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. ... Allowance of depreciation - maintains accounts on mercantile basis - Whether, the Tribunal was right in coming to the conclusion that the Income-tax Officer could not grant depreciation allowance to the assessee under the Income tax Act, 1961, when the same was not claimed by the assessee ? - Income-tax Officer in the assessment order noted that the assessee did not claim current depreciation. It was contended before him that the allowance of depreciation is a right given to the assessee and like all other rights and privileges the assessee has full freedom to claim or not to claim it and that right cannot be a burden. A privilege cannot be to a disadvantage and an option cannot become an obligation. The Income-tax Officer did not accept the contention of the assessee and computed the current depreciation allowed. HELD THAT:- The circular of the Board dated April 11, 1955, is of no help to the Revenue. It imposes merely a duty on the officers of the Department to assist the taxpayers in every reasonable way, particularly, in the matter of claiming and securing relief. The officer is required to do no more than to advise the assessee. It does not place any mandatory duty on the officer to allow depreciation if the assessee does not want to claim that. The provision for claim of depreciation is certainly for the benefit of the assessee. If it does not wish to avail that benefit for some reason, benefit cannot be forced upon him. It is for the assessee to see if the claim of depreciation is to his advantage. Rather the Income-tax Officer should advise him not to claim depreciation if that course is beneficial to the assessee. That would be in our view the spirit of the circular dated April 11, 1955. Income under the head 'Profits and gains of business or profession' is chargeable to income-tax under section 28 and that income under section 29 is to be computed in accordance with the provisions contained in sections 30 to 43A. The argument that since section 32 provides for depreciation it has to be allowed in computing the income of the assessee cannot in all circumstances be accepted in view of the bar contained in section 34. If section 34 is not satisfied and the particulars are not furnished by the assessee, his claim for depreciation under section 32 cannot be allowed. Section 29 is thus to be read with reference to other provisions of the Act. It is not in itself a complete code. We get support from the earlier decision of this court in Dharampur Leather Co. Ltd.'s case [1965 (12) TMI 28 - SUPREME COURT]. Allowance of depreciation is calculated on the written down value of the assets, which written down value would be the actual cost of acquisition less the aggregate of all deductions 'actually allowed' to the assessee for the past years. 'Actually allowed' does not mean 'notionally allowed'. If the assessee has not claimed deduction of depreciation in any past year it cannot be said that it was notionally allowed to him. A thing is 'allowed' when it is claimed. A subtle distinction is there when we examine the language used in section 16 and that of sections 34 and 37 of the Act. It is rightly said that a privilege cannot be to a disadvantage and an option cannot become an obligation. We thus uphold the views expressed by the High Courts of Bombay, Punjab and Haryana, Karnataka, Andhra Pradesh, Calcutta and Kerala. Accordingly, the appeal is dismissed. We answer the question set out in the beginning of this judgment in the affirmative, i.e., in favour of the respondent-assessee and against the Revenue. There shall be no order as to costs. 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.