Commissioner
of Income Tax Vs. Mahendra Mills [2000] INSC 135 (15 March 2000)
D.P.Wadhwa,
S.S.M.Quadri
D.P.
WADHWA, J.
A
common question of law arises in these appeals. It is:
"Whether,
on the facts and in the circumstances of the case, the Tribunal was right in
coming to the conclusion that the Income-tax Officer could not grant
depreciation allowance to the assessee under the Income-tax Act, 1961 when the
same was not claimed by the assesse?" The question was referred at the
instance of Revenue to the High Court by the Income Tax Appellate Tribunal
('Tribunal' for short) for its opinion and answered in affirmative in favour of
the assessee and against the Revenue. This question has been answered
differently by various High Courts one in favour of the assessee and the other
in favour of the Revenue.
Section
32 has since been amended by the Taxation Laws (Amendment and Miscellaneous
Provisions) Act, 1986, with effect from 1.4.1988. However, the answer to the
question remains of substantial importance as various matters are stated to be
pending in the High Courts relating to Assessment Years prior to 1.4.1988.
Section 32 as it stood prior to 1.4.1988, in relevant part, is as under :
"32.
(1) In respect of depreciation of buildings, machinery, plant or furniture
owned by the assessee and used for the purposes of the business or profession,
the following deductions shall, subject to the provisions of section 34, be
allowed (i) ............
(ii)
in the case of buildings, machinery, plant or furniture, other than ships
covered by clause (i), such percentage on the written down value thereof as may
in any case or class of cases be prescribed:
Provided
that where the actual cost of any machinery or plant does not exceed seven
hundred and fifty rupees, the actual cost thereof shall be allowed as a
deduction in respect of the previous year in which such machinery or plant is
first put to use by the assessee for the purposes of his business or
profession:
Provided
further that no deduction shall be allowed under this clause or clause (iii) in
respect of any motor-car manufactured outside India, where such motor-car is
acquired by the assessee after the 28th day of February, 1975, and is used
otherwise than in a business of running it on hire for tourists;" "32(2)
Where, in the assessment of the assessee (or, if the assessee is a registered
firm or an unregistered firm assessed as a registered firm, in the assessment
of its partners), full effect cannot be given to any allowance under clause (i)
or clause (ii) or clause (iia) or clause (iv) or clause (v) or clause (vi) of
sub-section (1) or under clause (i) of sub-section (1A) in any previous year,
owing to there being no profits or gains chargeable for that previous year, or
owing to the profits or gains chargeable being less than the allowance, then,
subject to the provisions of sub- section (2) of section 72 and sub-section (3)
of section 73, the allowance or part of the allowance to which effect has not
been given, as the case may be, shall be added to the amount of the allowance
for depreciation for the following previous year and deemed to be part of that
allowance, or if there is no such allowance for that previous year, be deemed
to be the allowance for that previous year, and so on for the succeeding
previous years." We may also quote Sections 28 and 29 :
"28.
The following income shall be chargeable to income-tax under the head
"Profits and gains of business or profession", - (i) the profits and
gains of any business or profession which was carried on by the assessee at any
time during the previous year;
(ii)
any compensation or other payment due to or received by, - (a) any person, by
whatever name, called, managing the whole or substantially the whole of the
affairs of an Indian company, at or in connection with the termination of his
management or the modification of the terms and conditions relating thereto;
(b) any
person, by whatever name called, managing the whole or substantially the whole
of the affairs in India of any other company, at or in
connection with the termination of his office or the modification of the terms
and conditions relating thereto;
(c)
any person, by whatever name called, holding an agency in India for any part of
the activities relating to the business of any other person, at or in connection
with the termination of the agency or the modification of the terms and
conditions relating thereto;
(d)
any person, for or in connection with the vesting in the Government, or in any
corporation owned or controlled by the Government, under any law for the time
being in force, of the management of any property or business;
(iii) income
derived by a trade, professional or similar association from specific services
performed for its members;
(iv) the
value of any benefit or perquisite, whether convertible into money or not,
arising from business or the exercise of a profession.
"Income
from profits and gains of business or profession, how computed
29.
The income referred to in section 28 shall be computed in accordance with the
provisions contained in sections 30 to 43A." Assessee is a company and
maintains accounts on mercantile basis. For the assessment year 1974-75,
assessee did not claim any depreciation. Income-tax Officer, however, allowed
depreciation. Assessee appealed to CIT (Appeals) who allowed the appeal.
Revenue then took the matter to the Tribunal which dismissed the appeal of the
Revenue. At the instance of the Revenue, the question of law as set out in the
beginning of the judgment was referred to the Gujarat High Court for its
opinion. High Court by the impugned judgment following its earlier decision in
Chokshi Metal Refinery vs. Commissioner of Income-Tax, Gujarat-II [(1977) 107
ITR 63 (Guj)] answered the question in affirmative, in favour of the assessee
and against the Revenue. Aggrieved, revenue has come to this Court.
Income-tax
Officer in Assessment Order noted that assessee did not claim current
depreciation. It was contended before him that the allowance of depreciation is
a right given to the assessee and like all other rights and privileges assessee
has full freedom to claim or not to claim it and that right cannot be a burden.
A privilege cannot be to a disadvantage and an option cannot become an
obligation.
Income-tax
Officer did not accept the contention of the assessee and computed the current
depreciation for a sum of Rs.37,61,652/- which he allowed. Mr. Verma, learned
senior counsel for the Revenue submitted that Sections 28, 29 and 32(1) and
32(2) are to be read together and so read, depreciation had to be allowed under
law and it is not relevant if it is claimed by the assessee or not. He said
there is conflict of judgments of the High Courts. While some judgments support
the view canvassed by him, others support the view of the assessee. Section 28
lays down as to what Income shall be chargeable to income tax under the head
"Profits and gains of business or profession" and Section 29 mandates
that income referred to in Section 28 shall be computed in accordance with the
provisions contained in Sections 30 to 43A. That being the law, Income- tax
Officer was bound to allow depreciation whether the assessee chooses to claim
the same or not. To arrive at the profit, depreciation has to be deducted
commercially, accountably as well as statutorily. Written down value of the
plant and machinery for the next year will have to be claimed which cannot be
the written down value of the current year. Sub- section (2) of Section 32
prescribes mechanism as to how the deduction is to be allowed. Mr.
Verma
said if the claim for depreciation was a case of choice for the assessee, it
would negate the decision of this Court in Commissioner of Income-Tax, Calcutta vs.
Jaipuria
China Clay Mines (P) Ltd. [(1966) 59 ITR 555 (SC)] and Garden Silk Weaving
Factory vs. Commissioner of Income-tax [(1991) 189 ITR 512 (SC)]. Income-tax
Officer during the course of assessment can call for the records.
Mr.
Verma said that during the course of assessment proceedings, Income-tax Officer
can call for the account books of the assessee, look into the same and
calculate the depreciation allowable under Section 32. To carry forward loss
one has to arrive at the net income which can be done only after adjusting
depreciation though now after change in law depreciation cannot be carried
forward beyond certain years. Mr. Verma submitted that looking at the language
used in Section 29 the Income-tax Officer is duty bound to allow depreciation
in order to compute the income referred to in Section 28 of the Act which he is
to do keeping in view of the provisions contained in Sections 30 to 43 (now
Section 43D). The assessee need not make any claim for depreciation of the
current year. It is admissible under the law. Section 32 only requires as to
how the allowance of depreciation is to be quantified. As any claim of
depreciation made by the assessee is not binding on the Income-tax Officer
similarly not to claim the same is also not binding on the Income- tax Officer
and he can from the available material allow admissible deduction for the
current year in arriving at the true income of the assessee.
Mr.
Dastur, who on our request appeared as amicus curiae, submitted that view
canvassed by the Revenue is not correct. He said if the assessee does not claim
depreciation or does not furnish particulars for claiming depreciation as prescribed
under Section 34 of the Act in his return of income, depreciation cannot be
thrust upon him. To get depreciation allowance, there must be a claim for that
under Section 32 which would subject to furnishing of particulars under Section
34 of the Act. The word "furnishing" in Section 34 would mean 'what
is given voluntarily'. Section 34 of the Act prescribes conditions for
depreciation allowance. Sub-section (1) of Section 34 is relevant and it is as
under : "34.(1) The deductions referred to in sub-section (1) of
sub-section (1A) of section 32 shall be allowed only if the prescribed
particulars have been furnished; and the deduction referred to in section 33
shall be allowed only if the particulars prescribed for the purpose of clause
(i) and clause (ii) of sub-section (1) of section 32 have been furnished by the
assessee in respect of the ship or machinery or plant." Mr. Dastur
referred to a circular of the Central Board of Direct Taxes (CBDT) which
provides that depreciation could not have been allowed. Circular of the Central
Board of Revenue (No. 29D (XIX-14) of 1965, F. No.
45/239/65.ITJ
dated August 31, 1965) was to the effect that "where
the required particulars have not been furnished by the assessee and no claim
for depreciation has been made in the return, the Income-tax Officer should
estimate the income without allowing depreciation allowance". Thus, unless
the particulars of depreciation are furnished, no depreciation allowance could
be allowed. He referred to yet another circular of the CBDT which provides that
it is the duty of the Income Tax Officer to advise the assessee of his right to
claim depreciation etc. but that would arise only if the assessee is ignorant
of his right. Moreover, the duty of the Income Tax Officer is to give advice to
the assessee of his right and no more. The circular of the Central Board of
Revenue (No. 14 (SL- 35) of 1955 dated April 11, 1955) required the officers of
the department "to assist a taxpayer in every reasonable way, particularly
in the matter of claiming and securing reliefs. ....
Although,
therefore, the responsibility for claiming refunds and reliefs rests with the
assessees on whom it is imposed by law, officers should (a) draw their
attention to any refunds or reliefs to which they appear to be clearly entitled
but which they have omitted to claim for some reason or other......" When
there are two provisions under which an assessee could claim some benefit, it
is for the assessee to choose one. Reference was made to claim for medical
reimbursement for the current year which is different than claim for
depreciation. This is so because depreciation is a claim on written down value
and if depreciation is not claimed in the current year, written down value
would remain the same for the following year.
Prior
to the amendment of Section 32 business loss could be carried forward for eight
years. There was no time limit for the claiming of depreciation. This is not so
now.
Earlier,
therefore, it was always for the assessee to claim business loss first and current
depreciation thereafter if he so desired. There was, thus, basic difference in
carry forward loss and carry forward unabsorbed depreciation. Mr.
Dastur
said it is not correct to say that if the contention of the assessee is
correct, that would negate the decision of the Supreme Court in the cases of
CIT vs. Jaipuria China Clay Mines [59 ITR 555] and Garden Silk Weaving Factory
vs.
CIT
[189 ITR 512]. He then referred to Rule 5AA in the Income Tax Rules, 1962
(Rules) which was inserted by the Income Tax (Amendment) Rules, 1981 with
effect from April 1,
1981. It was omitted
by Income Tax (Third Amendment) Rules, 1987 with effect from April 2, 1987. Rule 5AA is as under:
-
"5AA. (1) For the purposes of the deduction referred to in sub-section (1)
or sub-section (1A) of section 32 and sub-section (1) of section 32A, the
following particulars shall be furnished in a columnar form, namely: - (i)
description of assets in respect of building, indicate whether the building is
taken on lease or is owned by the assessee;
(ii) written
down value of existing assets;
(iii) actual
cost of assets acquired during the previous year;
(iv) capital
expenditure on additions or alterations;
(v) period
of user only where return relates to assessment year 1969-70 or any earlier year;
(vi) amount
of moneys payable and scrap value in respect of assets sold, discarded,
demolished or destroyed;
(vii) amount
on which depreciation is allowable total of items (ii) to (iv) exclusive of
amounts relating to assets referred to in item (vi);
(viii)
rate of depreciation;
(ix) total
number of days worked to be furnished only if extra shift allowance is claimed;
(x) total
number of days worked double shift and triple shift (to be furnished only if
extra shift allowance is claimed);
(xi) depreciation
claimed (a) initial depreciation;
(b) normal
depreciation (including extra depreciation for approved hotels);
(c) additional
depreciation;
(d)
extra-shift allowance double shift and triple shift;
(xii) total
depreciation;
(xiii)
investment allowance claimed (also indicate rate);
(xiv) remarks
(indicate the amount of initial depreciation, investment allowance or
development rebate allowed in respect of the assets in an earlier year).
(2)
Where the depreciation in respect of any asset is not admissible as a deduction
under clause (ii) of sub- section (4) of section 37 or sub-clause (ii) of
clause (c) of section 40 or sub-clause (ii) of clause (a) of sub- section (5)
of section 40A, such depreciation shall be excluded for the purposes of
sub-rule (1)." This Rule 5AA prescribed the particulars for depreciation
necessary to be furnished for allowance of depreciation. Prior to insertion of
Rule 5AA return of income tax in the form prescribed itself required
particulars to be furnished if the assessee claimed depreciation. Mr. Dastur
said that the case set up by the assessee before the Income Tax Officer was
correct. It was wrong on the part of the Income Tax Officer to refuse
depreciation in the face of the provision of law to the contrary. He said that
calling the books of the assessee for the purpose of computing depreciation is
of no relevance inasmuch as depreciation in the books cannot necessarily be the
amount of depreciation which is allowable under the Act.
Section
37 also uses the words "shall be allowed in computing the income
chargeable". Under this Section any expenditure which is not expenditure
as described in Sections 30 to 36 and is also not in the nature of capital
expenditure or personal expenses and laid out or expended wholly or exclusively
for the purpose of business or profession of the assessee shall be allowed in
computing the income chargeable under the head "Profits and gains of
business or profession". It was submitted that expenditure can be allowed
only if it is claimed. Similar is the language used in Section 34 of the Act.
Here also depreciation can be allowed only if it is claimed after giving
necessary particulars as required in a return of income, which is to be
submitted in the form prescribed. If reference is made to the form of return
relevant at the time, complete details are required to be given for the purpose
of claiming depreciation. This is under the heading "Statement of
particulars under Section 32A(4)/34(1) regarding investment allowance,
depreciation and development rebate".
The
provisions contained in Sections 34 and 37 were contrasted with Section 16
which deals with deduction from salary. The language here is "the income
chargeable under the head "salary" shall be computed after making the
following deductions namely: -".
Mr.
Dastur like Mr. Verma also referred to judgments of the High Courts giving
diverse views. High Courts of Allahabad and Madras supported the view canvassed by the
Revenue while the High Courts of Bombay, Gujarat, Punjab and Haryana, Karnataka, Andhra Pradesh,
Calcutta and Kerala supported the case of
the assessee. We may now refer to some of the judgments cited at the Bar
beginning with Jaipuria China Clay Mines and Garden Silk Weaving Factory cases.
Commissioner of Income Tax, Calcutta vs.
Jaipuria China Clay Mines (P) Ltd. [(1966) 59 ITR 555 (SC)] was a case under
the Income Tax Act, 1922. The question which came up for consideration before
this Court was: "whether, in the facts and circumstances of the case, the
unabsorbed depreciation of the past years should be added to the depreciation
of the current year and the aggregate of the unabsorbed depreciation of the
current year and the aggregate of the unabsorbed depreciation and the current
year's depreciation be deducted from the total income of the previous year
relevant for the assessment year 1952-53?" The Court noted the following
facts in the case :
"The
Income-tax Officer assessing the respondent, M/s.
Jaipuria
China Clay Mines (P) Ltd., Calcutta,
hereinafter referred to as "the assessee" for the year 1952-53
computed its total income at Rs.14,041 before charging depreciation for that
year. From that figure he deducted depreciation for the year amounting to Rs.5,350,
thus computing a profit of Rs.8,681. From this figure he deducted an equivalent
amount, i.e., Rs.8,681, in respect of losses during 1947-48, and he thus worked
out the business income as nil. He then computed the dividend income at Rs.2,01,130
and determined the total income at this figure and levied tax on it. The
assessee had in its favour an unabsorbed depreciation aggregating to Rs.76,857
and it contended before the Income-tax Officer that this sum should be deducted
from the income received from dividends, which, if done, would reduce the total
income to Rs.1,32,955, but the Income-tax Officer refused to accede to this
contention. The Appellate Assistant Commissioner upheld the order of the
Income-tax Officer and the assessee's appeal to the Appellate Tribunal met with
the same fate. The High Court, however, accepted the contention of the assessee
and answered the question referred to it in favour of the assessee." The
Court said that the answer to the question depended upon the interpretation of
Sections 6, 10 and 24 of the 1922 Act. The Court also observed that it was
concerned with the law as it stood on April 1, 1952. It analysed the sections
stating that the scheme of the Act is that the tax is levied in respect of the
total income of the previous year of every individual, Hindu undivided family,
etc., and the total income consists of income under various heads such as
Salaries, Interest on securities, Income from property, Profits and gains of
business, profession or vocation, and Income from other sources and Capital
gains. Various sections deal with how income, profits and gains under each head
have to be computed. Section 10 deals with the computation of profits and gains
of any business carried on by an assessee. Section 10(2) prescribes the
allowances which have to be deducted before computing the profits and gains;
one of the allowances is "depreciation", and this is provided under
sub-clause (vi). Section 24 provides for set-off of losses in computing
aggregate income. After referring to proviso (b) to Section 10(2)(vi) this
Court observed: "Apart from authority, looking at the Act as it stood on
April 1, 1952, it is clear that the underlying idea of the Act is to assess the
total income of an assessee.
Prima
facie, it would be unfair to compute the total income of an assessee carrying
on business without pooling the income from business with the income or loss
under other heads. The second consideration which is relevant is that the Act
draws no express distinction between the various allowances mentioned in
section 10(2). They all have to be deducted from the gross profits and gains of
a business.
According
to commercial principles, depreciation would be shown in the accounts and the
profit and loss account would reflect the depreciation accounted for in the
accounts. If the profits are not large enough to wipe off depreciation, the
profit and loss account would show a loss. Therefore, apart from proviso (b) to
section 10(2)(vi), neither the Act nor commercial principles draw any
distinction between the various allowances mentioned in section 10(2); the only
distinction is that while the other allowances may be outgoings, depreciation
is not an actual outgoing." Proviso (b) to Section 10(2)(vi) is as under:
- "(b) where, in the assessment of the assessee or if the assessee is a
registered firm, in the assessment of its partners, full effect cannot be given
to any such allowance in any year not being a year which ended prior to the 1st
day of April, 1939, owing to there being no profits or gains chargeable for
that year, or owing to the profits or gains chargeable being less than the
allowance, then, subject to the provisions of clause (b) of the proviso to
sub-section (2) of section 24, the allowance or part of the allowance to which
effect has not been given, as the case may be, shall be added to the amount of
the allowance for depreciation for the following year and deemed to be part of
that allowance for depreciation for the following year and deemed to be part of
that allowance, or if there is no such allowance for that year, be deemed to be
the allowance for that year, and so on for succeeding years." In
conclusion this Court agreed with the High Court and answered the question in
favour of the assessee. In Garden Silk Weaving Factory vs. Commissioner of
Income-Tax [(1991) 189 ITR 512 (SC)] questions before this Court were:
"(1)
Whether, on the facts and in the circumstances of the case, the Tribunal was
right in law in holding that the assessee, a registered firm, is entitled to
carry forward unabsorbed depreciation from earlier years and that it will be
deemed to be an allowance in the nature of depreciation in the previous year
relevant to the assessement year 1968-69? (2) Whether the claim of the assessee
to carry forward and set off loss of Rs.3,49,242 against its total income for
the assessment year 1968-69 has been rightly rejected?" It will be seen
that the issues which were before the Court are not the same which we are now
considering. In the case of Garden Silk Weaving Factory reliance was again
placed on the earlier decision of this Court in Jaipuria China Clay Mines (P)
Ltd.'s case. The whole stress of argument of Mr. Verma was that net income has
to be ascertained and for that purpose Income Tax Officer is duty bound to look
into the amount of depreciation available for that assessment year and to allow
credit for the same to arrive at the net income. This, he said, would be so
irrespective whether the assessee has claimed depreciation or not and whether
particulars of depreciation have been furnished or not. We do not think these
two judgments of this Court on which strong reliance was placed by Mr. Verma
advance his case. Issues in those cases were entirely different having no
bearing on the question before us. CIT vs. Dharampur Leather Co. Ltd. [(1966)
60 ITR 165 (SC)] was a case under the Income-tax Act, 1922. Sub-section (1) of
section 10 deals with the tax payable by an assessee in respect of the profits
or gains of any business, profession or vocation carried on by him. Sub-section
(2) requires such profits or gains to be computed after making the allowances
therein set out. Clause (vi) thereof speaks of allowances in respect of
depreciation of buildings, machinery, plant, etc., and the proviso (a) to
clause (vi) reads thus: "Provided that the prescribed particulars have
been duly furnished". In proceedings for the Assessment Year 1955-56, the
Income-tax Officer held that depreciation must be computed as if income of the
assessee had been worked out properly in the earlier years when it was exempted
and depreciation had been allowed at the usual rates. It was contended by the
assessee that no depreciation had in fact been actually allowed to the assessee
in any earlier years and, therefore, the depreciation should be computed on the
original cost of various items of plant and machinery and other assets of the
assessee. The Income-tax Officer, however, rejected this contention and held
that depreciation must be computed on the written down values of machinery
computed as if the income of the assessee had been worked out properly in the
years when the company was exempted and the depreciation being allowed at the
usual rates. The assessee failed before the Appellate Assistant Commissioner
and the Appellate Tribunal. The Appellate Tribunal held that the words
"actually allowed" in section 10(5)(b) of the Act were wide enough to
cover the case of the assessee. The High Court, however, held that if in the
prior years no depreciation had been actually allowed then the actual cost
incurred by the assessee for acquiring the machinery would be the written down
value of the machinery. This Court rejected the contention of the Revenue that
on a proper interpretation of Section 10(5)(b) of the Act the depreciation must
be deemed to have been allowed to the assessee for the years in which the
income of the assessee was exempted. The Court interpreted the words
"actually allowed" occurring in Section 10(5)(b) to hold that the
words "actually allowed" did not include any notional allowance. In
Beco Engineering Co. Ltd. vs. CIT [(1984) 148 ITR 478 (P&H)] assessee
claimed depreciation in its original return. Later he filed a revised return in
which he withdrew the claim for depreciation. Income-tax Officer was of the
view that it was statutorily binding upon him to compute the total income which
must take into consideration the deduction of depreciation allowance. High
Court held that in case the assessee had not claimed depreciation allowance he
could not be granted the same by the Income-tax Officer. In regard to the
revised return High Court took the view that the original return could not be
adverted to.
In CIT
vs. Shri Someshwar Sahakari Sakhar Karkhana Ltd. [(1989) 177 ITR 443 (Bom.)]
two issues were raised.
One
issue was whether the assessee had a choice in the matter of claiming a
deduction on account of depreciation and the second issue was whether, having
claimed in the original return, the Income-tax Officer was entitled to rely on
the particulars furnished therein and allow a deduction on account of
depreciation regardless of the fact that the assessee had stated in the revised
return that he did not want it. After examining judgments of the various High
Courts and of this Court in CIT vs. Dharampur Leather Co.
Ltd.
[(1966) 60 ITR 165 (SC)] the Court said: - "In our view, to sum up on the
first issue, the assessee has a choice to claim or not to claim a deduction on
account of depreciation. If he chooses not to claim it, the Income-tax Officer
is not entitled to allow a deduction on account of depreciation." In CIT
vs, Friends Corporation [(1989) 180 ITR 334 (P&H)] the question before the
High Court was whether on the facts and in the circumstances of the case the
Appellate Tribunal was right in law in holding that the Income-tax Officer
could not suo motu allow depreciation on the three tankers held by the
assessee. Second question was whether on the facts and in the circumstances of
the case the Tribunal was right in law in accepting the contention of the
assessee that he had not made an effective claim in the return for claiming
depreciation. For the Assessment Year 1976-77 assessee filed its return of
income showing loss of Rs,22,521/-. No particulars of the depreciation for the
tankers were filed. Income-tax Officer, however, worked out depreciation on the
tankers from what he gleaned from the assessee's account. High Court said that
depreciation allowance is, at any rate, a benefit available to the assessee to
avail of, but if the assessee chooses not to claim it, it would be contrary to
reason and law to hold that it must be forced upon him. High Court said:
"There
is no gainsaying that allowance for depreciation is a benefit available to the
assessee to claim, but not one that can be thrust upon him against his wishes.
At any rate, in order to claim depreciation, the assessee must furnish the
requisite particulars as prescribed by the Income-tax Act and the Rules made
thereunder. In the absence of such particulars, the assessee cannot avail of,
nor indeed can he be held entitled, to depreciation. It would be pertinent in
this behalf to advert to the judgment of this Court in Beco Engineering Co.
Ltd. v. CIT [1984] 148 ITR 478, where a reference was made to Circular No.
29D(XIX- 14) of 1965, dated August 31, 1965, issued by the Central Board of
Direct Taxes which provides that where the required particulars have not been
furnished by the assessee and no claim for depreciation has been made in the
return, the Income-tax Officer should estimate the income without allowing
depreciation allowance. Further, it was held that from the language of section
32(1)(ii) and 34(1) read with the circular, it was clear that in case an
assessee had not claimed depreciation, the Income-tax Officer could not give
him depreciation allowance." In CIT vs. Arun Textiles "C"
[(1991) 192 ITR 700 (Guj.)] the assessee withdrew the claim of depreciation in
the revised return. Income-tax Officer nevertheless allowed depreciation, which
was claimed in the original return. The Court noticed from the provisions of
section 32(1) of the said Act that the deduction in respect of depreciation on
the items mentioned therein shall be allowed subject to the provisions of
section 34 of the Act. Under section 34(1) of the said Act as was applicable
during the relevant year, it was, inter alia, provided that the deductions
referred to in sub-section (1) of section 32 shall be allowed only if the
prescribed particulars have been furnished. The form prescribed by rule 12
required particulars to be given for the purpose of the claim for deductions
under the said provision. It is not that when depreciation is allowable, the
Income-tax Officer has no option but to grant it even if the assessee makes
clear its intention not to claim the depreciation. The Court said: -
"Under clause (ii) of sub-section (1) of section 32, such percentage on
the written down value of the specified assets is to be allowed as a deduction
in respect of the depreciation of the assets. It appears that allowance in such
cases is, therefore, to be calculated on the written down value of the assets.
The written down value of assets is defined in section 43(6) of the Act and, in
respect of the assets acquired prior to the accounting year, the written down
value would be the actual cost of acquisition less the aggregate of all the
deductions "actually allowed" to the assessee in the past years. It
would follow that, where depreciation may be merely allowable but which is not
computed, it cannot be said to have been "actually allowed".
Therefore,
depreciation which is not claimed cannot be made to reflect in the written down
value of the assets. If the idea behind the provisions was to provide for
compulsory deductions for the depreciation, then the written down value of
assets acquired before the previous year would have been defined so as to mean
actual cost less all depreciation allowable and not "actually allowed"
as provided in section 43(6)(b) of the Act. The provisions of section 32(1) of
the Act are intended to confer benefit on the assessee of claiming deductions
on account of depreciation in respect of the specified classes of assets and,
whenever it is claimed, it ought to be allowed." High Court also noticed
that in that case admittedly the assessee had filed his revised return in which
he has not claimed deductions in respect of depreciation under Section 32(1)(ii)
of the Act and said: - "The provisions of section 32 are intended to give
benefit to the assessee for claiming deductions in respect of depreciation on
the type of assets mentioned therein.
Furthermore,
a mere claim to deduction would not be enough since the deductions are to be
allowed subject to the provisions of section 34 which required necessary
particulars to be furnished in the prescribed form.
Therefore,
until a claim is made for allowing deductions of the nature covered under
section 32 along with necessary particulars, there would hardly be any occasion
for the Income-tax Officer to "allow" any claim. In the context in
which the word "allowed" is used in section 32(1), it is clear to us
that the meaning intended is "to admit something claimed". The word "allowed"
means "to accept as true or valid, to acknowledge admit, grant",
"to admit something claimed, to acknowledge grant, concede" (See the
Oxford English Dictionary, Volume I, 1970 Reprint, page 2392).
There
is nothing in the provisions of section 32(1) read with section 29 of the Act
to indicate that even when no claim is made for allowing deduction in respect
of the depreciation under section 32(1), the Income-tax Officer is bound to
allow a deduction. In our view, it is implicit in the said provisions that the
assessee should have made a claim for deduction under the said provisions to
enable the Income-tax Officer to consider the same." High Court rejected
the argument of the Revenue that unless depreciation was taken into account the
Income-tax Officer could not arrive at the correct taxable income of the
assessee. This is how the High Court said: - "It is difficult to accept
this argument for, under the scheme of the Act, income is to be charged
regardless of depreciation on the value of the assets and it is only by way of
an exception that section 32(1) grants an allowance in respect of depreciation
on the value of the capital assets enumerated therein. It may appear intriguing
on the part of the assessee as to why it does not claim the benefit of
deduction from its taxable income, but the choice is clearly its. Where the
assessee does not want the benefit, it cannot be thrust upon it. There is no
provision which makes it compulsory on the part of the Income-tax Officer to
make deductions in all cases. If it were incumbent on the Income-tax Officer to
make compulsory deductions irrespective of whether the assessee claimed or not,
the statutory requirement of making the claim along with necessary particulars
and the provision for "allowing" it would be unnecessary." In Chief
CIT (Administration) vs. Machine Tool Corporation of India Ltd. [(1993) 201 ITR
101 (Kar.)] the assessee filed revised return whereby it withdrew its claim
regarding depreciation in the original return. Income- tax Officer, however,
allowed depreciation as per details furnished in the original return. High
Court noticed the divergence of opinion among the High Courts on the question
and also referred to a circular of the Central Board of Direct Taxes dated
September 4, 1972 to the effect that the Board will have no objection to the
line of action suggested by the assessee, as there is nothing in law to hold
that it is mandatory for the assessing authority to allow depreciation even if
the assessee withdraws his claim.
Court
said there could not be any doubt that allowing of deductions as provided under
Section 32 of the Act itself was subject to the provisions of Section 34.
Sub-section (1) of Section 34 requires furnishing of particulars by the
assessee in return as a condition precedent to claim the deductions, and if he
does not choose to do so it is not mandatory for the Income-tax Officer to find
something on the record to impose that benefit upon the assessee. Court also
held that once a revised return is filed under Section 139(5) of the Act, the
original return is substituted by the revised return and consequently the
entries in the relevant claim of the original return seeking depreciation could
not be used for any purpose. It is, therefore, not open to the Income-tax
Officer to advert to the original return or statement filed along with it for
the purpose of allowing deductions after such claim was expressly withdrawn
under the revised return.
In CIT
vs. Andhra Cotton Mills Ltd. [(1996) 219 ITR 404 (AP)] for the Assessment Year
1979-80 the assessee, a company, filed its return of income showing a loss of
over rupees one crore. Later, a revised return was filed showing a loss of over
rupees one crore though for a lesser amount than in the original return.
Income-tax Officer, however, computed the current profit at Rs.4,32,364/- and
the current depreciation at Rs.9,64,029/- leading to a net loss of
Rs.5,31,665/-. Contention of the assessee was that since there was carried
forward loss, if depreciation is not allowed as the deduction, then the carried
forward loss could be set off against the current profit and the current
depreciation could be carried forward without limitation, unlike business loss,
for which there is a period of limitation for set off. That was the reason why
the assessee had filed the revised return withdrawing the claim for deduction
of depreciation. The question that ultimately came to be referred to the High
Court was "Whether, on the facts and in the circumstances of the case, the
Income- tax Appellate Tribunal is justified in upholding the orders of the
Commissioner of Income-tax (Appeals) directing withdrawal of the deduction by
way of depreciation allowed by the Income-tax Officer." It was the
submission of the Revenue that the provisions of the statute required that true
income should be ascertained and such income in respect of a business cannot be
properly ascertained without deducting the depreciation which is the first
charge on the profit. For this support was drawn from the decision of the
Supreme Court in CIT v. Mother India Refrigeration Industries P. Ltd. [1985]
155 ITR 711. High Court said that under Section 139(5) a revised return could
be filed if there was an omission or wrong statement. Assessee had prepared a
Profit and Loss Account providing for depreciation but it did not opt for that
option in the normal course of its business. High Court found that in the
original return Profit and Loss Account containing the provision for
depreciation had been filed. High Court was of the view that revised return was
not a valid return and rejected the contention of the assessee that since
particulars of depreciation were not given in the revised return the Income-tax
Officer could not take into account the particulars of depreciation contained
in the original return. High Court then went on to observe:
"Moreover,
under section 143(1)(b)(iv), even while making an assessment accepting the
return of the assessee, the Income-tax Officer has to allow the proper
deduction under section 32. Under section 143(3), an assessment made under
section 143(1) is deemed to be incomplete or inadequate if proper depreciation
is not allowed. These provisions also indicate, along with section 28 which
requires that the income from a business has to be computed in accordance with
the provisions of sections 29 to 44, and read with section 145, that
depreciation is a proper deduction in arriving at the correct income from
business.
No
doubt section 34 provides that the deduction shall be allowed only if the
prescribed particulars are furnished.
This
only ensures that correct information is available to the Income-tax Officer
for allowing the proper deduction.
But
this cannot be construed to mean that where the assessee deliberately withholds
the information, no deduction for depreciation could be given in computing the income.
In the present case, the motivation for the assessee to withdraw the claim for
deduction of depreciation is only to get a set-off of the business loss of the
earlier year. But the current depreciation is a first charge on the profit as
held by the Supreme Court in Mother India Refrigeration Industries P. Ltd.'s
case [1985] 155 ITR 711 and that charge cannot be ignored by withholding the
particulars so as to avail of the setting off the earlier year's loss which
lapses by the prescribed period of limitation. In our considered opinion,
therefore, the assessee cannot withdraw the claim for depreciation allowance
when particulars are available in accordance with section 34 only for the
purpose of setting off of the loss of the earlier years. Since the particulars
were available as furnished along with the original return, the Income-tax
Officer is bound to allow the deduction of depreciation in computing the income
from business. The assessment made by the Income-tax Officer, in this case, is,
therefore, correct and in accordance with law." High Court, therefore,
answered the question in favour of the Revenue and against the assessee.
In CIT
vs. Andhra Cotton Mills Ltd. [(1997) 228 ITR 30 (AP)], where one of us
(Quadri,J.) was a member, the assessee questioned the deductions in respect of
depreciation allowed by the Income-tax Officer under Section 32 of the Act on
the ground that it did not raise any claim for such deductions in its return of
income. The assessee also did not furnish the prescribed particulars under
Section 34(1) of the Act. High Court considered both the views one in favour
and the other against the assessee and preferred the view favouring the
assessee. The Court also referred to the circular of the Central Board of
Revenue dated August 31,
1965 directing that
"where the required particulars have not been furnished by the assessee
and no claim for depreciation has been made in the return, the Income-tax
Officer should estimate the income without allowing depreciation
allowance". The Court observed that the record did not disclose that any
particulars regarding depreciation were furnished by the assessee or that the
Income-tax Officer had asked for the particulars whereupon the assessee
furnished them. In its view, therefore, under Section 34(1) of the Act and the
circular of the Central Board of Revenue the Income-tax Officer could not have
allowed the deduction of depreciation. High Court said: - "We may also
observe that, on reading sub- section (1) of Section 34 we do not find any reference
to the assessee claiming or not claiming deduction of depreciation. It states
that deduction in respect of depreciation "shall be allowed only if the
prescribed particulars have been furnished; .." (emphasis* supplied). A
fair reading of this provision conveys that when prescribed particulars have
been furnished, there is no option but that the said deductions shall be
allowed. The reverse may not follow:
that
means, the assessing authority even then may allow the deduction in respect of
depreciation, but before he does that he has to require the assessee to furnish
the requisite particulars for computing the depreciation allowance.
Sub-section
(9) of section 139, introduced by the Finance (No. 2) Act, 1980, with effect
from September 1, 1980, allows the Income-tax Officer to give an opportunity to
the assessee to rectify the return, if he found it defective, and, if within
the period allowed the assessee failed to rectify the return, "the return
shall be treated as an invalid return"." In the case of Commissioner
of Income-Tax vs. J.K.
Industries
Ltd. [(2000) 241 ITR 537 (Cal.)] the Court held that neither the assessee has
claimed the depreciation allowance nor he had furnished the required
particulars for deduction on account of depreciation allowance nor there was
material on record before the Income-tax Officer, which was necessary to
consider the depreciation allowance, Income-tax Officer was not justified in
allowing the depreciation to the assessee.
In the
case of Ascharajlal Ram Prakash vs. CIT [(1973) 90 ITR 477 (All.)] the issue
before the Court was that though the assessee had not claimed depreciation
whether the Income-tax Officer could allow the depreciation.
High
Court took the view that if during the course of assessment proceedings the
Income-tax Officer came to know the relevant particulars necessary for grant of
depreciation he was bound to give effect to that and allow depreciation.
This
is how the High Court considered the matter: - "Section 32 of the Act
provides that depreciation in respect of buildings, machinery, plant and
furniture owned by the assessee and used for the purpose of his business or
profession shall be allowed subject to the provisions of section 34. Section 34
provides that deductions under section 32 on account of depreciation shall be
allowed only if the prescribed particulars have been furnished. In what form
the prescribed particulars must be furnished, or in what document, is not
mentioned in section 34. There is no requirement in that section that the
prescribed particulars must be furnished in any particular document. Rule 12 of
the Income-tax Rules provides for the form in which the return of income must
be furnished. In the form of return there is a section which refers to the
various particulars required under section 34(1) when a claim is made for
depreciation. Now, merely because the form of the return provides for a place
where the statement of such particulars should be set out does not mean that in
the absence of such statement the Income-tax Officer has no power to allow the
depreciation. A deduction by way of depreciation is necessary in order to
arrive at the true profits or gains of the business or profession. The
Income-tax Officer is bound to arrive at the true figure of such profits and
gains and if in the course of assessment proceedings he comes to know of the
relevant particulars necessary for the grant of deduction, he is bound to give
effect to it. There is no dispute that during the course of the assessment
proceedings in this case the Income-tax Officer did come to know the date on
which the truck was purchased, and the original cost of the truck, and from
that along with the rate prescribed by the rules for allowing depreciation, he
could have computed and allowed depreciation. We are not satisfied that merely
because the assessee did not file the necessary particulars in the return filed
by him, the Income-tax Officer did not have the jurisdiction to grant the
allowance by way of depreciation." In Dasa-prakash Bottling Co. vs. CIT
[(1980) 122 ITR 9 (Mad.)] the Madras High Court considered the fact that though
the figures had not been furnished in return as such, but the figures were
furnished by the assessee during the course of assessment under protest. High
Court took the view that once the details and particulars required were
furnished by the assessee whether furnished under protest or not did not make
any difference and depreciation could be allowed.
In CIT
vs. Southern Petro Chemical Industries Corporation Ltd. [(1998) 233 ITR 400
(Mad.)] following its earlier decision in Dasaprakash Bottling case the Court
held that the grant of depreciation was a statutory allowance and even if the
assessee had not furnished the particulars, it was open to the Income-tax
Officer to grant the depreciation and that it would not be perfectly open to
the Income-tax Officer to disallow the claim if the assessee had not furnished
the particulars. On the other question where the assessee in the revised return
had withdrawn his claim of depreciation the Court said that where the assessee
had furnished the particulars regarding the claim of depreciation in the
original return the assessee would not be able to withdraw his claim for
depreciation as in that case revised return would not be valid within the
meaning of Section 139(5) of the Act. High Court said that in that it could not
be said that the assessee had discovered any omission or wrong statement in the
original return. Even otherwise it was not open to the assessee to withdraw the
particulars regarding grant of depreciation by filing a revised return. This is
how the Court said: - "Even that apart, the assessee had furnished the
particulars regarding the claim of depreciation in the original return and a
revised return was filed. In our opinion, the revised return is not a revised
return within the meaning of section 139(5) of the Act as it cannot be stated
that the assessee had discovered any omission or wrong statement in the
original return filed. We hold that it is not open to the assessee to
deliberately withdraw the claim for depreciation and such a deliberate
withdrawal of the claim can neither be regarded as an omission nor furnishing a
wrong statement in the original return. It cannot, therefore, be stated that
the revised return has taken the place of the original return. That apart, even
assuming that the assessee withdrew the original return by filing a revised
return, it is not open to the assessee to withdraw the particulars regarding
the grant of depreciation by filing a revised return. The particulars had found
their way and reached the records of the Income-tax Officer and once they
become a part of the records of the Income-tax Officer, it is not open to the
assessee to direct the Income-tax Officer to close his eyes to the particulars
available in his files. When the particulars regarding the grant of
depreciation were available, the decision of this Court in Dasaprakash Bottling
Co.'s case [1980] 122 ITR 9 would apply. As seen earlier, section 34 of the Act
does not require that the particulars should be furnished along with the
return. Therefore, once the particulars regarding the grant of depreciation are
available, it is open to the Income-tax Officer to grant depreciation, even if
the assessee had withdrawn the claim in the revised return." In Hopeville
Estate vs. State of Tamil Nadu [(1978) 112 ITR 861 (Mad.)] High Court struck
somewhat a different note. It was a case under the Tamil Nadu Agricultural
Income-tax Act, 1955. The assessee had claimed depreciation on the value of the
tank said to have been constructed for the use of the workers, in the
computation of the agricultural income. This claim was rejected by all the
authorities on the ground that the depreciation could not be allowed as per the
Income-tax Act, 1961 as no particulars necessary to claim depreciation had been
furnished. High Court rejected the contention of the assessee by making the
following observations :
"Even
if the authorities have loosely referred to the applicability of the provisions
of the Income-tax Act, still we are of the opinion that the petitioner is not
entitled to succeed with regard to the facts of this case. We are assuming for
the purpose of this argument that the contention of the learned counsel that
building includes all structures constructed with a view to provide amenities
to workers as defined in the Plantation Labour Act, 1951, as contained in the
Explanation to section 5(f) of the Tamil Nadu Agricultural Income-tax Act, is
correct. Still the petitioner will have to establish with reference to the provisions
contained in the Income-tax Act, the rate of depreciation to which it is
entitled, because rule 4(1) of the Tamil Nadu Agricultural Income-tax Rules,
1955, refers to the rates prescribed in the Income-tax Act for calculating the
rate of depreciation to be arrived at under section 5(f) of the Tamil Nadu
Agricultural Income-tax Act, 1955. Under rule 5 of the Income-tax Rules, 1962,
read with Appendix I thereto, buildings are classified into four categories and
in respect of the first three categories only the rate of depreciation has been
prescribed. Consequently, before claiming depreciation under section 5(f) of
the Tamil Nadu Agricultural Income-tax Act, the petitioner must furnish the
necessary particulars in order to claim the particular rate of depreciation as
provided for in the Income-tax Rules. No such claim whatever has been made in
the present case, and the only contention that has been put forward was a
general one that the tank is a building, and, therefore, a depreciable asset.
As a matter of fact, section 5(f) itself expressly states that the depreciation
will be deducted only when the assessee furnishes the prescribed particulars.
In this case, no such particulars have been furnished by the petitioner. In
view of these circumstances, it is not necessary to consider and deal with any
general question, and with reference to the facts of this case for the year in
question the Tribunal and the authorities below were right in holding that no
depreciation could be deducted in computing the agricultural income." In
CIT vs. Gujarat State Warehousing Corporation [(1976) 104 ITR 1 (Guj.)] the
question before the Court was regarding priorities adjustment as between the
current depreciation, carried forward depreciation and carried forward losses against
the profits and gains of business for the current year in view of the
provisions contained in Sections 32(2) and 72(2) of the Act. For the Assessment
Year 1967-68 Gujarat State Warehousing Corporation, the assessee, made a
business profit of Rs.2,18,488/-. Before this Assessment Year assessee had
suffered business losses of Rs.2,43,339/- which were carried forward from the
years 1964-65, 1965-66 and 1966-67. Assessee also carried forward unabsorbed
depreciation for all these three previous years amounting to Rs.46,696/-. For
the current year 1967-68 there was current depreciation of Rs.27,047/-. As the
assessee earned business profit of Rs.2,18,488/- without deducting the current
depreciation the question which arose during the course of assessment proceedings
was whether carried forward business loss of Rs.2,43,339/- should first be
deducted from the business profit or whether from the said profit the current
depreciation should first be deducted and thereafter the carried forward loss
should be deducted. For the Assessment Year 1967-68 assessee had also income of
Rs.48,105/- from other sources. The Income-tax Officer first deducted the
current depreciation of Rs.27,047/- from the profit of Rs.2,18,488. This gave
the balance of Rs.1,81,041/-. From this the Income-tax Officer deducted the
carried forward loss of Rs.2,43,339/- thus resulting in the carried forward
balance of Rs.61,898/- as business loss. So far as carried forward depreciation
of Rs.46,696/- was concerned the Income-tax Officer deducted it from the income
from other sources which gave the net profit from other sources at Rs.1,409/-.
The net result of this assessment was that while the carried forward
depreciation as well as current depreciation were absorbed the business loss of
Rs.61,898/- was carried forward to the next Assessment Year 1968-69. According
to the assessee the method adopted by the Income-tax Officer in giving priority
to the adjustment of the current depreciation over the carry forward loss of
Rs.2,43,339/- was not correct and that carried forward loss should have first
been deducted from the business profit of Rs.2,18,488/-. Assessee further
contended that carry forward depreciation of Rs.46,696/- should have been
clubbed with the current depreciation of Rs.27,047/- and should have been
adjusted against the amount of Rs.48,105/- which was the income from other
sources.
That
would have enabled the assessee to carry forward depreciation of the amount of
Rs.25,638/- and also the carry forward loss of Rs.24,851/- for the Assessment
Year 1968-69.
The
Appellate Assistant Commissioner dismissed the appeal of the assessee. It then
approached the Appellate Tribunal.
The
Tribunal considered the provisions of sub- section (2) of Section 32, which
contains the deeming fiction that carried forward depreciation should be
treated as current year's depreciation by clubbing the same with the current
year's depreciation. The Tribunal relied upon certain observations of this
Court in Commissioner of Income Tax vs.
Jaipuria
China Clay Mines (P) Ltd. [(1996) 59 ITR 555 (SC)] and held that the lower
authorities were not justified in not giving priority to the adjustment of the
carried forward loss as against current year's depreciation in view of
sub-section (2) of Section 72 of the Act. Tribunal, therefore, allowed the
appeal of the assessee. It held that against the income of Rs.2,18,488/- for
the Assessment Year 1967-68 first the carried forward loss of early years
should be deducted and thereafter current depreciation and unabsorbed
depreciation of early years should be deducted.
Sub-section
(2) of Section 72 provides that where an allowance or part thereof is, under
sub-section (2) of Section 32 or sub-section (4) of Section 34, to be carried
forward, effect shall first be given to the provisions of this Section. Section
72 provides for carry forward and set off business losses. Revenue thereafter
took the matter to the High Court in reference. High Court was of the view that
the observations of the Supreme Court in Jaipuria China Clay Mines case "make
it clear that the taxable profits or gains from a particular business cannot be
ascertained without debiting the current year's depreciation to the profits and
gains" It further said that the Supreme Court had held that current year's
depreciation was always the first charge on the profit earned in the business
in the current year. High Court finally observed:- "One more reason which
impels us to take the view which we have taken is that carried forward
depreciation cannot be put at par with current year's depreciation for all
purposes because carried forward depreciation is made up of current
depreciation of respective previous years and as such its components had the
chance of being set off partially against the income of the relevant previous
years. These components were carried forward only because they could not be
fully set off against the income of those relevant years. Under the
circumstances, it stands to reason that while working out the provisions of
sub-section (2) of section 72 the carried forward depreciation cannot stand at
par with the current year's depreciation, which like the components of the
carried forward depreciation must get the chance of being first set off against
the current year's income." High Court, therefore, answered the reference
in favour of the Revenue and against the assessee.
We do
not think Gujarat High Court in the case of Gujarat State Warehousing
Corporation [104 ITR 1] has taken correct view in respect of the issues with
which we are concerned in the present appeal. High Court has not properly
appreciated the context in which this Court made observations in the case of
Jaipuria China Clay Mines (P) Ltd. [59 ITR 555] on which High Court has relied.
In later two cases of Chokshi Metal Refinery [107 ITR 63] and Arun Textiles
"C" [192 ITR 700] Gujarat High Court has itself taken, if we may say
so, a different view falling in line with the views of Bombay, Punjab and
Haryana, Karnataka, Andhra Pradesh, Calcutta and Kerala High Courts which view
commends to us. Language of the provision of Sections 32 and 34 are specific
and admits of no ambiguity. Section 32 allows depreciation as deduction subject
to the provisions of Section 34. Section 34 provides that deduction under
Section 32 shall be allowed only if prescribed particulars have been furnished.
We have seen Rule 5AA of the Rules which though since deleted provided for the
particulars required for the purpose of deduction under Section 32.
Even
in the absence of Rule 5AA return of income in the form prescribed itself
requires particulars to be furnished if the assessee claims depreciation. These
particulars are required to be furnished in great detail. There is a circular
of the Board dated August 31, 1965, which provides that depreciation could not
be allowed where the required particulars have not been furnished by the
assessee and no claim for the depreciation has been made in the return.
Income-tax
Officer in such a case is required to compute the income without allowing
depreciation allowance. Circular of the Board dated April 11, 1955 is of no
help to the Revenue.
It
imposes merely a duty on the officers of the department to assist the
tax-payers in every reasonable way, particularly, in the matter of claiming and
securing relief.
The
Officer is required to do no more than to advise the assessee. It does not
place any mandatory duty on the officer to allow depreciation if the assessee
does not want to claim that. Provision for claim of depreciation is certainly
for the benefit of the assessee. If it does not wish to avail that benefit for
some reason, benefit cannot be forced upon him. It is for the assessee to see
if the claim of depreciation is to his advantage. Rather Income-tax Officer
should advise him not to claim depreciation if that course is beneficial to the
assessee.
That
would be in our view the spirit of the circular dated April 11, 1955. Income
under the head "profits and gains of business or profession" is
chargeable to income-tax under Section 28 and that income under Section 29 is
to be computed in accordance with the provisions contained in Sections 30 to
43A. The argument that since Section 32 provides for depreciation it has to be
allowed in computing the income of the assessee cannot in all circumstances be
accepted in view of the bar contained in Section 34. If Section 34 is not
satisfied and particulars are not furnished by the assessee his claim for
depreciation under Section 32 cannot be allowed. Section 29 is thus to be read
with reference to other provisions of the Act. It is not in itself a complete
code.
In
Ascharajlal Ram Prakash case [90 ITR 477] Allahabad High Court said that since
it is not mentioned in Section 34 as to in what form the prescribed particulars
of depreciation must be furnished and that, therefore, there is no requirement
in that Section that particulars must be furnished. High Court further went on
to say that merely because the form of return provides for a place where the
statement of such particulars should be set out, would not mean that in absence
of such statement the Income-tax Officer has no power to allow the
depreciation. This is contrary to the mandate of Section 34 as well as the
Board circular dated August 31, 1965. Madras High Court in Dasa Prakash
Bottling Co. case [122 ITR 9] following Allahabad High Court in the case of
Ascharajlal Ram Prakash said that Income-tax Officer can disallow the claim of
depreciation if the assessee did not furnish the prescribed particulars. It
further went on to hold that it would be open to the Income-tax Officer to
grant depreciation even if the assessee had not furnished the prescribed
particulars. In this case the assessee did not give the particulars relating to
depreciation in the return form nor did it claim depreciation. On being called
upon by the Income-tax Officer to furnish necessary particulars the assessee in
response thereto furnished the particulars under protest.
On
that basis the Income-tax Officer granted the depreciation. We do not think
that the views expressed by the Madras High Court lay down correct law. Section
34 is not in the nature of merely an enabling provision. In the absence of
particulars of depreciation as required by Section 34, there is no mandate on
the Income-tax Officer under Section 29 to compute the income by allowing
depreciation under Section 32. In the second Madras case (CIT vs. Southern
Petro Chemicals Industries Corporation Ltd. [233 ITR 400] the assessee did
claim depreciation but he withdrew the same in the revised return. On that
basis it was held that since the assessee had furnished the particulars
regarding the claim of depreciation in the original return the assessee would
not be able to withdraw his claim for depreciation. It would appear that High
Court proceeded on the basis that the revised return was not a valid return
under Section 139(5) of the Act. High Court followed its earlier decision in
Dasa Prakash Bottling Co.
To us
it appears that if the revised return is a valid return and the assessee has
withdrawn the claim of depreciation it cannot be granted relying on the
original return when the assessment is based on the revised return.
We get
support from the earlier decision of this Court in Dharampur Leather Co. Ltd.
case [60 ITR 165].
Allowance
of depreciation is calculated on the written down value of the assets, which
written down value would be the actual cost of acquisition less the aggregate
of all deductions "actually allowed" to the assessee for the past
years. "Actually allowed" does not mean 'notionally allowed'. If the
assessee has not claimed deduction of depreciation in any past year it cannot
be said that it was notionally allowed to him. A thing is "allowed"
when it is claimed. A subtle distinction is there when we examine the language
used in Section 16 and that Sections 34 and 37 of the Act. It is rightly said
that a privilege cannot be to a disadvantage and an option cannot become an
obligation.
We
thus uphold the views expressed by the High Courts of Bombay, Punjab and
Haryana, Karnataka, Andhra Pradesh, Calcutta and Kerala. Accordingly the appeal
is dismissed.
We answer
the question set out in the beginning of this judgment in affirmative, i.e., in
favour of the respondent-assessee and against the Revenue. There shall be no
order as to costs.
We
record our appreciation to the assistance rendered by Mr. Soli Dastur, who
appeared amicus curiae on our request. He made splendid presentation of law on
the subject.
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