1992 (10) TMI 1 - SC - Income Tax

No depreciation on scientific research assets already deducted u/s10(2)(xiv) and s.35; 1980 amendment clarificatory only

SC held that, even prior to the Finance (No. 2) Act, 1980, the 1961 Act did not permit depreciation on capital assets used for scientific research to the ... Scientific Research - depreciation allowance on capital assets used in business - controversy with regard to the retrospective amendment of section 80J - computation of business income for purposes of income-tax - deduction u/s 35(2)(iv) - amendment made by the Finance (No. 2) Act, 1980 (' the 1980 Act ' to the Income-tax Act, 1961 ' the 1961 Act ' It is also a curious coincidence that the 1980 Act effected two amendments in the 1961 Act with retrospective effect and the validity of both these provisions has been challenged before the courts - HELD THAT:- We are of the view that, even before the 1980 amendment, the Act did not permit a deduction for depreciation in respect of the cost of a capital asset acquired for purposes of scientific research to the extent such cost has been written off under section 10(2)(xiv)/section 35(1) and (2). Prior to 1968, such assets qualified for an allowance of one-fifth of the cost of the asset in five previous years starting with that of its acquisition and during these years the assessee could not get any depreciation in relation thereto. In respect of assets acquired in the previous year relevant to the assessment year 1968-69 and thereafter, their cost was written off in the previous year of acquisition and no depreciation could be allowed in that year. This is clear from the statute. Equally, it is not envisaged, and indeed, it would be meaningless to say that depreciation could be allowed on them thereafter with a further absurdity that it could be allowed starting with the original cost of the asset despite its user for scientific research and the allowances made under the ' scientific research ' clause. In our view, there was no difficulty at all in the interpretation of the provisions. The mere fact that a baseless claim was raised by some over-enthusiastic assessees who sought a double allowance or that such claim may perhaps have been accepted by some authorities is not sufficient to attribute any ambiguity or doubt as to the true scope of the provisions as they stood earlier. We are, for the reasons discussed above, unable to approve of the cryptic view expressed by the Karnataka High Court in CIT v. Indian Telephone Industries Ltd.[1980 (7) TMI 92 - KARNATAKA HIGH COURT] or the view taken by the Bombay High Court in CIT v. Hico Products Pvt. Ltd.[1990 (10) TMI 69 - BOMBAY HIGH COURT]. The assessees cannot claim the depreciation allowance in question. The assessees may have some possible case only if the earlier statutory provisions can be said to have been unambiguously in favour of the assessee and the 1980 amendment had radically altered the provisions to cast a new and substantial burden on the assessee with retrospective effect. In our view, the question has to be answered by saying that the pre-1980 provisions were capable of only one interpretation but that was as urged on behalf of the Revenue. The 1980 amendment has effected no change at all in the provision except to set out more clearly and categorically what the provision said even earlier. In this view, the second and third questions earlier posed do not arise. Writ petitions accordingly fail and are dismissed. Issues Involved:1. Interpretation of statutory provisions regarding deductions under the Income-tax Act.2. Retrospective amendment of Section 35(2) by the Finance (No. 2) Act, 1980.3. Constitutionality of retrospective tax provisions.Detailed Analysis:1. Interpretation of Statutory Provisions:The primary issue revolves around the interpretation of two provisions related to the computation of business income for income-tax purposes. The provisions in question are Section 10(2)(vi) and Section 10(2)(xiv) of the Indian Income-tax Act, 1922, and their counterparts in the Income-tax Act, 1961, Sections 32 and 35 respectively.- Section 10(2)(vi) provided for a depreciation allowance on capital assets used in business.- Section 10(2)(xiv) allowed for deductions of capital expenditure on scientific research related to the business, spread over five consecutive years.The court noted that if both provisions were applied simultaneously, it would result in a double allowance for the same expenditure, which was not the legislative intent. The provisions of clauses (d) and (e) of the proviso to Section 10(2)(xiv) and their counterparts in the 1961 Act (Section 35(2)(iv) and (v)) were designed to prevent this double deduction.2. Retrospective Amendment by the Finance (No. 2) Act, 1980:The Finance (No. 2) Act, 1980, amended Section 35(2)(iv) to explicitly state that no deduction shall be allowed under Section 32 for the same or any other previous year if a deduction has been allowed under Section 35 for capital expenditure on scientific research. This amendment was made retrospective from April 1, 1962.The court examined whether the pre-1980 provisions were ambiguous and whether the 1980 amendment was merely clarificatory. It concluded that the pre-1980 provisions were clear and did not permit a double deduction. The amendment was seen as clarifying the legislative intent rather than introducing a new burden.3. Constitutionality of Retrospective Tax Provisions:The assessees contended that the retrospective effect of the amendment was unreasonable and violated their fundamental rights under Articles 14 and 19(1)(g) of the Constitution. They argued that it imposed an unexpected and onerous burden.The court rejected this argument, stating that the Legislature has the competence to enact retrospective tax provisions, especially when they clarify existing ambiguities or correct legislative defects. The court referred to previous judgments (e.g., Rai Ramkrishna v. State of Bihar) to support this view. It held that the 1980 amendment did not violate constitutional provisions as it was clarificatory in nature and did not impose a new burden.Conclusion:The court concluded that the pre-1980 provisions did not permit a double deduction for the same expenditure. The 1980 amendment was merely clarificatory and did not introduce a new burden. Therefore, the retrospective effect of the amendment was constitutional. The writ petitions were dismissed without any order as to costs.