2002 (8) TMI 54 - HC - Income Tax

High Court interprets 'actual cost' for depreciation under Income-tax Act, rules in favor of Revenue

Dharmapuri Co-operative Sugar Mills Ltd. Versus Commissioner Of Income-Tax.

Dharmapuri Co-operative Sugar Mills Ltd. Versus Commissioner Of Income-Tax. - [2003] 259 ITR 598, 176 CTR 565, 124 TAXMANN 849 Issues:1. Interpretation of 'actual cost' under section 43(1) of the Income-tax Act for claiming depreciation.2. Jurisdiction of the Commissioner under section 263 of the Income-tax Act regarding the revision of assessment orders.Issue 1: Interpretation of 'actual cost' under section 43(1) of the Income-tax Act for claiming depreciation:The case involved a co-operative sugar mill receiving a subsidy from the State Government for constructing tenements for its workers during the assessment year 1979-80. The Assessing Officer allowed depreciation on the total cost of the asset initially. However, the Commissioner revised the assessment under section 263, stating that depreciation should be denied to the extent of the subsidy received as it was meant to cover the construction cost. The Tribunal upheld the Commissioner's decision, leading to the appeal. The key question was whether the subsidy received should be deducted from the total cost of construction for determining the 'actual cost' under section 43(1) of the Income-tax Act.The Supreme Court's interpretation in CIT v. Shri Arbuda Mills Ltd. clarified the powers of the Commissioner under section 263. The court emphasized that the Commissioner's power extends to matters not considered in an appeal due to subsequent amendments. Applying this precedent, the High Court ruled in favor of the Revenue, stating that the subsidy should indeed be deducted from the total cost of construction as per the definition of 'actual cost' under section 43(1) for depreciation purposes. Therefore, the second issue was decided in favor of the Revenue.Issue 2: Jurisdiction of the Commissioner under section 263 of the Income-tax Act regarding the revision of assessment orders:The first question raised in the case pertained to the jurisdiction of the Commissioner under section 263, considering whether the assessment order had merged with the appellate orders, thus limiting the Commissioner's authority. The High Court referred to the amended Explanation to section 263(1) of the Act, which expanded the Commissioner's powers retrospectively. Citing the Supreme Court's ruling and the amended provision, the High Court concluded that the Commissioner's jurisdiction extended to matters not addressed in previous appeals. Therefore, the first question was answered in favor of the Revenue and against the assessee, affirming the Commissioner's authority to revise the assessment order despite the appellate proceedings.---