TMI Blog2000 (3) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... could not grant depreciation allowance to the assessee under the Income tax Act, 1961, when the same was not claimed by the assessee ?" The question was referred at the instance of the Revenue to the High Court by the Income-tax Appellate Tribunal ("the Tribunal" for short), for its 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is management or the modification of the terms and conditions relating thereto ; (b) any person, by whatever name called, managing the whole or substantially the whole of the affairs in India of any other company, at or in connection with the termination of his office or the modification of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The written down value of the plant and machinery for the next year will have to be claimed which cannot be the written down value of the current year. Sub-section (2) of section 32 prescribes the mechanism as to how the deduction is to be allowed. Mr. Verma said if the claim for depreciation was a case 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oard of Direct Taxes which provides that it is the duty of the Income-tax Officer to advise the assessee of his right to claim depreciation, etc., but that would arise only if the assessee is ignorant of his right. Moreover, the duty of the Income-tax Officer is to give advice to the assessee of his right and no 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra shift allowance-double shift and triple shift ; (xii) total depreciation ; (xiii) investment allowance claimed (also indicate rate) ; (xiv) remarks (indicate the amount of initial depreciation, investment allowance or development rebate allowed in respect of the assets in an earlier year). (2) Where the depreciation in respect 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 computin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d depreciation and the current year's depreciation be deducted from the total income of the previous year relevant for the assessment year 1952-53 ?" The court noted the following facts in the case : "The Income-tax Officer assessing the respondent, Jaipuria China Clay Mines (P.) Ltd., Calcutta, hereinafter referred to as 'the assessee' 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction between the various allowances mentioned in section 10(2) the only distinction is that while the other allowances may be outgoings, depreciation is not an actual outgoing. The proviso (b) to section 10(2)(vi) is as under : '(b) where, in the assessment of the assessee or if the assessee is a registered firm, in the assessment of its 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 Weavi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the depreciation had been allowed at the usual rates. It was contended by the assessee that no depreciation had in fact been actually allowed to the assessee in any earlier year and, ' therefore, the depreciation should be computed on the original cost of the various items of plant and machinery and other assets of the assessee. The Income-tax 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 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the return for claiming depreciation. For the assessment year 1976-77, the assessee filed its return of income showing a loss of Rs. 22,521. No particulars of the depreciation for the tankers were filed. The Incometax Officer, however, worked out depreciation on the tankers from what he gleaned from the assessee's account. The High Court said that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be made to reflect in the written down value of the assets. If the idea behind the provisions was to provide for compulsory deductions for depreciation, then the written down value of assets acquired before the previous year would have been defined so as to mean actual cost less all depreciation allowable and not 'actually allowed' as provided in 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 furni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciation in the original return. The Income-tax Officer, however, allowed depreciation as per details furnished in the original return. The High Court noticed the divergence of opinion among the High Courts on the question and also referred to a circular of the Central Board of Direct Taxes dated September 4, 1972, to the effect that the Board will have no objection 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, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining the provision for depreciation had been filed. The High Court was of the view that the revised return was not a valid return and rejected the contention of the assessee that since the particulars of depreciation were not given in the revised return, the Income-tax Officer could not take into account the particulars of depreciation contained in the original 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 avail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee or that the Income-tax Officer had asked for the particulars whereupon the assessee furnished them. In its view, therefore, under section 34(1) of the Act and the circular of the Central Board of Revenue, the Income-tax Officer could not have allowed the deduction of depreciation. The High Court said : "We may also observe that, on reading sub-section (1) 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business or profession. The Income-tax Officer is bound to arrive at the true figure of such profits and gains and if in the course of assessment proceedings he comes to know of the relevant particulars necessary for the grant of deduction, he is bound to give effect to it. There is no dispute that during the course of the assessment proceedings in this case the 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he records of the Income-tax Officer, it is not open to the assessee to direct the Income-tax Officer to close his eyes to the particulars available in his files. When the particulars regarding the grant of depreciation were available, the decision of this court in Dasaprakash Bottling Co.'s case [1980] 122 ITR 9 would apply. As seen earlier, section 34 of the Act does 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 deprecia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the court was regarding the priorities in adjustment as between the current depreciation, carried forward depreciation and carried forward losses against the profits and gains of business for the current year in view of the provisions contained in sections 32(2) and 72(2) of the Act. For the assessment year 1967-68, the Gujarat State Warehousing Corporation, the assessee, 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. Fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 1967-68 first the carried forward loss of early years should be deducted and thereafter current depreciation and unabsorbed depreciation of early years should be deducted. Sub-section (2) of section 72 provides that where any allowance or part thereof is, under sub-section (2) of section 32 or sub-section (4) of section 35 to be carried forward, effect shall first be given 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red particulars have not been furnished by the assessee and no claim for the depreciation has been made in the return. The Income-tax Officer in such a case is required to compute the income without allowing depreciation allowance. 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 chargeabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 29 to compute the income by allowing depreciation under section 32. In the second Madras case in CIT v. Southern Petro Chemical Industries Corporation Ltd. (No. 2) [1998] 233 ITR 400, the assessee did claim depreciation but he withdrew the same in the revised return. On that basis, it was held that since the assessee had furnished the particulars regarding the claim of depreciation in the original return, the assessee would not be able to withdraw his claim for depreciation. It would appear that the High Court proceeded on the basis that the revised return was not a valid return under section 139(5) of the Act. The High Court followed its earlier decision in Dasaprakash Bottling Co.'s case [1980] 122 ITR 9. To us it appears that if the revised return is a valid return and the assessee has withdrawn the claim of depreciation it cannot be granted relying on the original return when the assessment is based on the revised return. We get support from the earlier decision of this court in Dharampur Leather Co. Ltd.'s case [1966] 60 ITR 165. Allowance of depreciation is calculated on the written down value of the assets, which written down value would be the actual cost of acquisitio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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