2003 (2) TMI 61 - HC - Income Tax

Court rules on depreciation deductions: Assessee must claim, no retrospective application of amendment

Commissioner of Income-Tax Versus Kerala Electric Lamp Works Ltd., Commissioner of Income-Tax Versus Crompton Greaves Ltd.

The court held that the Assessing Officer cannot allow depreciation deductions without a claim from the assessee, emphasizing the requirement for the ... 'Whether, on the facts and in the circumstances of the case and when the assessee did not make a claim or a request for allowance of depreciation, whether the Assessing Officer would be justified in allowing the deduction ?' - we are of the opinion that the Explanation has no retrospective effect. The assessment year in question being related to the period prior to the insertion of the Explanation as aforesaid and since the question referred is covered by the decision of the apex court in CIT v. Mahendra Mills we answer the question in the negative, i.e., in favour of the assessee and against the revenue. Issues Involved:1. Whether the Assessing Officer is justified in allowing depreciation deduction when the assessee did not claim it.Issue-wise Detailed Analysis:1. Justification of Allowing Depreciation Deduction Without Assessee's Claim:In Income-tax Reference No. 21 of 1999, for the year 1989-90, the assessee filed a return showing a loss of Rs. 9,30,59,275. The Assessing Officer allowed depreciation of Rs. 2,02,79,334 and carried it forward, despite the assessee not claiming it. This decision was confirmed by the Commissioner (Appeals). However, the Tribunal held that the Assessing Officer was not justified in allowing depreciation without a claim from the assessee, referencing the amendment of section 34(1) by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, and the decision of the Bombay High Court in CIT v. Shri Someshwar Sahakari Sakhar Karkhana Ltd. [1989] 177 ITR 443.A similar scenario occurred in Income-tax Reference No. 216 of 1999 for the assessment year 1990-91, where the assessee filed a return showing a loss of Rs. 3,33,77,642 without claiming depreciation. The Assessing Officer allowed depreciation of Rs. 1,65,95,460. The Tribunal again held that the Assessing Officer was not justified in allowing depreciation without a claim from the assessee, relying on the same Bombay High Court decision and CIT v. Andhra Cotton Mills Ltd. [1997] 228 ITR 30 (AP).The High Court of Kerala, in its judgment dated October 15, 1999, in CIT v. Kerala Electric Lamp Works Ltd. [1999] 157 CTR 346 (Ker), held that section 34(1) of the Income-tax Act requires the Income-tax Officer to allow deductions only if the prescribed particulars are furnished by the assessee. The court emphasized that the use of the words 'allowed' and 'allowance' implies a claim or application by the assessee, and without such a claim, the deduction cannot be allowed.The Supreme Court in CIT v. Mahendra Mills [2000] 243 ITR 56 reiterated that sections 32 and 34 of the Income-tax Act require the prescribed particulars to be furnished for depreciation to be allowed. The court stated that if the assessee does not claim depreciation, it cannot be allowed by the Assessing Officer, emphasizing that 'a privilege cannot be to a disadvantage and an option cannot become an obligation.'The Revenue argued that the Explanation inserted by the Finance Act, 2001, with effect from April 1, 2002, to section 32, which states that the provisions apply whether or not the assessee has claimed the deduction, should be considered retrospective. However, the court held that the Explanation is prospective, effective from April 1, 2002, and does not apply to prior assessment years. The court referenced CIT v. Rajasthan Mercantile Co. Ltd. [1995] 211 ITR 400 and CIT v. S. R. Patton [1992] 193 ITR 49 to support its stance that a fiscal amendment is not retrospective unless explicitly stated.The Finance Bill, 2001, and the memorandum explaining its provisions clarified that the amendments to section 32 would apply from April 1, 2002, onwards. The court concluded that the Explanation added to section 32 does not have retrospective effect and upheld the decision in CIT v. Mahendra Mills [2000] 243 ITR 56, ruling in favor of the assessee and against the Revenue.