Binding circulars govern depreciation claims, but fact-based interest disallowance may fail without any substantial question of law.

A binding departmental circular had to be applied when examining the depreciation claim, and the authorities could not ignore it merely because a net profit rate was adopted; the depreciation issue was therefore remitted for reconsideration in light of the circular. The challenge to disallowance of interest failed because it turned on factual findings, including that allowing both depreciation and interest would leave an unacceptably low net profit rate, and no material was shown to dislodge that finding or bring the claim within the circular. The depreciation issue was answered in favour of the assessee, while the interest issue was answered against it.

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Issues: (i) Whether, in light of the binding circular dated 31 August 1965, the claim for depreciation was required to be considered; (ii) Whether the disallowance of deduction on account of interest gave rise to any substantial question of law.

Issue (i): Whether, in light of the binding circular dated 31 August 1965, the claim for depreciation was required to be considered.

Analysis: The authorities were obliged to examine the depreciation claim in accordance with the circular. Where the requisite particulars had been furnished and the conditions of the circular were satisfied, the claim could not be ignored merely on the basis of the net profit rate adopted in assessment. The matter therefore required reconsideration by the authorities in the light of the circular.

Conclusion: The issue is answered in favour of the assessee.

Issue (ii): Whether the disallowance of deduction on account of interest gave rise to any substantial question of law.

Analysis: The claim for interest depended primarily on the facts. The Tribunal had found that acceptance of both depreciation and interest would reduce the net profit rate to an unacceptably low figure, and no exceptional circumstance was shown to dislodge that factual finding. The circular relied upon did not govern interest, and no evidence was shown to establish that the interest claim had been wrongly disallowed.

Conclusion: The issue is answered against the assessee.

Final Conclusion: The depreciation claim had to be examined under the binding circular, but the challenge to disallowance of interest failed for want of any substantial question of law.

Ratio Decidendi: A binding departmental circular must be applied while considering a statutory claim for depreciation, but a fact-dependent disallowance of interest does not raise a substantial question of law in the absence of supporting material.

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