TaxTMI 
TaxTMI 
1981 (11) TMI 18
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....nal had directed the ITO to give relief to the assessee under s. 15C of the Indian I.T. Act, 1922, and compute the capital employed for the purpose in accordance with the rules. The ITO computed the capital as stated above and the assessee was aggrieved by the reduction of the written down value of the fixed assets by the initial depreciation. It was suggested before the AAC that the Bombay High Court had held in the case of Burmah Shell Refineries Ltd. [1968] 67 ITR 653, to which we shall presently refer, that for the purpose of computing the capital employed under s. 15C of the 1922 Act, the written down value had to be worked out without deducting therefrom the initial depreciation. The AAC accepted this view and further held that it was at best a debatable issue and, therefore, the ITO should not have computed the capital in the manner done. Aggrieved by the said decision of the AAC, the Department went up in appeal. The first contention was the applicability of s. 35 of the old Act in rectifying the mistake. As this has not been referred to us, we need not detain ourselves on this aspect of the matter. The Tribunal in its order observed as follows : We agree with the sub....
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....otel, computed in accordance with such rules as may be made in this "behalf by the Central Board of Revenue ...... .. As mentioned hereinbefore, the computation of capital necessary for this purpose for giving relief had to be done in accordance with such rule as might be made in that behalf by the CBR. Such rules were made by the Indian Income-tax (Computation of Capital of Industrial Undertakings) Rules, 1949. Relevant portion of r. 3 of the said Rules provided, inter alia, as follows : " 3. (1) For the purpose of s. 15C of the Act, the capital employed in an undertaking to which the said section applies shall be taken to be (a) in the case of assets acquired by purchase and entitled to depreciation (i) if they have been acquired before the computation period, their written down value on the commencing date of the said period: (ii) if they have been acquired on or after the commencing date of the computation period, their average cost daring the said period ......" It would also be relevant for our purpose to refer to s. 10(5) which provides for the different meanings, namely, the expressions " paid" "plant scientific apparatus " and " surgical equipment " and the ....
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....f the I.T. Act, 1961. Section 43, sub-s. (6) provides the meaning of the written down value. Sub-section (6) of s. 43, stipulates as follows : "(6) 'Written down value' means (a) in the case of assets acquired in the previous year, the actual cost to the assessee ; (b) in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Act, or under the Indian Income-tax Act, 1922 (XI of 1922), or any Act, repealed by that Act, or under any executive orders issued when the Indian Income-tax Act, 1886 (II of 1886), was in force : " By an amendment introduced retrospectively by s. 6 of the 2nd Finance Act, 1965, a proviso was added which stipulates as follows : " Provided that in determining the written down value in respect of buildings, machinery or plant for the purposes of clause (ii) of subsection (1) of section 32, 'depreciation actually allowed' shall not include depreciation allowed under sub-clauses (a), (b) and (c) of clause (vi) of subsection (2) of section 10 of the Indian Income-tax Act, 1922 (XI of 1922), where such depreciation was not deductible in determining the written down va....
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....it did not form part of the assessable profits, undoubtedly it did form part of the commercial profits. Explaining the nature of initial depreciation, the Supreme Court observed, inter alia, at p. 647 of the report, as follows : " Depreciation allowance has been allowed to be deducted from the assessable profits of an assessee under section 10(2)(vi) of the 1922 Act, corresponding to section 32 of the 1961 Act. It would appear from the report of the Taxation Enquiry Commission 1953-54, Vol. 11, as to what is the nature of the depreciation allowance : vide Chapter V, page 74. The normal depreciation provided in clause (vi) and the additional depreciation mentioned in clause (via) of section 10(2) of the 1922 Act, is permitted to be deducted from the 'written down value'. By and large, the cost of replacements is allowed as deductions in lieu of depreciation in respect of certain assets. By the amendments made by the Income-tax (Amendment) Act, 1946, the Finance Act, 1955, and the Finance Act, 1956, certain initial depreciation was allowed in respect of buildings newly erected or the machinery and plant newly installed. Obviously, it was by way of an incentive for the new structur....
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....ement in future years. In our opinion, it was meant merely to reduce the tax liability of the assessee in order to give him an incentive to instal new machineries or plants." From the aforesaid observations of the Supreme Court it is clear that initial depreciation was given in order to give an incentive to instal new machinery or plant; in other words, it was treated more or less in the same manner as development rebate. Keeping that purpose in view, we have to construe the expression used in this case. This precise question came up for consideration before the Bombay High Court in the case of Burmah Shell Refineries Ltd. v. G. B. Chand, ITO [1968] 67 ITR 653. There what happened was that the ITO had computed the capital employed in an undertaking for the purpose of granting relief to the, assessee under s. 15C of the Indian I.T. Act, 1922, on the basis of the written down value of the assets as per the income-tax records without deducting initial depreciation from the written down value and subsequently sought to rectify it under s. 154 of the I.T. Act, 1961, on the ground, that there was an " error apparent from the record " as the initial depreciation was not deducted. It wa....
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....y or plant and the initial depreciation allowance admissible under that clause for the first year of erection of the building or the installation of the machinery or plant, in not more than five successive assessments for the financial years next following the previous year in which such buildings are erected and such machinery and plant installed and falling within the period commencing on the 1st day of April, 1949, and ending on the 31st day of March, 1959. " The Bombay High Court referred to sub-s. (2) of s 10 of the Indian IT. Act, 1922, for the meaning of the written down value. Reliance was placed on cl. (b) of s. 10(5) and the ITO held that the " written down value " for the purpose of computing capital employed under s. 15C would be " less all depreciation ". Therefore, it was emphasised that the initial depreciation granted under s. 10(2)(vi) should not have been taken into account. On behalf of the assessee, however, reliance was placed upon the second part of s. 10(2)(vi) and specially upon the words in brackets in that clause, namely, " which shall however not be deductible in determining the written down value for the purposes of this clause ". It was urged that in....
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....ssible. Considering the two provisions, we can see no difficulty in giving effect to both the provisions. In this connection, the legislative history of this section was also stressed. Clause (b) of section 10(5) was included in the Indian Incometax Act by the Indian Income-tax (Amendment) Act (23 of 1941). The provision of section 10(5)(b), which includes within the meaning of ' written down value ' the depreciation allowed to an assessee, was already there, long before the various categories of allowances contemplated in the second part of clause (vi) and clauses (via), (vib) and (vii) were even contemplated. All these new form of allowances came into force later and particularly the allowance of initial depreciation was introduced by the Indian Income-tax (Amendment) Act (8 of 1946), but the words in section 10(5) defining 'written down value ' to include in the case of assets acquired before the previous year, all depreciation actually allowed to an assessee continued to operate throughout. Notwithstanding that provision of law, express provision was made in the second part of clause (vi) of section 10(2) not permitting deduction of the allowance on initial depreciation in d....
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....ust be read in its turn subject to the provisions of section 10(2)(vi) second part, where initial depreciation is concerned. We may also point out that additional depreciation, which was made allowable by the introduction of clause (via), is again expressly stated to be deductible in determining the written down value and this express statement, in contrast to the contrary express statement in section 10(2)(vi), second part, highlights the effect of the words in the latter clause. Where an express provision is made not permitting deduction from written down value, we can hardly hold upon the provisions of section 10(5) that, notwithstanding that provision, it must be included in the written down value." Thereafter the Bombay High Court referred to the three decisions, namely, the decision in the cases of Motor House (Gujarat) Ltd. v. CIT [1963] 48 ITR 419 (Bom), Popular Ltd. v. CIT [1955] 28 ITR 309 (Mad) and Asoka Mills Co. Ltd. v. CIT [1958] 33 ITR 377 (Bom). The High Court w as of the view that the said decisions did not deal with the actual question and, therefore, could not throw so much light on the matter nor did it express the view that the initial depreciation should no....