1997 (12) TMI 48 - HC - Income Tax

Court invalidates restrictions on depreciation claim, upholds assessee's rights

The High Court ruled in favor of the assessee, holding that the conditions imposed by the Income-tax Officer for changing the previous year were invalid. ... Previous Year, Depreciation Issues:1. Whether the Income-tax Officer was correct in allowing proportionate depreciation for the assessment year 1980-81Rs.2. Whether the Income-tax Officer can impose conditions while allowing a change of the previous yearRs.Analysis:Issue 1:The assessee, a public limited company, sought a change in its accounting year from the financial year to ending in June. The Income-tax Officer allowed the change with conditions, including allowing only three months of depreciation for the assessment year 1980-81. The company later claimed full depreciation in its return, leading to a dispute. The Commissioner of Income-tax revised the order, limiting the depreciation to one-fourth. The Appellate Tribunal held that the conditions imposed were void and the assessee was entitled to full depreciation. The High Court agreed, emphasizing that statutory deductions cannot be curtailed without legal basis. The court cited precedents to support the assessee's right to claim full depreciation for the period, even if the previous year was only three months. The court held that the condition imposed by the Income-tax Officer was invalid, and the assessee could claim the full amount of depreciation as permitted by law.Issue 2:The court reiterated that an assessee cannot change the previous year without the Income-tax Officer's consent and any conditions imposed must be legal and reasonable. The conditions imposed by the Income-tax Officer should not contravene the provisions of the Act. The court emphasized that the conditions should be valid, legal, and reasonable, as established in previous judgments. The court held that the condition imposed in this case was against the provisions of the Act and therefore void, allowing the assessee to claim full depreciation. The court highlighted that the mere acceptance of the condition earlier did not prevent the assessee from challenging it, especially if it was invalid in the eyes of the law. The court concluded that the Tribunal's decision to allow the full amount of depreciation was correct, despite the earlier agreement to claim only one-fourth, as the condition imposed was legally flawed.In conclusion, the High Court ruled in favor of the assessee, stating that the conditions imposed by the Income-tax Officer for changing the previous year were invalid, and the assessee was entitled to claim the full amount of depreciation as permitted by law. The court upheld the Tribunal's decision and answered both questions of law against the Revenue.