Depreciation under the Income-tax Act, 1961 must follow statutory actual cost and written down value rules for earlier acquired assets.

For assessment year 1962-63, the depreciation computation under the Income-tax Act, 1961 was governed by the statutory definitions of "actual cost" and "written down value" in sections 43(1) and 43(6), even where the assets had been acquired before the previous year under the 1922 Act. The relevant cost and written down value had to be determined under the 1961 Act, including reduction for amounts met by others and depreciation actually allowed under the earlier law. The prior computation under the repealed Act did not freeze the figure for later assessment years, because each year is a separate computation under the current statute.

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Issues: Whether, for assessment year 1962-63, depreciation on assets acquired before the previous year could be computed by applying the definitions of "actual cost" and "written down value" in sections 43(1) and 43(6) of the Income-tax Act, 1961.

Analysis: The relevant enquiry was whether the new Act required re-determination of actual cost for computing depreciation in the assessment year in question, even though the assets had been acquired earlier under the 1922 Act. The definitions in section 43 were held to govern assessments under the 1961 Act unless the context otherwise required. The expression "actual cost" in section 43(1) therefore meant the cost of the asset as reduced by contributions met directly or indirectly by any other person or authority, and section 43(6)(b) required written down value to be computed by deducting depreciation actually allowed under the earlier law as well. The Court rejected the contention that applying these provisions would make the statute retrospective or create an impermissible anomaly, holding that each assessment year is a separate computation and prior determination under the 1922 Act did not freeze the figure for later assessments under the 1961 Act.

Conclusion: The definitions in sections 43(1) and 43(6) of the Income-tax Act, 1961 applied to the assessment year 1962-63 even in respect of assets acquired earlier, and depreciation was to be computed accordingly, against the assessee and in favour of the revenue.

Ratio Decidendi: For a later assessment year governed by the Income-tax Act, 1961, the statutory definitions of "actual cost" and "written down value" apply to the depreciation computation for pre-existing assets, and prior year determinations under the repealed law do not control the later assessment.

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