TaxTMI 
TaxTMI 
TaxTMI 
2000 (3) TMI 3
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.... opinion and answered in the affirmative, in favour of the assessee and against the Revenue. This question has been answered differently by various High Courts some in favour of the assessee and others in favour of the Revenue. Section 32 has since been amended by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, with effect from April 1, 1988. However, the answer to the question remains of substantial importance as various matters are stated to be pending in the High Courts relating to the assessment years prior to April 1, 1988. Section 32 as it stood prior to April 1, 1988, in the relevant part, is as under : "32. (1) In respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, the following deductions shall, subject to the provisions of section 34, be allowed---. . . (ii) in the case of buildings, machinery, plant or furniture, other than ships covered by clause (i), such percentage on the written down value thereof as may in any case or class of cases be prescribed : Provided that where the actual cost of any machinery or plant does not exceed seven hundred and fif....
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....terms and conditions relating thereto ; (c) any person, by whatever name called, holding an agency in India for any part of the activities relating to the business of any other person, at or in connection with the termination of the agency or the modification of the terms and conditions relating thereto ; (d) any person, for or in connection with the vesting in the Government, or in any corporation owned or controlled by the Government, under any law for the time being in force, of the management of any property or business ; (iii) income derived by a trade, professional or similar association from specific services performed for its members ; (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession." "29. Income from profits and gains of business or profession, how computed.--The income referred to in section 28 shall be computed in accordance with the provisions contained in sections 30 to 43A." The assessee is a company and maintains accounts on mercantile basis. For the assessment year 1974-75, the assessee did not claim any depreciation. The Income-tax Officer, however, allowed depreciation.....
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.... of choice for the assessee, it would negate the decision of this court in CIT v. Jaipuria China Clay Mines (p) ltd.[1966]59 ITR 555 and Garden Silk Weaving Factory v. CIT [1991] 189 ITR 512. The Income-tax Officer during the course of assessment can call for the records. Mr. Verma said that during the course of assessment proceedings, the Income-tax Officer can call for the account books of the assessee, look into the same and calculate the depreciation allowable under section 32. To earn, forward loss one has to arrive at the net income which can be done only after adjusting depreciation though now after change in law depreciation cannot be carried forward beyond certain years. Mr. Verma submitted that looking at the language used in section 29, the Income-tax Officer is duty bound to allow depreciation in order to compute the income referred to in section 28 of the Act which he is to do keeping in view of the provisions contained in sections 30 to 43A (now section 43D). The assessee need not make any claim for depreciation of the current year. It is admissible under the law. Section 32 only requires as to how the allowance of depreciation is to be quantified. As any claim of d....
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....o more. The circular of the Central Board of Revenue (No. 14 (SL-35) of 1955, dated April 11, 1955), required the officers of the Department "to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs . . . Although, therefore, the responsibility for claiming refunds and reliefs rests with the assessees on whom it is imposed by law, officers should-(a) draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other . . ." When there are two provisions under which an assessee could claim some benefit, it is for the assessee to choose one. A reference was made to a claim for medical reimbursement for the current year which is different from a claim for depreciation. This is so because depreciation is a claim on the written down value and if depreciation is not claimed in the current year, the written down value would remain the same for the following year. Prior to the amendment of section 32 business loss could be carried forward for eight years. There was no time limit for the claiming of depreciation. This is not so now. Earlier, therefore, it wa....
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....espect of any asset is not admissible as a deduction under clause (ii) of sub-section (4) of section 37 or sub-clause (ii) of clause (c) of section 40 or sub-clause (ii) of clause (a) of sub-section (5) of section 40A, such depreciation shall be excluded for the purposes of sub-rule (1)." This rule 5AA prescribed the particulars for depreciation necessary to be furnished for allowance of depreciation. Prior to the insertion of rule 5AA, the return of income in the form prescribed itself required particulars to be furnished if the assessee claimed depreciation. Mr. Dastur said that the case set up by the assessee before the Incometax Officer was correct. It was wrong on the part of the Income-tax Officer to allow depreciation in the face of the provision of law to the contrary. He said that calling the books of the assessee for the purpose of computing depreciation is of no relevance inasmuch as depreciation in the books cannot necessarily be the amount of depreciation which is allowable under the Act. Section 37 also uses the words "shall be allowed in computing the income chargeable'. Under this section any expenditure which is not expenditure as described in sections 30 to 3....
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....' for the year 1952-53 computed its total income at Rs. 14,041 before charging depreciation for that year. From that figure he deducted depreciation for the year amounting to Rs. 5,350, thus computing a profit of Rs. 8,681. From this figure he deducted an equivalent amount, i.e., Rs. 8,681, in respect of losses during 1947-48, and he thus worked out the business income as nil. He then computed the dividend income at Rs. 2,01,130 and determined the total income at this figure and levied tax on it. The assessee had in its favour an unabsorbed depreciation aggregating to Rs. 76,857 and it contended before the Income-tax Officer that this sum should be deducted from the income received from dividends, which, if done, would reduce the total income to Rs. 1,32,955, but the Income-tax Officer refused to accede to this contention. The Appellate Assistant Commissioner upheld the order of the Income-tax Officer and the assessee's appeal to the Appellate Tribunal met with the same fate . The High Court, however, accepted the contention of the assessee and answered the question referred to it in favour of the assessee." The court said that the answer to the question depended upon the interpre....
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....partners, full effect cannot be given to any such allowance in any year not being a year which ended prior to the 1st day of April, 1939, owing to there being no profits or gains chargeable for that year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of clause (b) of the proviso to sub-section (2) of section 24, the allowance or part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following year and deemed to be part of that allowance, or if there is no such allowance for that year, be deemed to be the allowance for that year, and so on for succeeding years.' " In conclusion, this court agreed with the High Court and answered the question in favour of the assessee. In Garden Silk Weaving Factory v. CIT [1991] 189 ITR 512 (SC), the questions before this court were : "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee, a registered firm, is entitled to carry forward unabsorbed depreciation from earlier years and that it will be deemed to be an allowance in ....
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.... Officer, however, rejected this contention and held that depreciation must be computed on the written down values of machinery computed as if the income of the assessee had been worked out properly in the years when the company was exempted and the depreciation being allowed at the usual rates. The assessee failed before the Appellate Assistant Commissioner and the Appellate Tribunal. The Appellate Tribunal held that the words "actually allowed" in section 10(5)(b) of the Act were wide enough to cover the case of the assessee. The High Court, however, held that if in the prior years no depreciation had been actually allowed then the actual cost incurred by the assessee for acquiring the machinery would be the written down value of the machinery. This court rejected the contention of the Revenue that on a proper interpretation of section 10(5)(b) of the Act the depreciation must be deemed to have been allowed to the assessee for the years in which the income of the assessee was exempted. The court interpreted the words actually allowed" occurring in section 10(5)(b) to hold that the words actually allowed" did not include any notional allowance. In Beco Engineering Co. Ltd. v. CIT....
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.... depreciation allowance, is, at any rate, a benefit available to the assessee to avail of but if the assessee chooses not to claim it, it would be contrary to reason and law to hold that it must be forced upon him. The High Court said : "There is no gainsaying that allowance for depreciation is a benefit available to the assessee to claim, but not one that can be thrust upon him against his wishes. At any rate, in order to claim depreciation, the assessee must furnish the requisite particulars as prescribed by the Income-tax Act and the Rules made thereunder. In the absence of such particulars, the assessee cannot avail of, nor indeed can he be held entitled to, depreciation. It would be pertinent in this behalf to advert to the judgment of this court in Beco Engineering Co. Ltd. v. CIT [1984] 148 ITR 478, where a reference was made to Circular No. 29D (XIX-14) of 1965, dated August 31, 1965, issued by the Central Board of Direct Taxes which provides that where the required particulars have not been furnished by the assessee and no claim for depreciation has been made in the return, the Income-tax Officer should estimate the income without allowing depreciation allowance. Further,....
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....section 43 (6) (b) of the Act. The provisions of section 32(1) of the Act are intended to confer benefit on the assessee of claiming deductions on account of depreciation in respect of the specified classes of assets and, whenever it is claimed, it ought to be allowed." The High Court also noticed that in that case, admittedly, the assessee had filed his revised return in which he had not claimed the deductions in respect of depreciation under section 32(1)(ii) of the Act and said : The provisions of section 32 are intended to give benefit to the assessee for claiming deductions in respect of depreciation on the type of assets mentioned therein. Furthermore, a mere claim to deduction would not be enough since the deductions are to be allowed subject to the provisions of section 34 which required necessary particulars to be furnished in the prescribed form. Therefore, until a claim is made for allowing deductions of the nature covered under section 32 along with necessary particulars, there would hardly be any occasion for the Income-tax Officer to I allow' any claim. In the context in which the word 'allowed' is used in section 32(1), it is clear to us that the meaning intended i....
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....bjection to the line of action suggested by the assessee, as there is nothing in law to hold that it is mandatory for the assessing authority to allow depreciation even if the assessee withdraws his claim. The court said there could not be any doubt that allowing of deductions as provided under section 32 of the Act itself was subject to the provisions of section 34. Sub-section (1) of section 34 requires furnishing of particulars by the assessee in the return as a condition precedent to claim the deductions, and if he does not choose to do so, it is not mandatory for the Income-tax Officer to find something on the record to impose that benefit upon the assessee. The court also held that once a revised return is filed under section 139(5) of the Act, the original return is substituted by the revised return and, consequently, the entries in the relevant column of the original return seeking depreciation could not be used for any purpose. It is, therefore, not open to the Income-tax Officer to advert to the original return or statement filed along with it for the purpose of allowing deductions after such claim was expressly withdrawn under the revised return. In CIT v. Andhra Cotton....
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....al return. The High Court then went on to observe "Moreover, under section 143(1)(b)(iv), even while making an assessment accepting the return of the assessee, the Income-tax Officer has to allow the proper deduction under section 32. Under section 143(3), an assessment made under section 143(1) is deemed to be incomplete or inadequate if proper depreciation is not allowed. These provisions also indicate, along with section 28 which requires that the income from a business has to be computed in accordance with the provisions of sections 29 to 44, and read with section 145, that depreciation is a proper deduction in arriving at the correct income from business. No doubt, section 34 provides that the deduction shall be allowed only if the prescribed particulars are furnished. This only ensures that correct information is available to the Income-tax Officer for allowing the proper deduction. But this cannot be construed to mean that where the assessee deliberately withholds the information, no deduction for depreciation could be given in computing the income. In the present case, the motivation for the assessee to withdraw the claim for deduction of depreciation is only to get a set-....
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....) of section 34, we do not find any reference to the assessee claiming or not claiming deduction of depreciation. It states that deduction in respect of depreciation 'shall be allowed only if the prescribed particulars have been furnished ;. . .'(emphasis' supplied). A fair reading of this provision conveys that when prescribed particulars have been furnished, there is no option but that the said deductions shall be allowed. The reverse may not follow ; that means, the assessing authority even then may allow the deduction in respect of depreciation, but before he does that he has to require the assessee to furnish the requisite particulars for computing the depreciation allowance. Sub-section (9) of section 139, introduced by the Finance (No. 2) Act, 1980, with effect from September 1, 1980, allows the Income-tax Officer to give an opportunity to the assessee to rectify the return, if he found it defective, and, if within the period allowed the assessee failed to rectify the return, 'the return shall be treated as an invalid return'. " In the case of CIT v. J. K. Industries Ltd. [2000] 241 ITR 537 (Cal), the court held that neither the assessee had claimed the depreciation allowan....
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.... Income-tax Officer did come to know the date on which the truck was purchased, and the original cost of the truck, and from that along with the rate prescribed by the rules for allowing depreciation, he could have computed and allowed depreciation. We are not satisfied that merely because the assessee did not file the necessary particulars in the return filed by him, the Income-tax Officer did not have the jurisdiction to grant the allowance by way of depreciation." In Dasaprakash Bottling Co. v. CIT [1980] 122 ITR 9 (Mad), the Madras High Court considered the fact that though the figures had not been furnished in return as such, but the figures were furnished by the assessee during the course of assessment under protest. The High Court took the view that once the details and particulars required were furnished by the assessee whether furnished under protest or not did not make any difference and depreciation could be allowed. In CIT v. Southern Petro Chemical Industries Corporation Ltd. (No. 2) [1998] 233 ITR 400 (Mad), following its earlier decision in Dasaprakash Bottling's case [1980] 122 ITR 9, the court held that the grant of depreciation was a statutory allowance and even....
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....not require that the particulars should be furnished along with the return. Therefore, once the particulars regarding the grant of depreciation are available, it is open to the Income-tax Officer to grant depreciation, even if the assessee had withdrawn the claim in the revised return." In Hopeville Estate v. State of Tamil Nadu [1978] 112 ITR 861 (Mad), the High Court struck somewhat a different note' It was a case under the Tamil Nadu Agricultural Income-tax Act, 1955. The assessee had claimed depreciation on the value of the tank said to have been constructed for the use of the workers, in the computation of the agricultural income. This claim was rejected by all the authorities on the ground that the depreciation could not be allowed as per the Income-tax Act, 1961, as no particulars necessary to claim depreciation had been furnished. The High Court rejected the contention of the assessee by making the following observations : "Even if the authorities have loosely referred to the applicability of the provisions of the Income-tax Act, still we are of the opinion that the petitioner is not entitled to succeed with regard to the facts of this case. We are assuming for the purpos....
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.... made a business profit of Rs. 2,18,488. Before this assessment year, the assessee had suffered business losses of Rs. 2,43,339, which were carried forward from the years 1964-65, 1965-66 and 1966-67. The assessee also carried forward unabsorbed depreciation for all these three previous years amounting to Rs. 46,696. For the current year 1967-68, there was current depreciation of Rs. 27,047. As the assessee earned business profit of Rs. 2,18,488 without deducting the current depreciation, the question which arose during the Course of the assessment proceedings was whether the carried forward business loss of Rs. 2,43,339 should first be deducted from the business profit or whether from the said profit, the current depreciation should first. be deducted and thereafter the carried forward loss should be deducted. For the assessment year 1967-68, the assessee had also income of Rs. 48,105 from other sources. The Income-tax Officer first deducted the current depreciation of Rs. 27,047 from the profit of Rs. 2,18,488. This gave the balance of Rs. 1,81,041. From this, the Income-tax Officer deducted the carried forward loss of Rs. 2,43,339 thus resulting in the carried forward balance of....
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....iven to the provisions of this section. Section 72 provides for carry forward and set off of business losses. The Revenue thereafter took the matter to the High Court in reference. The High Court was of the view that the observations of the Supreme Court in Jaipuria China Clay Mines' case [1966] 59 ITR 555 "make it clear that the taxable profits or gains from a particular business cannot be ascertained without debiting the current year's depreciation to the profits and gains". It further said that the Supreme Court had held that current year's depreciation was always the first charge on the profit earned in the business in the current year. The High Court finally observed : "One more reason which impels us to take the view which we have taken is that carried forward depreciation cannot be put at par with current year's depreciation for all purposes because carried forward depreciation is made up of current depreciation of respective previous years and as such its components had the chance of being set off partially against the income of the relevant previous years. These components were carried forward only because they could not be fully set off against the income of those releva....
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.... 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 ....