of these decisions and the clear language of the statute,
it is not possible to accept the contention that the Income Tax Officer had no justifica-
tion to compute first the actual cost of an asset which had been acquired
before the previous year. The second difficul- ty in the way accepting the
argument of Dr. Pal is that, whatever its validity over the period of
continuous opera- tion of the same Act (of 1922 or 1961), it can have no
application for the assessment year 1962-63. There is no provision in the 1961
Act which permits or compels the adoption or continuance of the figure of
actual cost and written down value determined under the provisions of the
earlier statue which has been repealed by the 1961 Act. We, therefore, reject
this contention of Dr. Pal.
Perhaps
realizing the above difficulty, Sri Dastur put forward a slightly modified
contention. He concedes that the actual cost as determined for the earlier
years is not sacrosanct or untouchable and that there may be circum 130 stances
in which it may have to be modified in the light of subsequent events. According
to learned counsel, however, changes in actual cost in three situations can be
taken into account for purposes of the definition in S.43(1) read with sub-sec.
(6). These, according to him, are :-
(i)
Subsequent factual occurrences which call for a modification of the figure of
actual cost as at the time of acquisition determined earlier:
(ii)
Discovery of arithmetical errors in the earlier computation of the actual cost
or written down value of any asset; and
(iii) Redetermination
of the original actual cost necessitated by a specifically retrospective
statutory provision.
He
points to instances of such modifications permitted by judicial decisions. In Karnani
Industrial Bank Ltd. v. C.I.T. [1954]25 ITR 558 (Cal.) the assessee claimed to
have purchased a machinery for Rs. 3,94,000 and obtained depreciation on that
basis from assessment year 1939-40 onwards. In proceedings for assessment year
1946-47, the Officer discovered that the cost of the machinery was only Rs. 2,80,000
and, since assessee had already obtained depreciation beyond this, refused the
grant of depreciation for assessment years 1946-47 and 1947-48. This was upheld
by the Calcutta High Court. In Maharana Mills (P) Ltd. v. I.T.O. [1959]36 ITR
350(SC) the Officer rectified the assessments of the assessee to re-work the
written down value computed and the depreciation granted for earlier years as
not being in accordance with law. The validity of these rectifications was
upheld. In Habib Hussein v. C.I.T., [1963]48 ITR 859 (Bom) the asset in
question had been acquired in the previous year relevant to the assessment year
1950-51. The assessee had acquired the asset under an agreement dated 4.6.48.
But that agreement had been revised on 10.7.50 (after the close of the relevant
previous year).
The assessee
claimed, nevertheless, that a sum of Rs. 3,30,000 payable by virtue of the
subsequent agreement, also formed part of the actual cost of the asset. This
claim was upheld by the High Court. According to learned counsel, this was also
a case where the original figure of actual cost was more precisely defined and
quantified later. Counsel con- cedes that, in cases of this type the actual
cost as deter- mined in earlier years might need to be modified and that the
assessing officer will be at liberty to do so. He, however, contends that the
actual cost cannot be altered merely because a subsequent legislation provides
for a different formula for ascertainment of actual cost; that formula may very
well apply in respect of assets acquired in and after the previous year to
which the new law will be ap- plicable but it cannot be retrospectively made
applicable to assets which 131 had been acquired much earlier and the actual
cost of which had been determined in accordance with the earlier prevalent law,
unless the statute specifically says so. As an example, he refers to
Explanation 8 to S. 43(1) which, though inserted in 1989, provides that certain
expenditure, of the nature specified therein, "shall not be included, and
shall be deemed never to have been included in the actual cost of such
asset." We are of the view that it is difficult to read any limitations
into the statutory provision in S. 43(6) as contended for by counsel. As
already explained, the definition envisages the computation of the actual cost
of each asset, for every assessment year, not only in respect of assets
acquired during the previous year but also in respect of assets acquired before
the previous year. This naturally has to be done with reference to the factual
or legal position that may prevail during the relevant previous year and can be
taken into account for the relevant assessment year. The section does not say
that the computa- tion of the actual cost of the asset has to be based only on
the facts or law as they stood at the time of acquisition of the asset and as
could have been taken into account for the assessment year relevant to the
previous year of acquisi- tion. It is one thing to contend, as Dr. Pal did,
that once the actual cost as at the date of acquisition has been computed, that
figure is final and cannot be interfered with subsequently. But that contention
is not acceptable for reasons already discussed. Once it is conceded that the
figure of actual cost can require modifications it is not possible to confine
such modifications in the manner con- tended for by Sir. Dastur. Where
subsequent information- factual or legal reveals that the actual cost
determined originally was wrong, there can be no doubt that the origi- nal
figure of actual cost has to be altered, if need be, and, if possible, by
reopening the earlier assessments and, if that be not be possible, at least for
the future. This is illustrated by the situations in Karnani and Maharana Mills
and this is also the position in cases to which Explanation 8 applies. These
are situations which have a retrospective impact on the original actual cost.
But it is equally con- ceivable that the `actual cost' may undergo a change
which does not relate back in fact or law and there is no reason why such
change should not be given effect to in future, irrespective of what may have
happened in the past. In fact this is what happened in Habib Hussein's case. It
was not a case of the category suggested by Sri Dastur. It was a case where the
figure of original cost underwent a change by reason of a subsequent agreement
and the High Court directed that the sum of Rs. 3,30,000 or part thereof
attributable to the acquisition of the assets "should be included in the
actual cost of these assets to the assessee in the respec- tive year or years
of account at the commencement of which the liability to pay it or part thereof
had accrued or would accrue". That the redetermination of actual cost
permitted 132 by the provision with which we are concerned is not restricted to
cases of the limited range of retrospective change in the actual cost suggested
by Sri Dastur is also illustrated by the decision in C.I.T. v. Hides &
leather Products P. Ltd., [1975]101 I.T.R. 61 (Guj.). In that case, "the assessee
who maintained its accounts on the mercantile system purchased a piece of
machinery from a foreign firm in 1955. No amount was paid towards the price
thereof on the ground that there was some defect in the machinery the liability
to the foreign supplier was shown in the books of account and balance-sheet of
the assessee. But in 1960, by making appropriate entries the assessee wrote
back the amount of Rs. 30,572 being the price of machinery, debited the amount
in the account of the foreign supplier and credited the same amount in the
capital reserve account. On the question whether the assessee was entitled to
depreciation on the actual cost computed at Rs. 30,572 for the assessment years
1961-62 to 1965-66". The High Court held that "in view of the fact
that the foreign supplier had not recovered the amount of Rs. 30,572 and no
legal steps had been taken towards its recovery for so long a time, it was not
unreasonable to infer that the foreign supplier had treated the liability of
the assessee to itself as having ceased and in fact and in substance there had
been a cessation of this liability. The Act of 1922 applied to the assessment
year 1961-62, and as the foreign supplier was neither Government nor public nor
local authority, though there was cessation of liability the assessee was
entitled to have the benefit of the entire amount of Rs. 30,572 as the actual
cost. Depreciation was allowable to the assessee for the assessment year
1961-62 on the basis that the cost to it of the machinery was Rs. 30,572. The
Act of 1961 applied to the assessment years 1962-63 to 1964-65 and under
Section 43(1) of the Act, since there was cessation of liability, the actual
cost of the machinery to the assessees for these assessment years should be
reduced by Rs. 30,572".
Sri Dastur
challenged the correctness of this decision in so far as it held that the
original cost itself did not stand modified as a result of the subsequent
development. We are not concerned with that aspect here. All that is relevant
is that this is a decision which permits as alteration in the figure of actual
cost consequent on subsequent factual occurrences that do not relate back. It
also shows that the actual cost for 1961-62 could be scaled down for the assess-
ment year 1962-63. There are also other decisions which make it clear that the
original cost of an asset may change after the year of installation or erection
as a result of further liabilities arising later : C.I.T. v. U.P. Hotel-
Restaurant Ltd. [1980]123 I.T.R. 626 (All.) and Kilkotagiri Tea and Coffee
Estate Ltd. v. C.I.T., (1978) 113 I.T.R. 729 (Ker.) decided in the context of
depreciation allowance and C.I.T., v. Mithlesh Kumari, [1973]92 I.T.R. 9 (Del.)
and C.I.T. v. Gupta, [1979] 119 I.T.R. 372 (A.P.) decided in the context of the
allied "cost of acquisition" for purposes of capital gains.
133
These apart, there are clearly situations in which the actual cost does get
altered prospectively and not retrospectively. One such instance is where the
cost of an asset increases or decreases on account of a fluctuation in the
value of the currency. Suppose an asset was purchased in 1965 for $10,000
(equivalent to say, Rs. 1,00,000) and the price or the moneys borrowed by the assessee
in foreign currency for its payment, remained outstanding. The evalua- tion of
the rupee in June 1966 would result in the increase of the price to say, Rs. 1,20,000.
It may be arguable wheth- er this is a retrospective enhancement in the price
or not.
But it
would be only reasonable to say that the actual cost has increased to Rs. 1,20,000
in June 1966 and that the assessee should be entitled to the grant of
depreciation and other allowances at least thereafter, on the basis of the
altered cost. This is what S. 43A provides. Another situa- tion would be where,
subsequent to the acquisition of the asset, substantial capital expenditure has
been incurred thereon (not amounting to the addition of a separate asset on
which depreciation etc. could be independently allowed).
Such
expenditure is added, under the rules, in practice to the actual cost and
allowance given thereon subsequently, vide : the third column in the table set
out at p. 878 in Habib Hussein [1963]48 I.T.R. 859(Bom.). This is quite cor- rect
and fully accords with the Department's interpretation of the provision. On the
assessee's interpretation, no such increased allowances can at all be granted
as there is no other provision permitting the additional cost being taken into
account as part of the `actual cost' even for years subsequent to the addition
or alternation. In principle, therefore, we are unable to accept the contention
that the actual cost cannot be determined year after year on the factual or
legal position applicable for the relevant previ- ous year and that the actual
cost once determined cannot be altered except in the three situations outlined
by counsel where the original figure itself required a modification.
Sri Dastur,
however, contends that there are three formidable reasons why the
interpretation suggested by the Department should not be accepted. We shall
proceed to consider these objections :
1.
Legislation cannot be given retrospective effect so as to affect existing
rights unless it says so expressly or by necessary implication :
The
rule as to the prospective application of statutes is well settled. It is
sufficient here to refer to some basic rules enunciated by prominent authors on
construction of statutes. To start with, the position has been explained in Craies
on Statute Law (7th Edition) at page 389. The learned author first discusses
the meaning of the word `retrospective' and points out : "a statute is to
be deemed to be retrospective which takes away or impairs any vested right
acquired under existing laws, or creates a new obliga- tion, or imposes a 134
new duty, or attaches a new disability in respect to transactions or
considerations already past". But a statute "is not properly called a
retrospective statute because a part of the requisites for its action is drawn
from a time antecedent to its passing". A little later, it is explained
that while Parliament has competence to make the provisions of an Act of
Parliament retrospective. "........no rules of construction is more firmly
established than this - that a retrospective operation is not to be given to a
statue so as to impair an existing right or obligation otherwise than as
regards a matter of procedure, unless that effect cannot be avoided without
doing violence to the language of the enactment. If the enactment is expressed
in language which is fairly capable of either interpretation, it ought to be
construed as prospective only". Maxwell on Interpretation of statutes
(12th Ed.) contains passage to like effect at page 215 to 219. We may also
refer to a passage from "Principles of Interpretation of Statutes" by
G.P. Singh (Fourth Ed.) where the learned author warns against a departure from
the ordinary meaning of the words used in a statute merely on grounds of
hardship, injustice or absurdity. At page 81, he points out : "........ considerations
of hardship, injustice or absurdity as avoiding a particular construction is a
rule which must be applied with great care. `The argument abin- convenienti'
said Lord Moulton, `is one which requires to be used with great caution'.
Explaining why great caution is necessary, Lord Moulton further observed :
`There is a danger that it may degenerate into a mere judicial criticism of the
propriety of the Act of legislature. We have to interpret statutes according to
the language used therein, and though occasionally the respective consequences
of two rival interpretations may guide us in our choice in between them, it can
only be where, taking the Act as a whole and viewing it in connection with the
existing state of the law at the time of the passing of the Act, we can satisfy
our- selves that the words cannot have been used in the sense to which the
argument points'. According to Brett L.J. "the inconvenience necessitating
a departure from the ordinary sense of the words should not only be great but
should also be what he calls an "absurd inconvenience". Moreover indi-
vidual cases of hardship or injustice have no bearing for rejecting the natural
construction, and it is only when the natural construction leads to some
general hardship or injustice and some other construction is reasonably open
that the natural construction may be departed from".
Examining
the provisions with which we are concerned in the lights of the principles
succinctly summarised above, it will be apparent that what we are concerned
with here is not at all a case of retrospective operation of the statute.
It is
not the case of the revenue that the actual cost as determined in the
assessment year 1962-63 should be applied to revise the computations for
earlier year. All that the department says is that, though in respect of these
135 particular assets, the assessee might have obtained depreciation for
earlier assessment years on the basis of a higher figure, that will no longer
be available in future and that the figure of actual cost should be taken not
as was originally calculated but only at a lower figure for the assessment
years 1962-63 and onwards. It is just the case of a provision, a part of the
requisites for the operation of which is drawn from a time antecedent to its
passing.
It is
argued on behalf of the assessee that the provi- sion should be considered to
be retrospective because it affects the vested or existing rights of the assessee.
This argument is based on the provisions of clause (c) of the proviso to
Section 10(2) (vi) of the 1922 Act (corresponding to section 34(3) of the 1961
Act) which lays down that the aggregate of all deductions in respect of
depreciation made in the Act or its predecessor Acts shall "in no case
exceed the actual cost to the assessee of the building, machinery, plant,
furniture, structure or work, as the case may be".
Mr. Dastur's
argument is that, when the asset was acquired, its actual cost had been
determined in a particular manner and that, by virtue of the above provision,
the assessee acquired a vested right to obtain depreciation thereon equal to
the actual cost as so determined. He also points out that, under the provisions
of 1922 Act as well as 1961 Act, there are elaborate provisions to adjust the
allowances of depreciation so as to accord with reality. If, on the basis of
the depreciation already granted the written down value of the asset becomes
too low and the assessee is able to sell the asset for a higher price, the
surplus is brought to tax. On the other hand, where the depreciation allowed is
inadequate and the amount realised by the assessee on the sale, demolition or
destruction of the asset is much less than the written down value, the assesee
is allowed to write off the difference between the written down value and the
scrap value of the asset. In other words, the Act has pro- vided a machinery
which ensures that the assessee gets by way of depreciation allowance is
correlated to reality.
According
to him, this right of the assessee, whether it is described as a vested right
or an existing right, is affect- ed by the provision with which we are
presently concerned.
To
this argument, Sri Ramachandran adds the further point that, under the
provisions of Section 10(2)(vi) of the 1922 Act and Section 33 of the 1961 Act,
the amount of deprecia- tion which cannot be adjusted against the profits of a
particular year can be carried forward, treated as the depreciation for the
subsequent year and set off against the profits of subsequent years. He points
out that the result of accepting the department's interpretation of Section
43(6) of the Act is that the depreciation allowed to the assessee in the
earlier years may be higher than the actual cost as arrived at subsequently
under the provisions of 1961 Act. In such an event the written down value of
the asset i.e. the actual cost minus the depreciation allowed to the assessee
will be a negative figure. The result of this, according 136 to counsel, will
be that the carried forward unabsorbed depreciation will be a negative figure
in so far as this asset in concerned and will reduce the amount of depreciation
that will be allowable to the assessee for the same year against the other
assets and in subsequent years against other profits. In this way, according to
counsel, the construction advocated by the department would result in affecting
rights which had been available to the assessee prior to the amendment.
We are
of the opinion that these contentions are unfounded. It is incorrect to view
the position as if, when an assessee acquires an asset, he acquires a right to
obtain depreciation thereon equal to the actual cost of the asset as originally
determined for tax purposes. The effect of clause (c) to the proviso to Section
10(2) (vi) of the 1922 Act and Section 34(3) of the 1961 Act is only this that,
while allowing depreciation in respect of any asset the officer should be
careful to see that the aggregate of the depreciation allowed to the assessee
in respect of that asset does not exceed the actual cost of the asset. In other
words, as and when the provision is applied for each and every assessment year
and the depreciation on any asset is calculated, it should be ensured that the
depreciation allowed does not exceed the actual cost of the asset. In other
words, the "actual cost" referred to is not the actual cost as
originally determined at the time of acquisition.
Thus,
in the cases before us, while examining whether a particular asset is entitled
to any depreciation for the assessment year 1962-63, the officer will find that
it has already secured depreciation much more than the actual cost of the asset
as determined by him and will grant no further depreciation in respect thereof.
It is no doubt true that in past years the asset had become eligible to amounts
of depreciation the aggregate of which exceeds the actual cost as presently
determined and, if that depreciation is deducted from the actual cost
subsequently arrived at, a negative figure may result. But such a situation
will arise even in the category of the cases in which, according to counsel,
the revision of actual cost is permissible. Thus, even in Karnani Industrial
Bank (supra) cited by him, the assessee had obtained for earlier years
depreciation for exceeding the real cost of the asset. This is an
"anomaly" which arises because the assessee was erroneously granted
higher depreciation than he deserved. But, even here, there was no negative
written down value in earlier years and, equally, there will be none in the
year of revision as the effect of the proviso is not to produce a negative
written down value but only to preclude further grant of depreciation on the
asset in future. Read thus as a limitation on the maximum amount of
depreciation that an assessee can claim in respect of a particular asset, there
is no question of arriving at a negative written down value.
We
are, therefore, unable to accept the contention of counsel that the
interpretation contended for by the depart- ment operates against the well 137
known principle that retrospective operation-assuming that the provision has a
retrospective effect-should not be presumed where existing or past rights are
interfered with.
Nor do
we think that there is any doubt or ambiguity about the provision. It is clear
and explicit, as already pointed out, that the actual cost has to be
determined, in each assessment year, even of assets acquired before the
commencement of the previous year relevant to the assessment year. Not only is
this intention plain and clear, it does not create any injustice or hardship;
on the contrary, it is only reasonable and just. It should be remembered that object
of the provision dealing with the grant of depreciation is, generally speaking,
to enable him to get the capital expenditure incurred by him in acquiring the
asset written off to his profits over the years though it is true that, in
certain situations, the statute specifically relaxes this rigidity. In earlier
years, he had been obtaining depreciation on a particular footing. But the
language used lent itself to an interpretation that he could get a deduction
even in respect of expenditure he did not incur. The correctness of this
interpretation is not in doubt. Where a person purchases an asset, it may be
correct to say that the cost of the asset does not change because a part of the
cost is met by some one else. But the legislature had to decide whether an assessee
should be allowed to claim an allowance of depreciation in respect of the asset
on the artificial basis of the cost of the asset rather than what he has
actually spent to acquire that asset and whether the wording of the original
provision, as interpreted by courts, had not conferred an undue advantage or
benefit on the assessee. This was not considered by the legislature to be
equitable and, therefore, it was altered by legislation. It accords with reason
that the provision should be interpreted to say that, at least after the
amendment, the assessee should not be allowed depreciation on the basis of the
earlier figure of actual cost. It is, therefore, incorrect, in our opinion, to
describe this provision as creating any undue hardship or injustice or
inconvenience to an assessee. It is in this context that the passages cited
earlier from Brett L.J and Lord Moulton become relevant. They appear to be
particularly apt to the context of the present provisions. For the above
reasons, we are unable to accept the contention addressed on behalf of the assessee
or to draw any support therefor from the obser- vations in Govind Das v.
I.T.O., [1976]103 I.T.R. 123 at p. 132; relied upon by counsel.
2. The
language used in the provision :
It was
next suggested that there is an indication in the language of Section 43(6)
itself to show that it is available to be invoked only in respect of assets
which had been acquired in earlier years. Reference is made in this context to
the use of the words "as has been met" in Section 43(1) and the 138
use of similar language in the notes on clauses of the corresponding provision
in the Income-tax Bill, 1961 (see 1961 Act 42 ITR supp. at page 161). It is
argued that if the intention had been that the actual cost of assets which had
been acquired earlier to the previous year should also be covered, the
legislature would have used the words "as had been met". In support
of this contention, Sri Dastur referred to the decision in Carson v. Carson and Stoyek, [1964]1 All
England Law Reports 681. In that case, S. 3 of the Matrimonial Causes Act,
1963, which came into operation on July 31, 1963, provided that "adultery which
has been condoned shall not be capable of being revived". While it was
quite clear that, as a result of this provision, no petition could rely on a
course of conduct subsequent to July 31 as reviving previous condoned adultery,
the question that arose was whether the section had retrospective effect and
whether a course of conduct before that date could be relied upon as reviving
previously condoned adultery. The question was answered in the negative. We do
not think the decision is of help in the present context. The nature of the
provisions with which we are concerned and the mode of its operation are totally
different. The use of the words "has been met" is very appropriate
and proper in the present context once we understand the mechanics of the
provision.
As we
have already explained, it is incontrovertible that, under S. 43(1) read with
S. 43(6) the officer has to determine the actual cost for all assets, new and
old, and the definition in S. 43(1) only requires that, at the time of doing
so, he has to examine whether the actual cost has been fully laid out by the assessee
or has been met by some one else in whole or in part. The words "has been
met" squarely fit into this reading of the section and it is difficult to
accept the suggestion that the use of the words "has been met" lends
support to an interpretation restrict- ing the definition in S. 43(1) to assets
acquired in the previous year.
3.
Absurdities and anomalies :
It is
contended that the Revenue's interpretation will result in absurdities and
anomalies. The first of these is said to be that it may lead to the computation
of a negative written down value and consequent difficulties in applying
various other statutory provisions. We have already negatived the contention
and pointed out that the proviso to clause (c) really places a limitation on
the depreciation deductible at any point of time and, hence, there can never be
a negative written down value as contended. The second anomaly is said to be
that the interpretation favoured by the Revenue is incompatible with the terms
of Explanations 2, 4 and 6 to S. 43(6). We see no such difficulty.
Explanations
2 and 4 fall in line with the suggested interpretation, once it is understood
that the reference to "depreciation actually allowed" should be read
subject to the limitation of clause (c) of proviso to S. 10(2)(vi) [now section
34(3)]. Explanation 6 offers no difficulty 139 as the relationship as
"parent" and "subsidiary" between the companies involved in
the transfer for the purposes of this clause has to be determined as at the
time of the transfer of the asset and will not be a wobbling or fluctuating one
as suggested by counsel for the assessee. Another difficulty pointed out is
that the interpretation put forward by the Department might lead to
difficulties in the calculation of assessable profits under section 41(2) or
the allowance under section 32(1)(iii). Sri Ramachandran illustrated the
difficulty by giving the instance of an asset purchased for, say, Rs. 10,000
entirely with monies contributed by others.
If the
asset had been purchased in 1958 and was eligible for depreciation at 10 per cent,
the assessee would have secured depreciation of Rs. 2710 in the assessment
years 1959-60, 1960-61 and 1961-62. Suppose in the previous year relevant
assessment year 1963-64, it is sold for Rs. 5000. Mr. Ramachandran points out
that, according to the Department's interpretation the actual cost of the asset
will be nil and, therefore, its written down value at the end of the previous
year relevant for the assessment year 1962-63 would be nil with the result that
the entire sum of Rs. 5000 for which the asset is sold will become chargeable
under section 41(2). In other words, the assessee will have to pay tax on Rs.
5,000 by way of balancing charge though he had been allowed depreciation only
to the extent of Rs. 2710. Again if the asset is sold for Rs. 2,500 in the
previous year relevant for assessment year 1963-64, according to the Department
he will have to pay a tax on Rs. 2,500 whereas under the old provisions he
would have got an allowance under section 32(1)(iii). But this is only a
seeming anoma- ly. For, the sums of Rs. 5,000 and Rs. 2,500 will be taxed not
as balancing charge but as capital gains which is quite consistent with the
department's position that, the assessee having paid nothing for the asset, its
actual cost should be taken at nil, a stand in which there is no absurdity. We
do not, therefore, think that any difficulty or anomaly results from the
interpretation suggested.
For
the reasons discussed above, we agree with the view taken by the several High
Courts and dismiss these appeals.
N.P.V.
Appeal dismissed.
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