1965 (12) TMI 27 - SC - Income Tax

Supreme Court clarifies depreciation computation method for depreciable assets

The Supreme Court held that the correct basis for computing the written down value of depreciable assets as of November 1, 1948, is the method adopted by ... Whether, on the facts of the case and having regard to the provisions of paragraph 2 of the Taxation Laws (Merged States) (Removal of Difficultics) Order, 1949, and clause 8 of the Agreement made on 20th September, 1938, between the assessee and the State of Bhopal, the correct basis for computing the written down value of the depreciable assets as at 1st November, 1948, is the one which is adopted by the Income-tax Officer or the one adopted by the Appellate Assistant Commissioner ? Held that:- Applying the 1962 Order to the facts of this case it is clear that the answer to the question referred must be that the correct basis for computing the written down value of the depreciable assets as on November 1, 1948, is the one which was adopted by the Income-tax Officer. In the result, the appeals are accepted. The judgment of the High Court is set aside and the question answered as indicated above. Issues Involved:1. Correct basis for computing the written down value of depreciable assets.2. Interpretation of 'all depreciation actually allowed' under the Taxation Laws (Merged States) (Removal of Difficulties) Order, 1949.3. Applicability and retrospectivity of the 1962 Order amending the Taxation Laws (Merged States) (Removal of Difficulties) Order, 1949.Detailed Analysis:1. Correct Basis for Computing the Written Down Value of Depreciable Assets:The primary issue was whether the written down value of depreciable assets as of November 1, 1948, should be computed based on the method adopted by the Income-tax Officer or the Appellate Assistant Commissioner. The High Court initially ruled in favor of the Appellate Assistant Commissioner's method. However, the Supreme Court concluded that the correct basis for computing the written down value is the one adopted by the Income-tax Officer.2. Interpretation of 'All Depreciation Actually Allowed':The term 'all depreciation actually allowed' under any laws or rules of a merged State was pivotal. The Revenue argued that this should include depreciation that could have been claimed if the income had not been exempted. The Supreme Court disagreed with this interpretation, stating that 'actually allowed' unambiguously means depreciation that was actually given effect to, not hypothetical allowances. The Court emphasized that if the legislature intended otherwise, it would have included a deeming provision.3. Applicability and Retrospectivity of the 1962 Order:The 1962 Order amended the Taxation Laws (Merged States) (Removal of Difficulties) Order, 1949, to include an explanation that 'all depreciation actually allowed' should also cover depreciation that would have been allowed if the income had not been exempted. The Supreme Court held that this Order is retrospective and must be applied to the assessments for the years 1952-53 and 1953-54. The Court cited a precedent that it is the duty of the judiciary to apply the law as amended, even if the amendment occurs after the original decision but is retrospective in effect.Conclusion:The Supreme Court concluded that the correct basis for computing the written down value of the depreciable assets as of November 1, 1948, is the one adopted by the Income-tax Officer. The appeals were allowed, the High Court's judgment was set aside, and the question was answered in favor of the Revenue. The parties were directed to bear their own costs.