1963 (7) TMI 77 - HC - Income Tax

Court rules initial depreciation must be included in computing profits under Indian Income-tax Act

The court held that initial depreciation allowed under section 10(2)(via) must be included in calculating the written down value for computing profits ... Inclusion of initial depreciation in written down value for computation of profit on sale of asset under section 10(2)(vii) - interpretation of depreciation allowance under section 10(2)(vi) (including clause (via)) - limitation under section 34(3): date of making assessment order versus date of communicationInclusion of initial depreciation in written down value for computation of profit on sale of asset under section 10(2)(vii) - interpretation of depreciation allowance under section 10(2)(vi) (including clause (via)) - Initial depreciation allowed under section 10(2)(via) is to be taken into account in ascertaining the written down value for computing profit under section 10(2)(vii). - HELD THAT: - The Court rejected the assessee's contention that the initial depreciation should be excluded when determining written down value for the purpose of computing profit on sale. The court held that the words 'in respect of depreciation' in the main part of section 10(2)(vi) govern both parts of the provision and that the proviso was deliberately worded to include depreciation allowances given under clause (via) and under prior enactments. Prior decisions treating initial depreciation as part of depreciation actually allowed were followed, and the attempted textual distinctions advanced for excluding initial depreciation were found unsound. Consequently the initial depreciation forms part of 'all depreciation actually allowed' and must be deducted in computing written down value under the proviso to section 10(2)(vii).Answer for revenue: initial depreciation under section 10(2)(via) is included in the written down value for computing profit on sale under section 10(2)(vii).Limitation under section 34(3): date of making assessment order versus date of communication - An assessment order made within the four year period specified by section 34(3) is not rendered void by communication to the assessee occurring after the expiry of that period; the essential act is the making of the order within time. - HELD THAT: - Relying on the language of section 34(3) and the decision of the Madras High Court in RM. P. R. Viswanathan Chettiar v. Commissioner of Income tax, the Court held that the statutory bar refers to the making of an order 'after the expiry of four years from the end of the year in which the income ... was first assessable.' The communication of the order to the assessee is not the event which the section governs. Thus an assessment completed within the four year period remains valid even if its service or the assessee's knowledge occurs later. Competing authorities under different enactments or decisions about the date relevant for filing appeals were held inapposite to the statutory question under section 34(3).Answer for revenue: the assessment order dated February 29, 1960, though communicated on April 4, 1960, is not barred by section 34(3).Final Conclusion: Questions referred are answered in favour of the revenue: (1) initial depreciation under section 10(2)(via) must be included in the written down value for computing profit on sale under section 10(2)(vii); and (2) an assessment order made within the four year period under section 34(3) is not invalidated by communication to the assessee after that period. Issues:1. Whether initial depreciation allowed under section 10(2)(via) should be considered in ascertaining the written down value for computing profits under section 10(2)(vii) of the Indian Income-tax Act, 1922Rs.2. Whether the assessment order dated February 29, 1960, communicated to the assessee on April 4, 1960, is barred by limitation under section 34(3) of the Income-tax Act, 1922Rs.Analysis:1. The case involved the question of whether the initial depreciation allowed under section 10(2)(via) should be included in calculating the written down value for the purpose of computing profits under section 10(2)(vii) of the Indian Income-tax Act, 1922. The Appellate Assistant Commissioner rejected the contention that initial depreciation should be excluded from the written down value calculation. The Tribunal also upheld this decision, stating that the written down value should include all depreciation actually allowed, including initial depreciation. The court agreed with this interpretation, emphasizing that the written down value should consider all depreciation allowed, including initial depreciation under section 10(2)(via).2. The second issue revolved around the limitation period for the assessment order dated February 29, 1960. The assessee argued that the assessment order was barred by limitation under section 34(3) of the Income-tax Act, 1922, as it was communicated after the prescribed period. The Appellate Assistant Commissioner and the Tribunal rejected this argument, citing the language of section 34(3) that focuses on the making of the order rather than its communication. The court concurred with this interpretation, emphasizing that the order was made within the stipulated period, and communication was not a requirement under the section.3. The court referred to relevant case law and statutory provisions to support its conclusions. The judgment highlighted that the language of section 10(2)(vi) and section 10(2)(via) indicated that all depreciation allowances, including initial depreciation, should be considered in determining the written down value. Additionally, the court stressed that the assessment order's compliance with the statutory limitation period was based on the order's making rather than its communication to the assessee. Consequently, the court ruled in favor of the revenue on both issues, affirming that initial depreciation should be included in calculating the written down value and that the assessment order was not barred by limitation. The assessee was directed to pay the costs, including the advocate's fee.