TMI Blog2012 (7) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... s not claimed the depreciation on the bulk of assets with the contention that the claim of depreciation is at the option of the assessee - assessee also did not claim any depreciation allowances – Held that:- By not claiming any depreciation allowances, the assessee company had adopted a colorable tax planning devices and hence the case of the assessee is squarely covered within the purview of the decision of the Supreme Court in the McDowell's case (1985 (4) TMI 64 (SC)) - assessee is granted depreciation as per Annexure "A" to this order. The depreciation shall be allowed to be carried forward for eight succeeding years as per section 32(2) of the I.T. Act and the written down value of the assets/additions to the asset's shall accordingly be reduced and this would be the opening WDV for the assessment year 1999-2000 Expenditure incurred under the VRS - capital or revenue – Held that:- Expenditure on the voluntary retirement scheme is an allowable expenditure as the same has been incurred on account of commercial expediency - compensation paid to the workmen who retired prematurely and such expenditure incurred by the assessee for commercial expediency in order to facilitate c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so provide services for repairing of the compressors. The total consideration payable by Tecumseh to Whirlpool was Rs. 52.5 crores, the break up of which are as under: - ( i ) Consideration for Land and Building ( a ) Land Measuring 56 357 sq. Mtr with buildings and improvements thereon Rs. 15.61 crores ( b ) Land measuring 28138 sq Mtr with buildings and improvements thereon Rs. 6.48 crores ( c ) Land measuring 21488 sq. Mtr Rs. 3.01 crores ( i ) Consideration for plant and machinery, equipment etc., Rs. 19.50 crores ( ii ) Purchase price of inventories Rs. 5.25 crores. ( iii ) Non competition fee Rs. 2.65 crores" As per the assessee, the entire transaction was completed before 31.07.1997 except the following two :- "( a ) Land measuring 28138 sq.mtr. and buildings thereon, the consideration of which was fixed at Rs. 6.48 crores. Due to dispute regarding notification for acquisition by the Haryana Government, the said land could not be transferred to Tecumseh at that time and after getting the requisite permission the said land was transferred during the financial year 1999-2000 and has been offered to tax in the assessment year 2000-01. ( b ) Land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 50% sales consideration of Rs. 6.48 crores for the 7 acre part and has also given physical possession of the said property to Tecumseh along with factory complex transferred to Tecumseh during July 1997. The balance 50% was put in a bank account which was also subsequently receivable by the assessee company. Incidentally as per the agreement, interest of this deposit of Escrow Account was also receivable by the assessee. Thus in effect, the assessee had got the full benefit of the entire sale consideration. Hence, even though this seven acre part was subsequently registered in the name of Tecumseh during the previous year corresponding to assessment year 2000-2001, it can be said that said land was actually transferred during the previous year under consideration as part performance of the contract between the parties u/s. 53 of the Transfer of Property Act read with section 2(47)/2(14) of the Act. Accordingly the assessee was asked to show cause why the sales consideration of this 7 acre part should also not be taxed during the year under consideration In response to which the assessee vide its letter dated 222.200 I reiterated the same fact and has stressed on the clause 3 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0. In that case, there was an agreement for sale of machinery after obtaining necessary sanction of the authority concerned. However, the machinery was handed over to the Vendee before obtaining the sanction. The consideration was received after obtaining sanction. The Vendor made entries in the books of accounts after sanction was obtained. The Court held that sale took place after sanction of the competent authority was obtained and long term capital gains accrued only after sale following the sanction. In view of the above facts, I am of the opinion that there was no transfer in terms of section 2(47) or otherwise and therefore, capital gains would not be attracted in this year. As a result, the grounds are allowed." 4. While pleading on behalf of the revenue, learned DR submitted that land measuring 28138 sq. mtrs. (7 acres) with building thereupon was sold for Rs. 6.48 crores. Assessee had received half of payments and balance was put into interest bearing escrow account. Interest thereupon was to be received by assessee on or before registration. Thus, in a way, whole of sale proceeds were received either by assessee or in escrow account and interest earned was also of as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature referred to in section 53A of the Transfer of Property Act would come within the ambit of section 2(47)(v). In order to attract section 53A, the following conditions need to be fulfilled. There should be a contract for consideration; it should be in writing; it should be signed by the transferor; it should pertain to transfer of immovable property ; the transferee should have taken possession of the property; lastly, the transferee should be ready and willing to perform his part of the contract. Even arrangements confirming privileges of ownership without transfer of title could fall under section 2(47)(v). Section 2(47)(v) was introduced in the Act from the assessment year 1988-89 because prior thereto, in most cases, it was argued on behalf of the assessee that no transfer took place till execution of the conveyance. Assessees used to enter into agreements for developing properties with builders and under the arrangement with the builders, they used to confer privileges of ownership without executing conveyance and to plug that loophole, section 2(47)(v) came to be introduced in the Act. Held, that section 2(47)(v) read with section 45 indicates that capital gains wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce it was under notification of Acquisition by the Government of Haryana. The land could not be sold/transferred once it is notified under the Land Acquisition Act, 1894. There was specific condition in the MOU with the Tecumseh transferee that in the case, when assessee is not able to get release the land from acquisition notification then the amount shall be refunded. The assessee was not legally competent to transfer the land without the approval of the Government of Haryana in respect of acquisition notice. There was no transfer in terms of section 2(47)(v) of the Act, hence, there was no capital gain arises. The assessee had actually not parted with the possession of the land but the transfer was for a licence given to Tecumseh under section 52 of the Indian Easements Act, 1882. The MOU clearly spells out the terms and conditions of licence agreement. Ld. AR relied on the decision of Hon'ble Mumbai High Court in the case of Dy. CIT v. Asian Distributors Ltd., [2001] 119 Taxman 171 (Mag.). In the case of Asian Distributors Ltd.'s case ( supra ), the transfer of possession to developer and last installment was due beyond financial year, the Hon'ble Court held that neither ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest accrued in escrow account was payable to the assessee on a monthly basis. The assessee claims that it was a licence fee for enjoying the benefits of the land. In our considered view, this amount cannot be treated as licence fee. The assessee's reliance on the decision of Hon'ble Mumbai High Court in the case of Asian Distributors Ltd. ( cited supra ) is also not of any help as in that case the facts are at variance to the assessee's case. In the case of Asian Distributors Ltd.'s, case ( supra ) the possession of the land is agreed to be given to the developers only upon payment of the last installment and till such time, assessee had a right to revoke contract in certain eventualities and, therefore, the court held that neither in terms of section 2(47)(v) of Income-tax Act nor in terms of Section 53A of Transfer of Property Act, impugned transaction can be classified as transfer of capital asset or would be considered as allowing of the possession of any immovable property in part performance of a contract of nature referred to in Section 53A of the Transfer of Property Act, hence, assessee was not liable to capital gain tax. In the section 2(47) of Income-tax Act, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , other than a right expressly provided by the terms of the contract : Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof." In the case under consideration, the contract for transfer is signed in writing by both sides. The assessee had given the possession of the said land to Tecumesh India (purchaser). Assessee had also received 50% of the sale consideration and balance 50% had been put in escrow account and interest accrued thereupon has been received by the assessee on monthly basis. The assessee was always ready and willing to perform his part of contract. Clauses have been incorporated in the agreement itself that assessee shall receive the necessary release and approval from the Haryana State Government or other official or agency which are necessary. The assessee has also granted an unrestricted exclusive right to use and build upon this land. The Government of Haryana had agreed in principle to release the property out of acquisition notices prior to agreements between assessee and purchaser. Therefore, in our considered view, the assessee has transferred a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elief by holding as under :- "8. Grounds No.4 and 5 are with regard to compulsory grant of depreciation amounting to Rs. 54,94,76,671/- u/s 32 of the Act. The ld. ARs argued that depreciation could not be thrust upon the assessee as it had not claimed deduction for the same. This issue has come up before me in the assessee's own case for A.Y. 1997-98. I have in my order dated 12.1.2007 held that depreciation could not be compulsorily granted if the same had not been claimed and decided the issue in favour of the assessee. In this year also, these grounds are decided in favour of the assessee for reasons mentioned in the aforesaid order. Hence, these grounds are allowed." 10. At the outset of the hearing, the learned AR submitted that this issue is covered in favour of the assessee by the Delhi Bench of the Tribunal in the assessee's own case for the AYs 1997-98 and 1999-00. 11. Learned DR submitted that although this issue has been decided by the Tribunal in favour of the assessee in earlier orders as referred by the learned AR but the ITAT has not considered the decisions in the following cases :- ( i ) Asstt. CIT v. KRBL Ltd. [I.T. Appeal Nos. 3771 to 3777 (Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion basically in this matter is concerning computation of deduction under Chapter VI-A in which section 80HH falls. Profits and gains of a newly established undertaking, therefore, have got to be computed as per the provisions of section 29 to section 43A and if the assessee claims relief under Chapter VI-A of the Act, then it is not open to the assessee to disclaim depreciation allowance. This is because Chapter VI-A is an independent code by itself for computing these special types of deductions. In other words, one must first calculate the gross total income from which one must deduct a percentage of incomes contemplated by Chapter VI-A. That such special incomes were required to be computed as per the provisions of the Act, viz., section 29 to section 43A, which included section 32(2). Therefore, one cannot exclude depreciation allowance while computing profits deprived from a newly established undertaking for computing deductions under Chapter VI-A. Therefore, the appellant's claim for allowance of deduction under section 80HH, without taking into consideration the current depreciation will have to be rejected." 10. From the above decision it is clear that for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2000-01. It was further submitted by the learned counsel that, in the event, the ITAT was not for some reason in agreement with the earlier decision of the co-ordinate benches of ITAT, it was duty bound to refer the matter to a larger bench. Reliance in support of this submission was placed on a judgment of this Court in the case of DLF Universal Ltd. v. CIT [2008] 6 DTR 113. (ii) the judgment of the Special bench of the ITAT in case of Vahid Papers Converters ( supra ) was distinguishable and, (iii) on merits of the case, it was submitted, that the, Assessee had an option to claim depreciation under Section 32 of the Act, and that, it cannot be thrust on the Assessee while determining the eligible profits and gains for the purpose of ascertaining the amount deductible under Section 80 IB and 80 HHC. 1st contention 7. In so far as the first contention is concerned, according to us, the submission is thoroughly misconceived. The ITAT has, after considering the applicability of the decision of the special bench in the case of Vahid Paper Converters ( supra ), come to the conclusion that the ratio of the said decision is squarely applicable to the facts of the instant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ides for definition of terms and expressions used in the Act. Chapter-II broadly deals with basis of charge, the scope of total income, provisions by which a person is held to be resident in India, and incomes which are deemed to accrue or arises in India. Reference in this regard may be had briefly to the following sections appearing in Chapter-II of the Act:- 9.2.1 Section 4 of the Act provides that income tax shall be charged for any assessment year in respect of the total income of the previous year of every person. "Previous year" has been defined under Section 3 of the Act to mean any financial year which immediately precedes the assessment year. The expression "total income" is in turn defined under Section 2(45) of the Act. The said section defines "total income" to mean total amount of income referred to in Section 5, computed in the manner laid down in the Act. The scope of "total income" is provided under Section 5 of the Act. Section 5, inter alia, provides that the total income of any previous year of a person who is a resident will include all income derived from any source which is, received or is deemed to have been received in India by or on behalf of such person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 32 of the Act becomes necessary. Section 32(1) of the Act allows for deduction on account of depreciation in respect of (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after 1.4.1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession. Sub-section (2) of Section 32 provides that where an assessee has not been able to give full effect to depreciation allowance as provided in sub-Section (1) in any previous year, owing to the fact that there are no profits or gains chargeable for that previous year, or owing to the fact that profit or gains chargeable being less than the depreciation allowance then, the Assessee can carry forward unabsorbed depreciation subject to the provisions of sub-Section (2) of Section 72 and sub-Section (3) of Section 73 of the Act. Sections 30, 31 and 32(A) to 35(E) provide for rebates, allowances and deductions under various heads. Section 36 provides for certain "other deductions" specified therein while, computing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re which is derived or received by the assessee and which is included in his gross total income. Importantly, gross total income for the purposes of this chapter (i.e., Chapter VI-A) has been defined in Section 80B(5) in the following terms :- "gross total income means total income computed in accordance with the provisions of this Act, before making any deduction under this chapter." 9.8 The incomes in respect of which deductions is sought, in the instant case, are those which are referred to in Section 80-IB and 80HHC. Under Section 80 HHC a prescribed percentage of deduction is allowed while computing the total income of the assessee on the profits and gains derived by the assessee from the export of such goods or merchandise. Similarly, under Section 80 IB an Assessee is allowed a deduction in computation of his total income of a prescribed percentage of his profits and gains derived from industrial undertakings which are defined as eligible businesses under sub-Sections (3) to (11) (11A) of Section 80-IB, for such assessment years as provided therein. 10. A conjoint reading of the provisions of the Act would show that Chapter VIA of the Act refers to special types of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of profit and gains derived from the industrial undertakings and/or businesses specified under Section 80-IB and Section 80HHC of the Act, and consequent thereto led to an enhancement of the quantum of deduction under the said provisions. Secondly, by this methodology the Assessee ensured that it could avail the benefit of depreciation allowance on a higher written value of the assets in the years subsequent to the period over which the deductions under Sections 80-IB and 80HHC would be available. 13. It is, thus, according to us important to bear in mind the scheme of the Act which envisages that, while computing normal profits which does not involve relief by way of special deduction provided for under Chapter VI-A of the Act, an Assessee is entitled to opt out of a claim for depreciation allowance. In other words, the Assessee can choose to declare and pay tax on a greater amount of income. Where, however, the Assessee seeks to claim "special deductions" under Chapter VI-A of the Act, there is no option available to the assessee, but to provide for depreciation allowance while calculating the eligible profits and gains on which deduction is permissible under the provisions s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes and the benefit of both must be available to an assessee, without the one impinging on the other. It will thus appear that the Kerala High Court has regarded section 72 appearing in Chapter VI as a provision unconnected with the computation of the total income of an assessee and a provision which comes into operation at a stage subsequent to the computation of the total income arising from business done in accordance with Sections 30 to 43A occurring in Chapter IV of the Act and, therefore, the unabsorbed losses cannot be set off before calculating the deduction under Section 80E. It is not possible to accept the view that section 72 has no bearing on, or is unconnected with, the computation of the total income of an assessee under the head "Profits and gains of business or profession". Actually, section 72(1) provides that where the net result of computation under the head "Profits and gains of business or profession" is a loss and such loss cannot be or is not wholly set off against the income under any head of income in accordance with the provisions of section 71, so much of the loss as has not been so set off, subject to the other provisions of the Chapter, shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter VI-A. For that purpose, one has to keep in mind the provisions of sections 80B(5) and 80AB. Consequently, section 80HH, inter alia, lays down that if the gross total income includes profits from a newly established undertaking then 20 per cent of such profits would be deductible from the gross total income in order to arrive at the total taxable income. That, in such a case, profits derived from a newly established undertaking shall be computed in accordance with the provisions of the Act, i.e., section 29 to section 43A. Therefore, net profit will have to be computed in accordance with the provisions of the Act. The argument of the assessee is that in view of the judgment of the Supreme Court in Mahendra Mills' case [2000] 243 ITR 56, it is open to the assessee not to claim depreciation allowance under section 32 and consequently it is argued that 20 per cent rate of deduction should be applied to Rs.100 in the above illustration, without taking into account the depreciation. We do not find any merit in this argument. The scheme of section 4 and section 5 of the Income-tax Act does indicate that income-tax is a tax in respect of income computed as per the provisions of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of the Act, viz., section 29 to section 43A, which included section 32(2). Therefore, one cannot exclude depreciation allowance while computing profits derived from a newly established undertaking for computing deductions under Chapter VI-A. Therefore, the appellant's claim for allowance of deduction under section 80HH, without taking into consideration the current depreciation will have to be rejected." 15. We are in agreement with the ratio of the decision of the Bombay High Court in the case of Indian Rayon Corporation Ltd. (supra). 16. In view of the discussion above, no fault can be found with the decision of ITAT on merits as well. The Tribunal has correctly applied the law. Consequently, no substantial question of law arises for our consideration. The appeals are dismissed. 3. Kellogg India (P) Ltd. v. ITO [2006] 8 SOT 679 (Mum) 7. We have heard the rival submissions and considered the material on record. Hon'ble Supreme Court in Mahendra Mills' case ( supra ) held as under : "Language of the provision of sections 32 and 34 are specific and admits of no ambiguity section 32 allows depreciation as deduction subject to the provisions of section 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls' case ( supra ) protected the interest of assessee by prohibiting the Assessing Officer from reducing the depreciation to work out WDV to be carried forward to the next year. It was held in Mahendra Mills' case that depreciation allowed means actually allowed and not notionally allowed. 9. Thus, so long as section 34 was in statute, the depreciation under section 32 could not be allowed in the absence of particulars furnished by the assessee. After deletion of section 34 and rule 5AA, there is no requirement of particulars to be furnished and hence, Assessing Officer cannot ignore depreciation. He will take the particulars from the earlier year from the record and calculate depreciation as per prescribed rates on the basis of WDV carried forward in preceding year. There is a material change in the scenario, after concept of block of assets had come into the statute. Once an asset is a part of block of assets, working of and allowing of depreciation is automatic from year to year irrespective of any claim made by the assessee in this behalf. This working is not stopped for want of any claim or furnishing of particulars. Therefore, decision of Hon'ble Supreme Court in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally allowed depreciation has to be considered. It does not lay down a law that even after the deletion of section 34, depreciation could not be worked out by the Assessing Officer, if not claimed by the assessee. While considering the decision of Special Bench, which has considered the decision of Mahendra Mills ( supra ) the question involved was whether depreciation though allowable but not claimed in the return of income has to be allowed while computing deduction under chapter-VIA. This question was answered against assessee. For the purposes of computing deduction under Chapter-VIA and for working out total income or profit for that purpose, depreciation actually allowable has to be considered and irrespective of whether it was claimed in earlier years or not. The learned counsel for assessee suggested that there should be two computations of total income, one for the purpose of computing deduction under Chapter-VIA wherein depreciation whether claimed or not has to be considered and the other for the purposes of gross total income for which depreciation will be considered only when it is claimed. We do not think that this interpretation is correct. Computation of income, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion has to be allowed in any case to compute income. Such income after allowing depreciation will form part of gross total income. At the relevant time, when section 34 was in the statute, depreciation could be allowed only when particulars were furnished. Hence, income of that nature on which deduction under Chapter VI-A had to be allowed could be worked out without considering depreciation. This 'income' thus would be the same either for being part of gross total income or for becoming a base for computing deduction under Chapter VI-A. After removal of section 34 and rule 5AA, particulars are no longer necessary. Therefore, 'income' would be computed after allowing depreciation, whether claimed or not. This 'income' again would remain the same for both the purposes i.e., for becoming part of gross total income and for becoming base for deduction under Chapter VI-A. If Hon'ble special Bench holds that depreciation has to be allowed from the income before allowing deduction under Chapter VI-A, then such income alone computed after allowing depreciation would be the part of gross total income and not the one worked out without allowing depreciation. In GP Electronics Ltd.'s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the return, will not disentitle the assessee to claim/allowance/relief. The Assessing Officer is not estopped from computing income as per Income-tax Act, 1961. Format of the return of income does not decide either the statutory liability of the assessee or restricts the statutory duty of the Assessing Officer, unless they are backed by statutory provisions. Such formats in the return in any case have undergone changes from time to time, particularly, in respect of claim of depreciation. Now in block of assets, no specific particulars are required to be submitted in respect of depreciation to which an assessee is entitled for the block. No such option is available to the assessee either to claim depreciation or not to claim. The data of block of assets can be obtained from the particulars furnished in earlier year. In the current year, data about sale and purchases of assets can be obtained from the balance sheet or other financial statements. In any case, the question involved is not of an option available to an assessee, but is that of provisions of law existing at the relevant time. When section 34 and rule 5AA were in the statute, one could say that if assessee does not want ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed return without considering the claim of depreciation would be a proper assessment. In Kerala Electric Lamp Works Ltd.'s case ( supra ), the issue was as to whether Explanation 5 to section 32 inserted by Finance Act, 2001 would be applicable from 1-4-2002 or for prior years. It was held that explanation is prospective. Thus, the question as to whether depreciation is only at the option of the assessee even after withdrawal of section 34 was not before Hon'ble Courts in the above two cases. On the other hand, in Madhana Exports (P.) Ltd. v. Asstt. CIT [2002] 82 ITD 306 (Mum.) it was held by ITAT, Mumbai that the depreciation has to be considered because of omission of section 34. In view of this, we hold that the computation of income of assessee is to be done after working out depreciation. We therefore, decide the issue in favour of the revenue and dismiss this appeal of assessee. 12. In the result, the appeal of the assessee is dismissed. 4. Sri Padmavathi Srinivasa Cotton Ginning Pressing Factory v. DCIT [2009] 125 TTJ 411 (Visakha) 5. With regard to the first question, learned Authorised Representative placed his reliance on the decision of Hon'ble Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble Madras High Court in the case of CIT v . Sree Senhavalli Textiles (P) Ltd. [2003] 183 CTR (Mad) 453 : [2003] 259 ITR 77 (Mad) and the decision of Hon'ble Kerala High Court in the case of CIT v . Kerala Electric Lamp Works Ltd. [2003] 183 CTR (Ker) 182 : [2003] 261 ITR 721 (Ker), has held that Expln. 5 will have only prospective operation. 5.3. The Hon'ble Supreme Court in the case of Gold Coin Health Food (P) Ltd. (supra ) has reversed its own decision in the case of Virtual Soft Systems Ltd. v . CIT [2007] 207 CTR (SC) 733 : [2007] 289 ITR 83 (SC). While arriving at this decision, Hon'ble apex Court considered the principles of statutory interpretation. The relevant observations are extracted below : "As noted by this Court in CIT v . Podar Cement (P) Ltd. [1997] 141 CTR (SC) 67 : [1997] 5 SCC 482 the circumstances under which the amendment was brought in existence and the consequences of the amendment will have to be taken care of while deciding the issue as to whether the amendment was clarificatory or substantive in nature and, whether it will have retrospective effect or it was not so. In 'Principles of Statutory Interpretation', 11th Edn. 2008, J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y implication made to have a retrospective operation. But the rule in general is applicable where the object of the statute is to affect vested rights or to impose new burdens or to impair existing obligations. Unless there are words in the statute sufficient to show the intention of the legislature to affect existing rights, it is deemed to be prospective only- 'nova constitutio futuris formam imponere debet non praeteritis' -a new law ought to regulate what is to follow, not the past. (See Principles of Statutory Interpretation by Justice G.P. Singh, 9th Edn., 2004 at p. 438.) It is not necessary that an express provision be made to make a statute retrospective and the presumption against retrospectivity may be rebutted by necessary implication especially in a case where the new law is made to cure an acknowledged evil for the benefit of the community as a whole (ibid., p. 440). 14. The presumption against retrospective operation is not applicable to declaratory statutes. In determining, therefore, the nature of the Act, regard must be had to the substance rather than to the form. If a new Act is 'to explain' an earlier Act, it would be without object unless construed ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date of amendment. The relevant observations are extracted below : "As we have noticed this Explanation was inserted as per the Finance Act, 2001, and the explanation itself was given effect to only with effect from the 1st day of April, 2002, and when the legislature has expressly given effect to the Explanation to commence from 1st day of April, 2002, only we do not see any force in the contention raised by learned counsel appearing for the Revenue that de hors the express provision the section should be given retrospective effect contrary to the legislative intention." The Hon'ble Madras High Court has also observed on the similar lines. However as pointed by learned Departmental Representative, though the amendments were made to Expln. 4 to section 271 by the Finance Act, 2002 w.e.f . 1st April, 2003, the Hon'ble Supreme Court has held that these amendment is clarificatory and not substantive. In that case, it will have retrospective operation. 5.5 Now let us consider whether the Expln. 5 to section 32, inserted by Finance Act, 2001 is clarificatory or substantive in nature. The notes on clauses relating to the Finance Bill, 2001 explains the amendment made to section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Authorised Representative placed his reliance on the decision of Hon'ble Supreme Court in the case of Mahendra Mills ( supra ). On a careful consideration of the said decision, we notice that the law relating to depreciation that was prevailing at the relevant point of time was altogether different from the one now exists. The following points highlight the basis on which Hon'ble apex Court arrived at the decision : ( a ) The year under consideration in that case was assessment year 1974-75. ( b ) The Hon'ble apex Court recognized the fact that section 32 has been amended by the Taxation Laws (Amendment and Miscellaneous Provisions) Act? 1986 w.e.f 1st April, 1988 and hence the apex Court confined itself to the provisions of section 32 and other sections that were applicable to assessment year 1974-75. ( c ) Sec. 32, as it stood at the relevant point of time read 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clude any notional allowance. By following the said interpretation, the apex Court in this case held as under : "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.". 5.7 The effect of omission of section 34 and r. 5AA and consequential amendment in section 32 by omitting reference to section 34 makes it clear that one cannot take support from the decision of the Hon'ble apex Court in the case of Mahendra Mills ( supra ), after the amendment. Sec. 43(6) of the Act which defines the term "WDV" reads as under : "WDV 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 " The term "actually allowed" still exists und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gg. Co. Ltd. v. CIT [1999] 236 ITR 344 (Punj. Har.) ( v ) Chief CIT v. Machine Tool Corpn. of India Ltd. [1993] 201 ITR 101/67 Taxman 363 (Kar.) ( vi ) CIT v. Arun Textile [1991] 192 ITR 700 (Guj.) ( vii ) CIT v. Andhra Cotton Mills Ltd. [1997] 228 ITR 30/94 Taxman 50 (AP) ( viii ) CIT v. Agya Wanti [2001] 248 ITR 641/114 Taxman 557 (J K.) ( ix ) Sial SBEC Bioenergy Ltd v. Dy. CIT [2004] 4 SOT 730 (Delhi) ( x ) Medley Pharmaceuticals Ltd. v. ITO [2001] 71 TTJ 328 (Mum.) ( xi ) Royal Diam in ITA No. 4172/Murn/2000 (Mum.) ( xii ) Uvifort Metalizers v. Dy. CIT [2001] 73 TTJ 381 (Ahd.) ( xiii ) Plastiblends (India) Ltd. v. ITO [2005] 95 TTJ 1062/94 ITD 295 (Mum.) ( xiv ) Beta Naphthol (P.) Ltd. v. Dy. CIT [1994] 50 TTJ 375 (Indore) ( xv ) Asstt. CIT v. Gujarat State Fertilizers Co. Ltd. [2001] 117 Taxman 159 (Ahd.) (Mag.) ( xvi ) Amrit Protein Foods Ltd. v. Dy. CIT [ITA Nos. 6850, 6851 6852/Del/94] He further submitted that amendment in section 32(1) for introducing Explanation (5) for making allowability of depreciation compulsory is prospective in nature and it is w.e.f. 1.4.2002. This amendmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shwar Sahkari Karkhana Ltd., 177 ITR 443. The Assessing Officer did not accept the contention of the assessee. It is noted by him that the case law quoted by the assessee pertained to a period when section 34 was on Statute Book. After the deletion of this section w.e.f. 1.4.1988, depreciation shall be granted even if the prescribed particulars have not been furnished. The Assessing Officer trusted upon the assessee of the depreciation of Rs. 2338.88 lakhs. 4. Being aggrieved, the assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals). Before the Commissioner of Income-tax (Appeals), reliance was placed on the judgment of the Hon'ble Apex Court rendered in the case of CIT v. Mahindra Mills , 243 ITR 56. Reliance was also placed on the judgment of the Hon'ble Bombay High Court rendered in the case of CIT v. Someshwar Sehkari Karkhana Ltd., ( supra ). Reliance was also placed on the judgment of the Hon'ble Madras High Court rendered in the case of CIT v. Sree Senhavalli Textiles Pvt. Ltd., 259 ITR 77 and of the Hon'ble Kerala High Court in the case of CIT v. Kerala Electric Lamp Works Ltd., 261 ITR 721. The Commissioner of Income-tax ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax (Appeals) on this issue. This ground of the revenue is rejected." Respectfully following the same, we dismiss this ground of revenue's appeal. 12.2 Ground No. 3 in revenue's appeal is against allowing the VRS expenditure of Rs. 1,52,81,000/- as against the capital expenditure treated by the AO. 13. The assessee has debited VRS expenditure and treated the same as revenue expenses. Learned DR submitted that this expenditure was incurred to carry out restructuring and introduced automation on different areas. The assessee has reduced the strength of the employees and for that, the restructuring of human resource and financial engineering etc. was carried out and ex-gratia payments are made to encourage the scheme to further the long term advantage of the company and by making the ex-gratia payments, the company has got enduring benefit. Thus, it was an advantage for the enduring benefit for the business of the assessee, therefore, it is a capital expenditure and the AO has rightly held it as capital expenditure. Ld. DR relied on the order of Assessing Officer and pleaded that the order of CIT(A) deserves to be set aside. 14. On the other hand, the learned AR re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3] 66 Taxman 143 (Cal.); ( iv ) Anglo- Persian Oil Co. (India) Ltd. v. CIT [1933] 1 ITR 129 (Cal.); ( v ) Madura Coats v. Dy. CIT [2005] 273 ITR 32/145 Taxman 226 (Mad.). Ld. AR also relied on the decision of ITAT in the case of Foseco India Ltd. v. Asstt. CIT [ITA No. 4667/Mum./2005] and Siel Ltd. v. Dy. CIT [2008] 20 SOT 144 (Delhi). He final submitted that the provisions of section 35DDA are not applicable in assessee's case as the same has been inserted by the Finance Act, 2001 w.e.f. April 1, 2001. 15. We have heard both the sides in detail. After hearing the same, we hold that the provisions of section 35DDA providing for amortization of expenditure incurred under the VRS have come into the statute by the Finance Act, 2001 w.e.f. 1.4.2001, therefore, these are not applicable to the AY 1998-99 which is under consideration. Further, in the umpteen number of decisions by the various courts, it has been held that the expenditure on the voluntary retirement scheme is an allowable expenditure as the same has been incurred on account of commercial expediency. This is a compensation paid to the workmen who retired prematurely and such expenditure incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X
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