Escorts
Limited & ANR Vs. Union of India & Ors [1992] INSC 215 (22 October
1992)
[S.
RANGANATHAN, V. RAMASWAMI AND B.P JEEVAN REDDY, JJ.]
ACT:
Income
Tax Act, 1922/Income Tax Act, 1961:
Sections
10 (2) (vi) and (xiv) /32 (1) (ii), 35 (1) (iv), 35 (2) (iv), 43 (1),
Explanation-Depreciation-Scientific Research-Deductions in computing business
income- Depreciation allowance in respect of the asset as also allowance in
respect of expenditure incurred on the Scientific Research-Whether
permissible-Retrospective amendment of Section 35(2)- Whether violative of
Articles 14,19 (1) (g) and 300-A of the Constitution-Whether imposed
unreasonable and oppressive burden on the assesse-Nature and effect of
amendment-Position before and after the amendment- Explained.
Constitution
of India, 1950:
Articles
14,19 (1) (g) and 300-A-Retrospective amendment of Section 35 (2) of the Income
Tax Act, 1961-Whether violative of-completion of pending assessments and also
reopening or rectification of completed assess ments of earlier years in cases
where double benefit was granted-Whether unreasonable and imposed oppressive
burden on assessee.
Statute
Law-Retrospective operation-Amended provision given retrospective
effect-Whether open to challenge as imposing oppressive burden-Whether new
obligation created under new provision.
HEADNOTE:
Section
32 (1) (ii) of the Income Tax Act, 1961 provided for depreciation, while
computing business income for purpose of income tax. It was allowed at a
percentage of the written down value of certain capital assets employed in the
business. Section 35(1) provided for the deduction of four types of expenditure
on scientific research and the deduction provided under 35 (1 ) (iv) was to the
effect that in respect of any expenditure of a capital nature on scientific
research related to the business carried on by the assessee, such deduction as
may be admissible under the provisions of sub-section (2). Sub-Section (2)
provided that, for the purposes of clause (iv) of sub-section (1), one-fifth of
the capital expenditure incurred in any previous year should be deducted for
that previous year; and the balance of the expenditure should be deducted in
equal instalments in each of the four immediately succeeding previous years. It
further provided in clauses (iv) and (v) that where a deduction was allowed for
any previous year under this section in respect of expenditure represented
wholly or partly by an asset, no deduction should be allowed under clauses (i),
(ii) and (iii) of sub-section (1) of section 32 for the same previous year in
respect of that asset; and where the asset mentioned in clause (ii) was used in
the business after it ceased to be used for scientific research related to that
business, depreciation should be admissible under clauses (i), (ii) and (iii)
of sub-section (1) of Section 32.
Explanation
1 to Section 43(1) also provided that where an asset was used in business after
it ceased to be used for scientific research related to that business and a
deduction had to be made under clause (i), clause (ii) or clause (iii) or
sub-section (1) or sub-section (1A) of Section 32 in respect of that asset, the
actual cost of the asset to the assessee, as reduced by the amount of any
deduction allowed under clause (iv) of sub-section (1) of Section 35.
The
provisions of Section 32(1) (ii) and Section 35(2) (1) (iv) and (v) read with
Explanation 1 to Section 43(1) virtually repeated the provisions contained in
Section 10(2) (vi) and 10(2) (xiv) of the 1922 Act.
In
1968, there was an amendment in the provisions of Section 35(2). The effect of
the amendment was that the entire amount of capital expenditure incurred in
relation to scientific research was allowed as a deduction in one year, instead
of being spread over a period of five years as was the position earlier.
Thereafter,
the Finance Act, 1980 made an amendment with retrospective effect from
1.4.1962, i.e. from the date of commencement of Act of 1961 which provided
under clause (iv) of Section 35(2), that where a deduction was allowed for any
previous year under this section in respect of expenditure represented wholly
or partly by an asset, no deduction should be allowed under clauses (i), (ii)
and (iii) of sub-section (1) of Section 32, for the same or any other previous
year in respect of that asset.
In the
Writ Petitions filed before this Court on behalf of the asses sees it was
contended that the allowances in respect of depreciation on the one hand and of
capital expenditure on scientific research on the other are two totally
different and independent heads of allowances; one was a notional allowance to
provide for the wear and tear of a capital asset employed in the business as
the years rolled by; and the other was an allowance for actual expenditure of a
capital nature granted to give fillip to new industrial innovations and
development of indigenous know-how and techniques by proper planning on
research and development by various business houses; and therefore there was
nothing wrong in construing the statute as providing cumulatively for both
types of deductions in respect of the same capital asset; that both the types
of allowances were permissible under the statute except to the extent limited
by clauses (iv) and (v) of Section 35 of the Act/Clauses (d) and (e) of the
proviso to Section 10(2) (xiv) of the 1922 Act; that this interpretation of the
statutory provisions was very clear. patent and unambiguous; that the
retrospective amendment of the provision would impose unexpected and impossible
burden on them over the years, jeopardise their solvency and lay them open to
action by creditors and financial institutions and such an onerous burden was
unreasonable and oppressive and the provision imposing such a burden violated
the fundamental rights of the assessees under Articles 14 and 19(1) (g) of the
Constitution that retrospective provisions may be permissible even in taxing
statutes in certain special circumstances such as in the case of provisions
clarifying the impact of a statute provision curing defective legislations in
the light of the judicial decisions and the like but if the legislature chose
to impose a totally new burden which was not at all in contemplation earlier
and proceeded to give full retrospective effect thereto such an attempt should
be struck down as unreasonable and discriminatory. that the amendment was not
in the nature of a statutory clarification of an ambiguity but a totally new
and fresh imposition sought to be unjustifiably given retrospective effect and
that the statute did not intend one deduction to preclude other.
On
behalf of the Revenue it was contended that the deduction provided by Section
35 (1) (iv) was in the alternative to the deduction provided by clauses (i)
(ii) and (iii) of sub-section (1) and sub-section (1A) of Section 32; if one
was availed of the other was not available not only during the year or years in
which the deduction under Section 35(1) (iv) was availed of but permanently;
for the reason that if both were allowed to be availed of; it amounted to grant
of 200% deduction viz., 100% under Section 35(1) (iv) and another 100% under
sub-sections (1) and (1A) of Section 32, and this was totally outside the
contemplation of the Act.
Dismissing
the writ petitions, this Court,
HELD:
Per Ranganathan J. (For himself and Ramaswami, J.) 1.1. There is a fundamental,
though unwritten, axiom that no legislature could have at all intended a double
deduction in regard to the same business outgoing; if it is intended it will be
clearly expressed. In other words, in the absence of clear statutory indication
to the contrary, the statute should not be read so as to permit an assessee two
deductions both under Section 10(2) (vi) and section 10(2) (xiv) under the 1922
Act or under Section 32 (i) (ii) and 35(2) (iv) of the 1961 Act - qua the same
expenditure.
The
use of the words "in respect of the same previous year" in clause (d)
of the proviso to Section 10(2) (xiv) of the 1922 Act and Section 35 (2) (iv)
of the 1961 Act is not a contra-indication which permits a disallowance of
depreciation only in the previous years in which the other allowance is
actually allowed. The purpose of the words above referred to is totally
different. That the two allowances cannot be and are not intended to be granted
in respect of the same asset or expenditure, can be easily seen from the
limitation imposed by these words. Where the capital asset is one of the nature
specified, the assessee can get only one of the two allowances in question but
not both. For determining which of the two allowances should be granted - that
which the assessee chooses or that which the assessing officer might prefer, it
is necessary for the statute to define this and this is what has been done by
the rider in clause (d) of the proviso to Section 10(2) (xiv) of the 1922 Act
Section 35(2) (iv) of the 1961 Act. It mandates that the asssessee should, in
such a case, be granted the special allowance for scientific research and not
the routine and annual one for depreciation. Clause (d) of the proviso to
Section 10(2) (xiv) of the 1922 Act and Section 30(2)(iv) of the 1961 Act thus
fall into place as an appropriate and necessary provision. The provision
contained in clause (e) of the proviso to Section 10(2) (xiv) of the 1922 Act,
re-enacted in Explanation to Section 43(1) of the 1961 Act, also reinforces
this line of approach. Therefore, it is not correct to say that the allowances
under the two provisions are by nature unconnected with, and indpendent of,
each other. [171-D-H; 172-A-E] 1.2. Under the provisions of the statute as they
stood earlier, the assessees could not have claimed continued grant of
depreciation after the expiry of five previous years before the 1968 amendment
and after the expiry of the first year after the 1968 amendment, even though
the entire cost of the capital asset in question had been allowed to be written
off completely against the business profits of those five previous years or one
previous year as the case may be.
It is
impossible to conceive of the legislature having envisaged a double deduction
in respect of the same expenditure even though it is true that the two heads of
deduction do not completely overlap and there is some difference in the
rationale of the two deductions under consideration. The last few words of the
English statute, viz., "assets for any year of assessment during any part
of which they were used by the person carrying on the trade for scientific
research related to the trade" show that there is really no difference
between the English and Indian Acts;
the
former also in terms prohibits depreciation only so long as the assets are used
for scientific research. [169-F-H;
171-B,
C] 1.3. In the circumstances, it is clear that, even before the 1980-
amendment, the Act did not permit a deduction for depreciation in respect of
the cost of a capital asset acquired for purposes of scientific research to the
extent such cost has been written off under Section 10(2) (xiv) of the 1922
Act/35(1) & (2) of the 1961 Act.
Prior
to 1968, such assets qualified for an allowance of one-fifth of the cost of the
asset in five previous years starting with that of its acquisition and during
these years the assessee could not get any depreciation in relation thereto. In
respect of assets acquired in previous year relevant to assessment year 1968-69
and thereafter, their cost was written off in the previous year of acquisition
and no depreciation would be allowed in that year. This is clear from the
statute. Equally, it is not envisaged, that depreciation could be allowed on
them thereafter and also that it could be allowed starting with the original
cost of the asset despite its user for scientific research and the allowances
made under the 'scientific research' clause.
There
was no difficult at all in the interpretation of the provisions. The mere fact
that a baseless claim was raised by some over-enthusiastic assessees who sought
a double allowance or that such claim may perhaps have been accepted by some
authorities is not sufficient to attribute any ambiguity or doubt as to the
true scope of the provisions as they stood earlier. [173-E-H; 174-A] C.I.T. v.
Indian Telephone Industries Ltd., (1980) 126 I.T.R. 528 and C.l.T. v. Hico
Products, (1991) 187 I.T.R.
517,
overruled.
Lohia
Machines limited V. Union of India, (1985) 152 I.T.R. 308 S.C.; Alkali & Chemical
Corporation of India Ltd, v. C.l.T., (1986) 161 I.T.R. 820 Cal.; C.l.T v. Indian Explosive Ltd., (1992) 192 I.T.R.
144 Cal.; C.I.T v. International Instruments
P. Ltd., (1983) 144 I.T.R. 936 Kar. and Warner Hindustan Ltd. v. C.l.T., (1988)
171 I.T.R.
224
A.P., referred to.
1.4.
The assessees may have some possible case only if the earlier statutory
provisions can be said to have been unambiguously in favour of the assessee and
the 1980 amendment had radically altered the provisions to cast a new and
substantial burden on the assessee with retrospective effect but there is no
ambiguity. The 1980 amendment has effected no change at all in the provisions
except to set out more clearly and categorically what the provision said even
earlier. Thus, even without the amendment, the assessees cannot claim the
depreciation allowance in question. Even if it is assumed that there was an
ambiguity or doubt as to interpretation, that was retrospectively clarified by
the legislature. Therefore, the validity of the amendment cannot be challenged.
This is indeed beyond all doubt. [174-C-G] Rai Ramkrishna v. State of Bihar, [1964] 1 S.C.R.
897;Asst.
Commissioner of Urban Land Tax v. Buckingham & Carnatic Co. Ltd., [1970] 1
S.C.R. 268; Krishnamurthi & Co. v. State of Madras, [1973] 2 S.C.R. 54;
Hira Lal Rattan Lal v. Sales Tax Officer and Anr., (1973) 31 S.T.C. 178 and
Shiv Dutt Rai Fateh Chand v. Union of India, (1984) 148 I.T.R.
644,
referred to.
Per
Jeevan, Reddy, J. (Concurring) 1.1. A double deduction cannot be a matter of
inference; it must be provided for in clear and express language, regard having
to its serious impact on the revenues of the State. If the
Legislature/Parliament wanted to provide for more than 100% deduction they
would have said so, as they done in cases where they have provided for what is
called "weighted deduction", vide Section 35(B) of the Act of 1961.
It is not possible to agree that while introducing clause (xiv) in sub-section
(2) of Section 10 of the 1922 Act consequent on the introduction of Section
20(4) in the U.K. finance Act, 1944, the Indian Legislature as also the
Parliament made a conscious departure from the English Amendment with the idea
of providing an additional incentive over and above the deduction on account of
depreciation, to induce the Indian assessees to invest more in scientific
research.
1.2.
The underlying reason in clause (iv) of Section 35(2) of Act of 1961 providing
that during the years or year in which the assessee avails of the deduction
under Section 35(1) (iv) he should not avail of the deduction on account of
depreciation provided by clauses (i), (ii) and (iii) of sub- section (1) and
sub-section (1A) of Section 32 is to ensure that the assessee does not get
double deduction for example, where the asset was acquired prior to April 1,
1957, the deduction under Section 35(1) (iv) would be allowed in five
consecutive years. If during the very five previous years, depreciation under
the aforementioned provisions is also allowed, the assessee would obtain, at
the end of five years, a double depreciation i.e., 100% under Section 35 and
almost 100% under Section 32. (In many cases, the rate of depreciation under
Section 32 is 20% or even higher). If such a course was barred by clause (iv)
during the initial five years, it would not be reasonable to say that same
thing can be achieved by claiming the deduction after the expiry of five years.
If both the deductions are in the alternative, as indicated by clause (iv),
they must be understood as being in the alternative and not consecutive. It
would be a rather curious thing to say (in the case of an asset acquired prior
to April 1, 1967) that Parliament barred claim for depreciation under Section
32 even in the first year when only 20% of the cost of the asset is allowed as
deduction under Section 35(1) (iv), it barred it in the second, third and
fourth years, when the deduction had reached 40, 60 and 80 per cent but
permitted it be claimed after the fifth year, by which year the entire 100%
cost was allowed as a deduction. No express provision was necessary to say what
is so obvious. The position after April 1. 1967 is no different. That the
aforesaid view is the correct one is indicated by Explanation (1) to clause (1)
of Section 43 [the corresponding provision in the 1922 Act being sub-clause (e)
of clause (xiv) of Section 10(2) of 1922 Act].
[177-H;
178-A-E]
13.
The amendment of Section 35(2) in 1980 is merely clarificatory in nature. It
makes explicit what was implicit in the provisions. question of its
constitutionality, therefore, does not arise. Though purporting to be
retrospective, it does not take away any rights which had legally vested in the
assessees. [180-B] Commissioner of Income Tax v. Hico Products Pvt. Ltd, (1991)
187 I.T.R 517, overruled.
1.4.
None of the assessments relating to any of the assessment years in question has
become final. They are pending at one or the other stage and in one or the
other forum. Since the amendment under challenge merely makes explicit which
was implicit in the unamended clause, there is no question of any right vesting
in the assessee and its being taken away. [180-H; 181-A]
ORIGINAL
JURISDICTION: Writ Petition No. 90 of 1981 etc. etc, (Under Article 32 of the
Constitution of India).
Dr.
Devi Prasad Pal, Dinesh Vyas, P.H. Parekh, B.N. Aggarwal, A.S. Rao, Ravinder
Narain, S. Ganesh, A.K. Verma, Amrita Mitra, Ms. Priya Hingorani, S. Sukumaran,
Ms. Amrita Mitra, Ms. S.Bagga, Krishan Kumar, Bhaskar Pradhan, Ms. Poonam
Madan, Ms. Gauri Advani, S. Pathak, B. Lal, B.P. Aggarwal, Ms. Geetanjali Mohan,
P.K. Mukherjee and S.C. Patel for the Petitioners.
S.C.
Manchanda, B.B. Ahuja, Manoj Arora, S. Rajappa and Ms. A. Subhashini for the
Respondents.
The
Judgment of the Court was delivered by RANGANATHAN, J. The seeds of the present
controversy were sown as early as in 1946. It is unfortunate that this matter
should be coming up before this Court for its consideration nearly five decades
later, though it must be pointed out that the issue in its present form is the
outcome of an amendment made by the Finance (No.2) Act, 1980 (hereinafter
referred to as 'the 1980 Act') to the Income Tax Act, 1961* (hereinafter
referred to as 'the 1961 Act').
It is
also a curious co-incidence that the 1980 Act effected two amendments in the
1961 Act with retrospective effect and the validity of both these provisions
have been challenged before the courts. The first was the controversy with
regard to the retrospective amendment of s.80-J which was settled by this Court
by its decision in Lohia Machines Limited v.
Union of India, (1985) 152 I.T.R. 308 (SC). It is the second amendment to
the provisions contained in section 35(2) of the 1961 Act that has given rise
to the present controversy between the parties.
The
question is really one of interpretation of two important provisions relating
to the computation of business income for purposes of income tax. We may start
with the provisions of the Indian lncome Tax Act, 1922 (hereinafter referred to
as the '1922 Act'). The computation of business income for purposes of income
tax was done in accordance with the provisions of section 10 of the said Act.
In the process of making such computation, the Act provided for two important
deductions (among others), in respect of the capital assets employed in the
business. The first was the deduction under clause (vi) of Section 10(2) of an
allowance in respect of the depreciation of building, machinery, plant or
furniture being the property of the assessee and used for the purposes of the
business, at a prescribed percentage of the written down value of such assets.
This allowance is calculated, in respect of the year of acquisition of the
property, at a percentage of its actual cost to the assessee and in subsequent
years at a graduated scale on the basis of the actual cost less the depreciation
allowances granted in the preceding years. In strict principle, this is an
allowance of capital nature but it is now well settled that the allowance of
depreciation has to be taken into account in order to ascertain the true
profits of a business and, therefore, an assessee is permitted to deduct, in
the computation of the business income year after year, the prescribed
percentage of the value of the assets used for the purposes of business. The
second allowance was not there in the 1922 Act originally and was introduced by
the Income- tax (Amendment) Act, 1946. The introduction was of certain
allowances in respect of expenditure on. "scientific research related to
the business", an expression which was defined in a fairly comprehensive
manner by the statute.
Three
types of allowances were permitted in respect of this category of expenditure
of which we are here concerned with only one. This provision was contained in
clause (xiv) of S.10(2) which permitted a deduction.
"in
respect of any expenditure of a capital nature on scientific research related
to the business, an allowance for each of the Five consecutive previous year.
beginning
with the year in which the expenditure was incurred, or where the expenditure
was incurred prior to the commencement of the business, for each of the five
consecutive previous years beginning with the year in which the business was
commenced, equal 2to one-fifth of such expenditure:
Provided
that no allowance shall be made for any expenditure incurred more than three
years before the commencement of the business:
A
Provided further that- XXX XXX XXX (d) where a deduction is allowed for any
previous year under this clause in respect of expenditure represented wholly or
partly by any asset, no deduction shall be allowed under clause (vi) or clause
(vii) for the same previous year in respect of that asset;
(e)
where an asset is used in the business after it ceases to be used for
scientific research related to that business, and a claim for an allowance
under clause (vi) or clause (vii) is made in respect of that asset, the actual
cost to the assessee of the asset shall be treated as reduced by the amount of
any deductions allowed under this clause;" A cursory and conjoint reading
of section 10(2) (vi) and section 10(2) (xiv) suggests that where an assessee
incurs expenditure of a capital nature on scientific research related to the
business and the expenditure results in the acquisition of an asset, the
assessee can claim, under clause (vi), a deduction of the specified percentage
of the written down value of the asset and under clause (xiv) he can ask for a
deduction, in five consecutive years, of the expenditure he has incurred on the
acquisition of the asset. For this purpose, we are assuming that an asset used
for scientific research related to the business is also ipso facto an asset
used for the purpose of business. There has been some debate before us as to
whether this is always so but we need not enter into that controversy for the
purposes of the present case.
It will
at once be seen that, if these two provisions are applied simultaneously, it
would result in granting an assessee a double allowance in respect of the same
expenditure - one of the entire amount over a period of 5 years and the other a
percentage of the expenditure over a number . consecutive years at a graded
scale as already mentioned. The question at once leaps to the mind as to
whether it could have been the intention of the legislature to permit both
these deductions simultaneously to an assessee. The provisions of clauses (d)
and (e) of the proviso to S.10(2) (xiv) contain a clue to answer this question.
More about it later.
We
next turn to the provisions of 1961 Act. The topic of depreciation is dealt
with by section 32. Section 32(1) (ii) provides for depreciation. As under the
1922 Act, it is allowed at a percentage of the written down value of certain
capital assets employed in the bussiness. The topic of scientific research
expenditure is dealt with by section 35.
Section
35(1) provides for the deduction of four types of expenditure on scientific
research and what we are concerned with is the deduction provided under section
35(1) (iv), which is to the following effect:
(iv) in
respect of any expenditure of a capital nature on scientific research related
to the business carried on by the assessee, such deduction as may be admissible
under the provisions of sub- section (2)." Sub-section (2) provides that,
for the purposes of clause (iv)of sub-section (1), one-fifth of the capital
expenditure incurred in any previous year shall be deducted for that previous
year; and the balance of the expenditure shall be deducted in equal instalments
in each of the four immediately succeeding previous years. There is an
explanation which is not relevant for our present purposes.
Reading
S.35(2) further, it provides in clauses (iv) and (v) as follows:
"(iv)
where a deduction is allowed for any previous year under this section in
respect of expenditure represented wholly or partly by an asset, no deduction
shall be allowed under clauses (i), (ii) and (iii) of sub-section (1) of
section 32 for the same previous year in respect of that asset;
(v)
where the asset mentioned in clause (ii) is used in the business after it
ceases to be used for scientific research related to that business,
depreciation shall be admissible under clauses (i), (ii) and (iii) of
sub-section(1) of section 32." Reference must also be made to Explanation
1 to s. 43(1) in this context. It read as follows at the relevant time:
"Explanation:
Where an asset is used in business after it ceases to be used for scientific
research related to that business and a deduction has to be made under clause
(i), clause (ii) or clause (iii) of sub-section (I) or sub- section (1A) of
section 32 in respect of that asset, the actual cost of the asset to the
assessee, as reduced by the amount of any deduction allowed under clause (iv)
of sub-section (1) of section 35 or under any corresponding provision of the
Indian Income-tax Act, 1922 (11 of 1922)." From the above it will be seen
that the provisions of Section 32(1) (ii) and Section 35(2) (i) (iv) and (v)
read with Explanation 1 to s.43(1) virtually repeat the provisions contained in
Section 10(2) (vi) and 10(2)(xiv) of the 1922 Act, so that the question earlier
posed still loomed in the background of 1961 Act.
In
1968 there was an amendment in the provisions of Section 35(2). The sub-section
was amended to read as follows:
"(2)
For the purposes of clause (iv) of sub-section (1),- (i) in a case where such
capital expenditure is incurred before the 1st day of April, 1967, one-fifth of
the capital expenditure incurred in any previous year shall be deducted for
that previous year;
and
the balance of the expenditure shall be deducted in equal instalments for each
of the four immediately succeeding previous years;
(i-a)
in a case where such capital expenditure is incurred after the 31st day of
March, 1967, the whole of such capital expenditure incurred in any previous
year shall be deducted for that previous year." The effect of this
amendment was only to provided that the entire amount of capital expenditure
incurred in relation to scientific research was allowed as a deduction in one
year instead of being spread over a period of five years as was the position
earlier. This amendment does not touch the controversy in issue before us and
it has no solution to offer to our present difficulty.
The
provisions of Section 10(2) (vi) and (xiv) of the old Act had been administered
between 1946 and 1962 and the provisions of Section 32 and 35 of the 1961 Act
have been administered since 1962. The question whether an assessee can
simultaneously claim an allowance or deduction in respect of the same
expenditure once under Section 32 and again in Section 35 must have cropped up in
some cases and does appear that such a double claim was put forward in some
cases. The contention on behalf of the assessees was that the allowances in
respect of depreciation on the one hand and in respect of capital expenditure
on scientific research on the other are two totally different and independent
heads of allowances. one is a notional allowance to provide for the wear and
tear of a capital asset employed in the business as the years roll by; the
other is an allowance for actual expenditure of a capital nature granted, on
the eve of our country's independence, in order to give fillip to new
industrial innovations and the development of indigenous know-how and
techniques by proper planning on research and development by various business
houses. It is therefore suggested that there is nothing absurd in construing
the statutes act as providing cumulatively for both types of deductions in
respect of the same capital asset. The only limitations on this right are the
two placed by the statute itself. The first limitation, contained in clause (d)
of the proviso to Section 10(2) (xiv) and s.35(2) (iv) is that both the
deductions cannot be claimed "for the same previous year" in respect
of the same capital asset. The second limitation is found in clause (e) of the
proviso to Section 10(2) (xiv) and s.35(2) (v) which say that if a capital
asset used for scientific research ceases to be so used but is thereafter
brought into a business for use therein, the actual cost for purposes of
granting depreciation in respect of the asset thereafter should be taken as the
amount of its original cost reduced by the amount of deductions allowed under
Section 10(2) (xiv) or s.35(2). In other words, the contention of the assessee
was and is that both the types of allowances are permissible under the statute
except to the extent limited by clauses (d) and (e) of the proviso to Section
10(2) (xiv) of the 1922 Act and reproduced in clauses (iv) and (v) of Section
35(2) of the 1961 Act.
Before
us it is claimed on behalf of the assessee that this interpretation of the
statutory provisions is very clear, patent and unambiguous. It is alleged that
despite this, some Income-tax Officers started disallowing the claim of
depreciation in respect of such capital assets even in previous years during
which no deduction was claimed or allowed under Section 10(2) (xiv) or Section
35(2), contrary to the clear language of clause (d) of s.10(2) (xiv) and
s.35(2) (iv). These Of orders were reversed on appeal either by the Appellate
Commissioner or by the Tribunal. It was suggested that these decisions were
almost unanimously in favour of the assessee but the department persisted in
pursuing the matter upto the stage of the High Court. Only one reference on
this topic came up before the High Courts and is reflected in the decision of
the Karnataka High Court, reported as CIT v. Indian Telephone Industries Ltd.,
(1980) 126 I.T.R. 528. This was a reference of the year 1977 made at the
instance of the Commissioner of Income Tax and the Commissioner of Income Tax
lost this reference. The High (Sourt re-affirmed the position contended for by
the assessee as the one and only possible interpretation of the statutory
provisions. It is, therefore, contended that there was, and could have been, no
doubt that an assessee was entitled to claim depreciation allowance in respect
of such assets in respect of previous years other than those in which an
allowance had been allowed under the other head.
We
shall revert later to this aspect of the matter.
At
this stage, the Finance (No.2) Act, 1980 intervened.
It
amended section 35(2) (iv) to read as follows:
"(iv)
where a deduction is allowed for any previous year under this section in
respect of expenditure represented wholly or partly by an asset, no deduction
shall be allowed under clauses (i), (ii) and (iii) of sub-section (1) of
section 32 for the same or any other previous year in respect of that
asset." (Emphasis added) The Finance Act made this amendment retrospective
w.e.f. 1.4.62, that is, the date of the commencement of the 1961 Act. This
amendment is undoubtedly far-reaching in its effect. It will result in
completion of the pending assessments of several years on the footing of the
new provision. It will also involve re-opening or rectification of completed assessments
of earlier years, to the extent permissible under the provisions of sections
148 and 154, in cases where assessees had been granted "double
allowance" accepting their contention at the time of the original
assessments. The effect will be not for one assessment year but for a number of
assessment years in succession. Painting a very grim picture of the
consequences of giving full retrospective effect to the amendment, the
assessees say that it will impose unexpected and impossible burden on them over
the years. jeopardise their solvency and lay them open to action by creditor
and financial institutions. Such an onerous burden, it is said. is unreasonable
and oppressive and the provision imposing such burden violates the fundamental
rights of the assessees under Articles 14 and 19(1) (g) of the Constitution of
India. It is on this plea that, even though assessments and appeals are pending
in several of these cases, the petitioners chose to approach this Court by way
of writ petitions under Article 32 of the Constitution. These are mostly writ
petitions of the year 1981 and are now coming up for hearing after a period of
10 years.
Learned
counsel for the assessees do not contest the competence of the legislature to
enact the impugned provision, nor do they dispute the right of the legislature
to give retrospective effect to statutory provisions. The contention only is
that retrospective provisions may be permissible even in taxing statutes in
certain special circumstances such as in the case of provisions clarifying the
impact of a statute, provisions curing defective legislations in the light of
the judicial decisions and the like. They, however, say that if the legislature
chooses to impose a totally new burden, which was not at all in contemplation earlier
and proceeds to give full retrospective effect thereto, such an attempt should
be struck down as unreasonable and discriminatory. The principal questions,
therefore, for our consideration are:
1)
Were the earlier statutory provisions capable of only one interpretation,
namely, that placed by the assessees or was there any ambiguity in relation thereto
? (2) If there was some doubt or ambiguity about the earlier legislation, and
the 1980 Act clarified the position by a retrospective amendment, would it
offend the provisions of the Constitution ? (3) If, on the other hand, the
earlier provision was very clear and capable of only one interpretation, as
placed by the assessee, was the legislature within its rights in amending the
provision retrospectively w.e.f.
1.4.62
and thus imposing an unreasonable tax burden on the assessees? Taking up the
first of the three questions, it has to be considered from two angles, one
factual and the other, legal. An attempt was made on behalf of the petitioners
to project an image as if the interpretation sought to be placed by the
department on pre-1980 provisions to disallow depreciation on such assets was
so far-fetched that it never received the approval of the higher appellate
authorities.
It was
suggested that the appeals by assessees against the disallowance invariably
succeeded and it was the Department that had to move the High Court on
reference, the first of which references came up before the Karnataka High
Court in C.l.T. v. Indian Telephone Industries (1980) 126 I.T.R.
548
and was answered against the Department. On the basis of such allegations the
petitioners attempted to make out that the Department's interpretation was
patently untenable and that the 1980 amendment is not in the nature of a
statutory clarification of an ambiguity but a totally new and fresh imposition
sought to be unjustifiably given retrospective effect.
But,
as Shri B.B. Ahuja has pointed out on the basis of the averments of the
petitioner in one of the cases, viz., W.P.1153/81, the impression sought to be
created by the petitioners does not accord with the correct facts. The position
in the case is available only as it stood at the time when the writ petition
and the counter affidavit were filed and subsequent developments are not known.
Nevertheless,
the picture that emerges is this. In that case, the Income-tax Officer (I.T.O.)
is said to have allowed depreciation on assets used for scientific research,
for the assessment year 1969-70, though this is denied by the department. The claim
was perhaps disallowed by the I.T.O. for the assessment year 1970-71, but it
was allowed by the Allahabad Bench of the Income-tax Appellate Tribunal
(I.T.A.T.) by its order dated 30.8.76. For the assessment year 1971-72, the
I.T.O. disallowed the depreciation. The Appellate Assistant Commissioner
(A.A.C.) allowed it. The department appealed to the Delhi Bench of the I.T.A.T.
which accepted the department's plea by its order dated 13.8.79 placing
reliance on the decision of a Special Bench of the I.T.A.T. It has been stated
that the assessee filed an application for reference to the High Court which
was pending when the writ petition was filed. For the assessment years 1972-73
to 1974-75, the assessments are pending as a stay order had been obtained for reasons
which are not known. For the assessment years 1975-76 and 1976-77, the assessee
claimed depreciation on a number of items of scientific research assets. The
I.T.O. "allowed" the claims subject to the rider that "there is
no provision to give deduction of more than 100% of the expenditure by way of
depreciation". The assessee appealed to Commissioner of Income-tax
(Appeals) who disallowed the claim. For 1977-78, the l.T.O. disallowed the
claim and the C.l.T. dismissed the assessee's appeals. For assessment years
1978-79 to 1980-81, the assessments are stated to be pending. The above facts
are sufficient to show that, atleast after 1.4.1968, - there is no information
before us as to the position between 1.4.1946 and 31.3.1968 - the Department
has been putting forward its objections on the issue and that the same was the
subject matter of controversy at various appellate stages, some decided in
favour of, and some against, the assessee. A Special Bench of the l.T.A.T. had
indeed decided the issue against the assessee. In this background, it is not
correct to say that the position was crystal clear and that, save for a few
ITOs who took a biassed view, the authorities were all agreed that the
Department's stand was untenable. Some of the reported decisions also show that
there was a live controversy and that references have been made to the High
Court both at the instances or the assessees [see Alkali & Chemical
Corporation of India Ltd.
v.
C.l.T. (1986) 161 I.T.R. 820 (Cal.), and
C.I.T. v. Indian Explosives Ltd., (1992) 192 I.T.R. 144 (Cal.)], as well as at the instance of the Revenue [see,
C.I.T. v. International Instruments P. Ltd., (1983) 144 I.T.R. 936 (Kar.);
C.I.T. v.
Mahindra
Sintered Products Ltd. (1986) 161 I.T.R. 692 (Bom.) and Warner Hindustan Ltd.
v. CIT, (1988) 171 I.T.R. 224 (A.P.)]. The petitioner's contention that, under
the pre-amended provisions, depreciation on such assets was recognised allround
as clearly allowable is therefore rejected. We have dealt with this aspect only
to meet an aspect that was urged. What is really important is the true and
correct interpretation of those provisions, not what someone thought of it then
and to this aspect we shall now turn.
4 The
second aspect of the First of the three questions posed earlier for our
consideration is the legal or interpretational aspect of the provisions as they
stood prior to the 1980 Amendment. Under the provisions of the statute as they
stood earlier, could the assessees have claimed continued grant of depreciation
after the expiry of five previous years before the 1968 amendment and after the
expiry or the first year after the 1968 amendment, even though the entire cost
of the capital asset in question had been allowed to be written off completely
against the business profits of those five previous years or one previous year
as the case may be? We think the answer to this question must emphatically be
in the negative. In our view, it is impossible to conceive of the legislature
having envisaged a double deduction in respect of the same expenditure, even
though it is true that the two heads of deduction do not completely overlap and
there is some difference in the rationale of the two deductions under
consideration. On behalf of the assessees reliance is placed on the following circumstances
to support a contention that the statute did not intend one deduction to
preclude the other :
(i) lt
is pointed out that s.10(2) (xiv) of the 1922 Act, was inserted in 1946
consequent on the insertion of a corresponding provision in the United Kingdom. That provision, viz. s.20(4) of
the U.K. Finance Act, 1944 read thus :
(4)
Where a deduction is allowed for any year under this or the last preceding
section in respect of expenditure represented wholly or partly by any assets,
no deduction shall be allowed under any provisions of the Income-tax Act other
than this part of this Act in respect of wear and tear, obsolescence,
depreciation or exceptional depreciation of these assets for any year of
assessment during any part of which they are used by the person carrying on the
trade for scientific research related to the trade. " (emphasis supplied)
The Indian provision, it is said, has made a deliberate departure from the said
provision and limited the bar of depreciation only to those previous years
during which a deduction is allowed under S.10(2) (xiv);
(ii)
When the Income-tax Bill, 1961 was under the consideration of the Law
Commission, the provisions of S.10(2) (vi) and (xiv) were carefully reviewed.
But changes were made and the provisions of the new Act in this regard were
drafted in pari materia with those of the old Act ;
(iii)
The language used in clause (d) of the proviso to S.10(2) (xiv) and S.35(2)
(iv) again is significantly different from the language used in various other
provisions of the Act which, in like contexts of possible double allowances,
emphatically rule out deductions in respect of the same expense or exemptions
in respect of the same income under two different provisions for the same or
even any other assessment year : See, for example, Sections 20(2) 35B(2),
35C(2), 35CC(4), 35CCA(3), 35CCB(3), 35D(b), 35E(8), 80GGA(4), 80HH(9A),
80HHA(7) and 80HHB(S); and (iv) When the relevant provisions say that
depreciation shall not be allowed in certain previous years, it permits a disallowance
only in those previous years and means, by necessary implication, that it shall
be allowed in other years, if otherwise eligible on the language of the
provision for depreciation.
There
is an apparent plausibility about these arguments, particularly in the context
of the alleged departure in the language used by S.10(2)(xiv) from that
employed in S.20 of the U.K. Finance Act, 1944. We may, however, point out that
the last few underlined words of the English statute show that there is really
no difference between the English and Indian Acts; the former also in terms
prohibits depreciation only so long as the assets are used for scientific
research. In our opinion, the other provisions of the Act to which reference
has been made - some of which were inserted after the present controversy
started - are not helpful and we have to construe the real scope of the
provisions with which we are concerned. We think that all misconception will
vanish and all the provisions will fall into place, if we hear in mind a
fundamental, through unwritten, axiom that no legislature could have at all
intended a double deduction in regard to the same business outgoing, and if it
is intended it will be clearly expressed. In other words, in the absence of
clear statutory indication to the contrary, the statute should not be read so
as to permit an assessee two deductions both under S.10(2) (vi) and S.10(2)
(xiv) under the 1922 Act or under S.32(1)(ii) and 35(2)(iv) of the 1922 Act -
qua the same expenditure. Is then the use of the words "in respect of the
same previous year" in clause (d) of the proviso to S.10(2) (xiv) of the
1922 Act and S. 35(2) (iv) of the 1961 Act a contra-indication which permits a
disallowance of depreciation only in the previous years in which the other
allowance is actually allowed. We think the answer is an emphatic `no' and that
the purpose of the words above referred to is totally different. If, as
contended for by the assessees, there can be no objection in principle to
allowances being made under both the provisions as their nature and purpose are
different, then the interdict disallowing a double deduction will be
meaningless even in respect of the previous years for which deduction is
allowed under S.10(2) (xiv) /S.35 in respect of the same asset. If that were
the correct principle, The assessee should logically be entitled to deduction
by way of depreciation for all previous years including those for which
allowance have been granted under the provision relating to scientific
research. The statute does not permit this. The restriction imposed would,
therefore, be illogical and unjustified on the basis suggested by the
assessees. On the other hand, if we accept the principle we have outlined
earlier viz. that, there is a basic legislative scheme, unspoken but clearly
underlying the Act, that two allowances cannot be, and are not intended to be,
granted in respect of the same asset or expenditure, one will easily see the
necessity for the limitation imposed by the quoted words. For, in this view, where
the capital asset is one of the nature specified, the assessee can get only one
of the two allowances in question but not both. Then the question would arise
and might create a difficulty : in that event, which not the two allowance
should the assessee be granted - that which the assessee chooses or that which
the assessing officer might prefer? It is necessary for the statute to define
this and this is what has been done by the rider in clause (d) of the proviso
to S.10 (2) (xiv)/S.35(2) (iv). It mandates that the assessee should, in such a
case, be granted the special allowance for scientific research and not the
routine and annual one for depreciation. Clause (d) of the proviso to S.10(2)
(xiv) and S.30(2) (iv) thus fall into place as an appropriate and necessary
provision. The provision contained in clause (e) of the proviso to S.10(2)
(xiv) of the 1922 Act, re-enacted in Explanation, to S.43 (1) of the 1961 Act,
also reinforces this line of approach. It provides that the extent of capital
expenditure written off under the second of the above headings (whether it be
]00% under the post-1968 provision or 20%, 40%, 60%, 80% or 100% under the
pre-1968 provision) has to be pro-tanto deducted in ascertaining the actual
cost for purposes of depreciation. This provision militates, in our view,
against the petitioners, contention that the allowances under the two
provisions are by nature unconnected with, and independent of, each other. Its
effect is this. Suppose a person uses an asset for scientific research for
sometime and then brings it into his business for other use later, he would be
thereafter entitled to depreciation thereon only on the actual cost less
deduction allowed under S.10 (2) (xiv)/S.35. However, if the asset continues to
be used in scientific research related to the business, he would be entitled to
get depreciation on its full cost after the first few previous years during
which allowance is granted under those provisions. This seems to be anomalous
but Shri Ganesh says that there is no anomaly because this is a provision
intended to act as a disincentive to persons who purport to purchase assets for
scientific research but withdraw it from such use soon after. Granted that this
is so, still the deduction of the allowances given on scientific research
assets for computing depreciation is consistent only with the principle stated
by us that they are deductions basically of the same nature intended to enable
the assessee to write off certain items of capital expenditure against his
business profits. We may add that the report of the Chocksi Committee, on the
basis of which the 1980-amendment was effected only echoed the same view when
it said in para 3.29 of its report :
"3.29
Our attention has also been drawn to certain anomalous situations in the matter
of allowance of depreciation. In certain cases where a full deduction has been
allowed in relation to a capital asset under other sections (as for example,
section 35 which permits a deduction in respect of capital expenditure for
scientific research), the taxpayers have contended that such deduction is
independent of the allowance by way of depreciation. In our view, the intention
of the legislature is not to allow a double deduction (of 200%) in respect of
the same asset, once under section 35 and, again, by way of depreciation under
section 32. If and to the extent that there is any anomaly or contrary view
possible on a construction of section 35, we recommend that the law should be
clarified to provide that no depreciation under section 32 shall be allowable
in respect of capital expenditure for scientific research qualifying for
deduction under section 35." For the reasons discussed above, we are of
the view that, even before the 1980-amendment, the Act did not permit a
deduction for depreciation in respect of the cost of a capital asset acquired
for purposes of scientific research to the extent such cost has been written
off under S.10(2) (xiv)/35 (1) & (2). Prior to 1968, such assets qualified
for an allowance of one-fifth of the cost of the asset in five previous years
starting with that of its acquisition and during these years the assessee could
not get any depreciation in relation thereto. In respect of assets acquired in
previous year relevant to assessment year 1968-69 and thereafter, their cost
was written off in the previous year of acquisition and no depreciation could
be allowed in that year. This is clear from the statute.
Equally,
it is not envisaged, and indeed, it would be meaningless to say, that
depreciation could be allowed on them thereafter with a further absurdity that
it could be allowed starting with the original cost of the asset despite its
user for scientific research and the allowances made under the 'scientific
research' clause. In our view, there was no difficulty at all in the
interpretation of the provisions. The mere fact that a baseless claim was
raised by some over-enthusiastic assessees who sought a double allowance or
that such claim may perhaps have been accepted by some authorities is not
sufficient to attribute any ambiguity or doubt as to the true scope of the
provisions as they stood earlier. We are, for the reasons discussed above,
unable to approve of the cryptic view expressed by the Karnataka High Court in
C.I.T. v. Indian Telephone Industries Ltd., (1980) 126 I.T.R. 548 or the view
taken by the Bombay High Court in C.I.T. v. Hico Products, (1991) 187 I.T.R.
517.
In
view of the answer given by us to the first question posed by us, there is no
need to answer the second and third questions since, even without the
amendment, the assessees cannot claim the depreciation allowance in question.
The second question can arise only if it is assumed that there was an ambiguity
or doubt as to interpretation that was retrospectively clarified by the
legislature. But it is common ground before us that, even on this hypothesis,
the validity of the amendment cannot be challenged. This is indeed beyond all
doubt: See Rai Ramkrishna v. State of Bihar, [1964] 1 S.C.R. 897; Asst
Commissioner of Urban Land Tax v. Buckingham & Carnatic Co. Ltd., [1970] 1
S.C.R. 268;
Krishnamurthi
& Co. v. State of Madras, [1973] 2 S.C.R. 54;
Hira
Lal Rattan Lal v. Sales Tax Officer and Another, (1973) 31 S.T.C. 178 and Shiv
Dutt Rai Fateh Chand v. Union of India, (1984) 148 I.T.R. 644. Even the Bombay
decision inC.l.T. v. Hico Products, (1991) 187 I.T.R. 517 on which the
assessees heavily rely, concedes, in our opinion rightly, this position. The
assessees may have some possible case only if the earlier statutory provisions
can be said to have been unambiguously in favour of the assessee and the 1980
amendment had radically altered the provisions to cast a new and substantial
burden on the assessee with retrospective effect. It is this third alternative,
reflected by the third question posed by us, that was success fully urged
before the High Court by the assessees.
But we
are unable to accept this argument or conclusion. In our view, the first
question has to be answered by saying that the pre-1980 provisions were capable
of only one interpretation but that was as urged on behalf of the Revenue. The
1980-amendment has effected no change at all in the provision except to set out
more clearly and categorically what the provision said even earlier. In this
view, the second and third questions earlier posed do not arise.
For
the reasons discussed above, these Writ Petitions are dismissed. We, however,
make no order as to costs.
B.P
JEEVAN REDDY, J. I agree with my learned brother Ran- ganathan, J. that these
writ petitions should fall.
Having
regard to the nature and significance of the question raised herein, however, I
felt impelled to say a few words.
The
challenge in this batch of writ petitions is to the retrospective operation
given to the amended clause (iv) of sub-section (2) of Section 35 of Income Tax
Act, 1961, by the Finance (No.2) Act, 1980. The said Finance Act added the
words "or any other" in the said clause and gave it retrospective
effect from April 1, 1962. As amended, clause (iv) reads as follows:
"(iv)
- where a deduction is allowed for any previous year under this section in
respect of expenditure represented wholly or partly by an asset, no deduction
shall be allowed under clause (ii) or sub-section (1) of section 32 for the
same or any other previous year in respect of that asset." Learned Counsel
for the petitioners-assessees contended that the retrospective effect given to
the said amendment has the effect of taking away the rights vested in the
assessees by the unamended provisions, making them liable to pay huge amounts
by way of tax. Such payment, if enforced, has the effect of debilitating the
assessees, industries beyond recall. It is submitted that the retrospectivity
given to the said amendment is violative of the petitioners fundamental rights
guaranteed by Articles 19(1) (g) and 14 besides the guarantee in Article 300A.
In the
year 1946, clause (xiv) among other clauses was introduced in sub-section (2)
of Section 10 of the Indian Income-tax Act, 1922. It provided, for the first
time, that even expenditure of a capital nature laid out on scientific research
related to the business of the assessee shall be allowed to be deducted. The
deduction was hundred per cent spread over a period of five consecutive
previous years commencing from the previous year on which the expenditure was
incurred. Sub-clause (d) of clause (xiv) provided at the same time that
"where a deduction is allowed for any previous year under this clause in
respect of expenditure represented wholly or partly by any asset, no deduction
shall be allowed under clause(vi) or clause (vii) for the same previous year in
respect of that asset." The effect of sub-clause (d) was that if an
assessee claimed and was allowed a deduction in respect of expenditure of a
capital nature on scientific research, - and where such expenditure took the
shape of an asset, which in the normal course would be entitled to deduction on
account of depreciation under clauses (vi) and (vii) of Section 10(2) - no
depreciation would be allowed in respect of that asset in those respective
previous years. In other words, during the period of five previous years the
assessee was allowed the deduction under clause (xiv) of sub-section (2) of
section 10, claim for depreciation under clauses (vi) an/or (vii) of the same
sub-section was excluded.
In the
Income-tax Act, 1961, a similar provision was made in section 35. Clause (iv)
of sub-section (1) of section 35 provided for deduction of expenditure of a
capital nature incurred on scientific research related to the business carried
on by the assessee. Sub-section (2) of Section 35 set out the manner in which
and the terms subject to which the deduction was to be allowed. As enacted in
1961, sub-section (2) provided, - as was done by clause (xiv) of Section 10(2)
of the 1922 Act - that the said deduction shall be allowed in equal measure in
five consecutive previous years, commencing from the previous year in which the
expenditure was incurred. In the year 1967, however, sub-section (2) was
amended, providing for full deduction of the expenditure in the very previous
year in which such expenditure was incurred. Clause (iv) of sub section (2),
however, remained unchanged. Clause (iv) declares that where a deduction is
allowed for any previous year under the said section in respect of expenditure represented
wholly or partly by an asset, no deduction shall be allowed under clauses (i),
(ii) and (iii) of sub-section (I) or under sub-section (1A) of section 32 for
the same previous year in respect of that asset. Thus, the position obtaining
under the 1922 Act and the previous Act is the same, with the difference that
if such expenditure is incurred after April 1, 1967, hundred per cent deduction
was granted in the very previous year in which the asset (representing the
capital expenditure of the nature mentioned in clause (iv) of sub-section (1)
of Section 35) is acquired.
The
Revenue says that the deduction provided by Section 35(1) (iv) is in the
alternative to the deduction provided by clauses (i), (ii) and (iii) of
sub-section (1) and sub- section (1A) of Section 32. If one is availed of, the
other is not available, not only during the year or years in which the
deduction under Section 35(1) (iv) is availed of, but permanently. The reason,
according to them, is obvious: if both are allowed to be availed of, it amounts
to grant of 200% deduction viz., 100% under Section-35 (1) (iv) and another
100% under sub-sections (1) and (1A) of Section 32.
This
is totally outside the contemplation of the Act, they say. On the other hand,
the case of the asssessees is that the bar created by clause (iv) of
sub-section (2) applies only to that previous year or those previous years
during which the said expenditure is allowed as a deduction. That is the
express language of the clause. The bar does not extend beyond the year or
years in which the deduction under Section 35(1) (iv) is availed. There is no
reason - more so in a taxing enactment - to extend the said bar beyond the
limit prescribed by the statute. They say, if the intention of the Parliament
was to bar the claim of depreciation in respect of such asset for all time to
come, nothing was easier than to say so in clear words, as was done by sub
section (4), of section 20 of U.K. Finance Act, 1944. It is pointed out that
clause (xiv) of sub-section (2) of section 10 was introduced in the Indian
Income-tax Act within two years of the introduction of a similar provision in
the English Act, evidently inspired by the Amendment in the English Act. But
while incorporating the said provision, a conscious, departure was made by the
Indian Legislature, say the assessees. Having regard to the scant investment in
scientific research in India, it is submitted, the legislature must have
thought it necessary to provide an additional inducement over and above the
deduction on account of depreciation. Considerations of equity have no place in
the interpretation of a taxing enactments, they say further.
I find
it difficult to agree with the reasoning of the assessees. Acceding to it would
amount to placing an unreasonable interpretation upon the relevant provisions
and to negating the intention of Parliament. I find it difficult to agree that
the Indian Legislature - as also the Parliament made a conscious departure from
the English Amendment with the idea of providing an additional benefit to
induce the Indian assessees to invest more in scientific research. I find the
argument rather convoluted. If the intention of the Legislature/Parliament was
to provide more than 100% deduction, they would have said so, as they have done
in cases where they provided for what is called weighted deduction'. (For
example, See Section 35(B) of 1961 Act). A double deduction cannot be a matter
of inference, it must be provided for in clear and express language. regard
having to its unusual nature and its serious impact on the Revenues of the
State. Now, what does clause (iv) of Section 35(2) say? It says that during the
years or the year in which the assessee avails of the deduction under Section
35(1 ) (iv) he shall not avail of the deduction on account of depreciation
provided by clauses (i), (ii) and (iii) of sub-section (1) and sub-section (1A)
of Section 32. What could be the underlying reason? It is obviously to ensure
that the assessee doesn't get double deduction. Take a case where the asset was
acquired prior to April 1,1957. The deduction under Section 35(1) (iv) would be
allowed in five consecutive years. If during the very five previous years,
depreciation under the aforementioned provisions is also allowed, the assessee
would obtain, at the end of five years, a double depreciation i.e., 100% under
Section 35 and almost 100% under Section 32. (It may be noted that in many
cases, the rate of depreciation under Section 32 is 20% or even higher). If
such a course was barred by clause (iv) during the initial five years, would it
be reasonable to say that same thing can be achieved by claiming the deduction
after the expiry of five years? If both the deductions are in the alternative,
as indicated by clause (iv), they must be understood as being in the
alternative and not consecutive. It would be a rather curious thing to say (in
the case of an asset acquired prior to April 1, 1967) that Parliament barred
claim for depreciation under Section 32 even in the first year when only 20% of
the cost of the asset is allowed as deduction under Section 35(1) (iv), it
barred it in the second, third and fourth years, when the deduction has reached
40, 60 and 80 per cent, but permitted it be claimed after the fifth year, by
which year the entire 100% cost was allowed as a deduction. No express
provision was necessary to say what is so obvious. The position after April 1,
1967 is no different.
That
the aforesaid view is the correct one is indicated by Explanation (1) to clause
(1) of section 43 [the corresponding provision in the 1922 Act being sub-clause
(e) of clause (xiv) of Section 10(2)]. Clause (1) of section 43 defines the
expression `actual cost'. Explanation (1) appended , to the definition says
"Where an asset is used in the business after it ceases to be used for
scientific research related to that business and a deduction has to be made
under clause (ii) of sub-section (1) of section 32 in respect of that asset,
the actual cost of the asset to the assessee shall be the actual cost to the
assessee as reduced by the amount of any deduction allowed under clause (iv) of
sub-section (1) of section 35 or under any corresponding provision of the
Indian Income-tax Act, 1922 (11 of 1922)." Now what does this mean? Take a
case where the asset of a like nature acquired prior to April 1, 1967 is
diverted to other purposes after the expiry of two previous years; the `actual
cost' of the asset to the assessee in such a case would be 60% of the original
cost. And if it is diverted after five years, it would be nil which means that
the assessee cannot claim any depreciation on it at all.
Counsel
for the assessee explains this provision to say that it was meant to prevent
diversion of such an asset from scientific research to assessee's business
purposes. The explanation does not stand scrutiny. The fallacy in the
explanation can be demonstrated by taking the very same illustration, where the
asset is acquired prior to April 1, 1967. Suppose, such an asset is diverted
after first two previous years, its `actual cost' to the assessee would be 60%
of the original cost, which alone would qualify for deduction under Section
32(1) and (1A). The remaining 40% would not. This 40% goes without earning any
depreciation.
Why is
it so, if the assessees are right in saying what they do. According to their
reasoning, this 40% too should qualify for depreciation. The fallacy in their
argument would become clearer, if the diversion is at the end of the fifth
year.
That
the Parliament never intended to provide for a double deduction is also the
opinion of the Direct Tax Law Committee. In its interim report, (December,
1977) the Committee (popularly known as 'Choksi Committee') had this to say in
para 3.29 of its report:
"3.29.-
Our attention has also been drawn to certain anomalous situations in the matter
of allowance of depreciation. In certain cases where a full deduction has been
allowed in relation to a capital asset under other sections (as for example,
section 35 which permits a deduction in respect of capital expenditure for scientific
research), the tax payers have contended that such deduction is independent of
the allowance by way of depreciation. In our view, the intention of the
legislature is not to allow a double deduction (of 20%) in respect of the same
asset, once under section 35 and, again, by way of depreciation under section
32. If and to the extent that there is any anomaly or contrary view possible on
a construction of section 35, we recommend that the law should be clarified to
provide that no depreciation under section 32 shall be allowable in respect of
capital expenditure for scientificresearch qualifying for deduction under
section 35." lt is evidently on the basis of this recommendation that
clause (iv) of sub-section (2) of section 35 was amended to make express what
was implicit in it. The amendment introduced the words "or any other"
in the said clause. After amendment, clause (iv) of section 35 (2) reads as
follows: "where a deduction is allowed for any previous year under this
section in respect of expenditure represented wholly or partly by an asset, no
deduction shall be allowed under clause (ii) of sub-section (1) of section 32
for the same or any other previous year in respect of that asset." In our
opinion the said amendment is merely clarificatory in nature. It makes explicit
what was implicit in the provisions. Question of its constitutionality,
therefore, does not arise. Though purporting to be retrospective, it does not
take away any rights which had legally vested in the assessees.
The
Bombay High Court has struck down the said amendment of clause (iv) in
Commissioner of Income Tax v. Hico Products Pvt. Ltd., 187 I.T.R. 517. The
approach of the Bombay High Court is at variance with ours. It has practically
accepted the line of reasoning put forward by the assessees which has not
commended to us. Among other reasons, the High Court was impressed by the
difference in the language employed in Section 10(2)(xiv)(d) and the one
employed in Section 20 (4) of the U.K.Finance Act, which reads as follows:
"(4)
Where a deduction is allowed for any year under this or the last preceding
section in respect of expenditure represented wholly or partly by any assets,
no deduction shall be allowed under any provisions of the Income-tax Act other
than this part of this Act in respect of wear and tear, absolescence,
depreciation or exceptional depreciation of these assets for any year of
assessment during any part of which they are used by the person carrying on the
trade for scientific research related to the trade." It is apparent that
the scheme and structure of the English provision is different than ours, as
has been demonstrated by my learned brother G Ranganathan, J.
So far
as the arguments of taking away of vested rights is concerned, it is evident
from the facts stated in the writ petition 1153/81 - which was treated as
representative of the facts and contentions in all the writ petitions and with
reference to which facts were arguments addressed itself that none of the
assessments relating to any of the assessment years concerned herein has become
final. They are pending at one or the other stage and in one or the other
forum. I need not dilate upon this aspect inasmuch as the impugned amendment
merely makes explicit what was implicit in the unamended clause, as explained
hereinabove. In such a situation, the argument of any right vesting in the
assessees is misplaced.
The
writ petitions accordingly fail and are dismissed.
No
costs.
N.P.V.
Petitions dismissed.
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