2000 (3) TMI 3 - SC - Income Tax

Unclaimed tax depreciation deduction: assessing authority cannot force s.32 depreciation without taxpayer claim and s.34 particulars

Whether depreciation under the Income-tax Act, 1961 can be allowed by the assessing authority when the taxpayer has not claimed it was the dominant issue. ... Depreciation allowance - prescribed particulars for claim under section 34 - assessee's option to claim or not to claim a statutory deduction - allowance in computing profits and gains under sections 28-29 read with sections 30 to 43A - revised return withdrawing a claimDepreciation allowance - prescribed particulars for claim under section 34 - assessee's option to claim or not to claim a statutory deduction - Income-tax Officer's power to suo motu allow deduction - Whether the Assessing Officer can grant deduction by way of depreciation when the assessee has not claimed it and has not furnished the prescribed particulars. - HELD THAT: - The Court held that allowance of depreciation under section 32 is subject to section 34 which requires that prescribed particulars be furnished before the deduction shall be allowed. The statutory scheme contemplates that depreciation is a benefit to be claimed by the assessee and the word 'allowed' in section 32 is to be read as admitting a claim. In the absence of prescribed particulars and a claim, there is no mandate on the Assessing Officer under sections 28-29 to compute income by allowing depreciation. Circular instructions and Rule 5AA (now omitted) confirm that detailed particulars are required and that where particulars are not furnished and no claim is made the Assessing Officer should estimate income without allowing depreciation. While earlier decisions recognizing that depreciation may be necessary to arrive at true profits were examined, those authorities did not advance the Revenue's position on the present question because the determinative statutory condition in section 34 was not satisfied here. The Court also indicated that where particulars are available on record (for example furnished in the original return or produced during assessment), the Assessing Officer may act upon them; but if an assessee validly withdraws a claim in a revised return, the Assessing Officer cannot thereafter rely on the original claim to force the deduction. The Court rejected contrary views that would permit the Assessing Officer to thrust depreciation upon an unwilling assessee merely to compute 'true income'.Depreciation cannot be allowed by the Income-tax Officer where the assessee has not claimed it and has not furnished the prescribed particulars; the assessee has the option to claim or not to claim the deduction and the Assessing Officer is not obliged to grant depreciation in the absence of the requisite claim and particulars.Final Conclusion: The appeal is dismissed. The question referred is answered in the affirmative in favour of the assessee: an Assessing Officer may not grant depreciation allowance when the assessee has not claimed it and has not furnished the prescribed particulars; particulars on record or a valid claim may permit allowance, but a withdrawn claim in a valid revised return cannot be treated as available for grant of depreciation. Issues Involved:1. Whether the Income-tax Officer could grant depreciation allowance to the assessee under the Income-tax Act, 1961, when the same was not claimed by the assessee.Issue-wise Detailed Analysis:1. Interpretation of Sections 28, 29, 32, and 34 of the Income-tax Act, 1961:The core issue revolves around whether the Income-tax Officer (ITO) is mandated to allow depreciation even if the assessee did not claim it. The relevant sections are:- Section 28: Specifies what income shall be chargeable to income-tax under the head 'Profits and gains of business or profession.'- Section 29: States that income referred to in Section 28 shall be computed in accordance with the provisions of Sections 30 to 43A.- Section 32: Pertains to depreciation of buildings, machinery, plant, or furniture and allows for deductions subject to Section 34.- Section 34: Specifies that deductions under Section 32 shall be allowed only if the prescribed particulars have been furnished.The judgment clarifies that the provisions of Sections 32 and 34 are specific and unambiguous. Section 34 mandates that depreciation can only be allowed if the prescribed particulars are furnished by the assessee. Therefore, if the assessee does not claim depreciation and does not provide the necessary particulars, the ITO is not obligated to allow depreciation.2. Conflicting Judgments of Various High Courts:The judgment acknowledges that different High Courts have ruled differently on this issue. High Courts such as those of Allahabad and Madras supported the Revenue's view that depreciation must be allowed regardless of the claim. In contrast, High Courts of Bombay, Gujarat, Punjab and Haryana, Karnataka, Andhra Pradesh, Calcutta, and Kerala supported the assessee's view that depreciation should only be allowed if claimed.3. Analysis of Precedents and Circulars:The judgment refers to several precedents, including:- CIT v. Jaipuria China Clay Mines (P.) Ltd. [1966] 59 ITR 555 (SC): This case discussed the computation of profits and gains, emphasizing that depreciation must be deducted to arrive at the true profit.- Garden Silk Weaving Factory v. CIT [1991] 189 ITR 512 (SC): This case reiterated that depreciation is a charge on profits and must be considered in computing income.- CIT v. Dharampur Leather Co. Ltd. [1966] 60 ITR 165 (SC): The court held that 'actually allowed' does not mean 'notionally allowed,' implying that depreciation must be claimed to be allowed.Additionally, the judgment refers to a circular from the Central Board of Direct Taxes (CBDT) dated August 31, 1965, which states that if the required particulars are not furnished and no claim for depreciation is made, the ITO should estimate income without allowing depreciation.4. Assessee's Right to Claim or Not Claim Depreciation:The judgment emphasizes that the provision for claiming depreciation is for the benefit of the assessee. If the assessee chooses not to claim it, the benefit cannot be forced upon them. The ITO should advise the assessee but is not mandated to allow depreciation if it is not claimed. This aligns with the spirit of the CBDT circular dated April 11, 1955, which requires officers to assist taxpayers in claiming reliefs but does not impose a mandatory duty to allow depreciation if not claimed.Conclusion:The Supreme Court upheld the views of the High Courts that supported the assessee's right to choose whether to claim depreciation. The appeal was dismissed, and the question was answered in the affirmative, in favor of the respondent-assessee and against the Revenue. The judgment underscores that a privilege cannot be to a disadvantage, and an option cannot become an obligation.