TMI Blog1967 (2) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... ces were served upon the petitioners and orders for stay were passed by this court. The stay orders were later modified by consent to permit the department to complete the rectification proceedings, as there was a risk of limitation expiring, but on the undertaking of the respondents that they would not take any steps in enforcement of their orders, rectifying the assessments. Consequent upon that modification of the stay orders, the department has passed four separate orders for the four years and after these orders were passed the petitioners were allowed to amend the petitions to challenge the said rectification orders also in addition to the notices which were originally challenged. The brief facts upon which the notices came to be issued are as follows : The petitioners are engaged in the business of refining crude oil at Bombay. For the four years mentioned, they were assessed to income-tax and the assessment proceedings included the relief granted to the company under the provisions of section 15C of the Indian Income-tax Act. Under that section, a special exemption from tax is granted to newly established industrial undertakings, subject to stated conditions in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the capital employed in the undertaking after deducting the initial depreciation in each year. To take a concrete instance, for the assessment year 1957-58 in which the main order in these cases has been passed the amount of initial depreciation of Rs. 61,90,385, which was taken into account in arriving at the written down value, has now been ordered to be deducted. The figure of capital employed has thus been decreased resulting in lesser relief to the assessee under section 15C. The reasoning adopted by the Income-tax Officer in making this rectification is clear from paragraph 2 of his order passed in Miscellaneous Petition No. 70 of 1965. According to that order, the Income-tax Officer applied rule 3(1)(a) of the Rules for capital computation for the purpose of section 15C of the Indian Income-tax Act. He pointed out that under that rule read with section 15C the "written down value" of the assets is to be included in the computation of the capital employed. The written down value is defined in rule 2(v) of the said Rules and that written down value was liable to be included under the provisions of section 10(5). He treated the inclusion of the initial depreciation in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. " It will be noticed that the opening words of rule 3(1)(a) speak of "assets . . . entitled to depreciation". If they have been acquired before the computation period, the capital employed would be "their written-down value on the commencing date of the said period". Though the Rules purport to define "depreciation" and "written-down value", they do not carry the definition much further, because the two definitions of "depreciation" and "written-down value" merely refer back to section 10(2), clauses (vi) and (via), and section 10(5) and so we turn to a consideration of those provisions of the Act. Section 10(1) of the Act lays down the incidence of the tax which is payable by an assessee under the head "profits and gains of business, profession or vocation" in respect of the profits or gains of any business, profession or vocation carried on by him. Sub-section (2), which contains as many as 15 separate clauses, provides for allowances to be made. We are concerned with o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lling within the period commencing on the 1st day of April, 1949, and ending on the 31st day of March, 1959 ; (vib) in respect of a new ship acquired or new machinery or plant installed after the 31st day of March, 1954, which is wholly used for the purposes of the business carried on by the assessee, a sum by way of development rebate in respect of the year of acquisition of the ship or of the installation of the machinery or plant, equivalent to,---- (i) in the case of a ship acquired after the 31st day of December, 1957, forty per cent. of the actual cost of the ship to the assessee ; and (ii) in the case of a ship acquired before the 1st day of January, 1958, and in the case of any machinery or plant, twenty-five per cent. of the actual cost of the ship or machinery or plant to the assessee. . . . (vii) in respect of any such building, machinery or plant which has been sold or discarded or demolished or destroyed, the amount by which the written down value thereof exceeds the amount for which the building, machinery or plant, as the case may be, is actually sold or its scrap value : . .. Provided further that where the amount for which any such building, machinery or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the record. That is a condition precedent to the application of section 154 and that condition has not been fulfilled in the present case. He urged that it is only by a process of specious reasoning and a highly debatable view of the law such as the Income-tax Officer has taken that the error is brought out at all. It is, therefore, not an error apparent from the record and not an error which can be rectified under section 154. Alternatively of course, he urged that on the merits the original assessment was correctly made, and that there was no error in that assessment ; that the view taken by the Income-tax Officer in rectifying the assessment was wrong, and, so interference under section 154 was unjustified. The latter question turns upon a correct interpretation of the relevant provisions of the law which we have quoted above. The interpretation must be guided and controlled by the provisions of section 15C under which the relevant Rules were made. What section 15C requires to be computed is the capital employed in the undertaking. The "capital employed" has to be computed "in accordance with such rules as may be made in this behalf by the Central Board of Revenue". Now Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in determining the written down value for the purposes of this clause." Mr. Palkhivala's contention is substantial. If one considers the provisions of clauses (vi), (via) and (vib) of section 10(2), one finds that there are four categories of allowances permitted by this clause. The first part of clause (vi) of section 10(2) provides for what we may call the normal depreciation which is, in all cases, a percentage of the written down value of the buildings, machinery, plant or furniture, which is the property of the assessee, except in the case of ships other than ships ordinarily plying on inland waters with which we are not here concerned. In the second part of clause (vi), however, there is an allowance prescribed for buildings newly erected, or machinery or plant which is new and in the case of such capital assets the allowance is "a further sum" as prescribed "which shall, however, not be deductible in determining the written down value for the purposes of this clause". In other words, in the case of new machinery or plant, the allowance prescribed by this clause is not to be taken into account in determining the written down value for the purposes of this clause. This is re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ention cannot be upheld. Section 10(5) begins with the words "In sub-section (2) ......'written down value' means". We cannot overlook the plain import of these words. After describing all the allowances in section 10(2), the legislature intended to define "written down value" for the purposes of the section. Of course, the words do not occur in sub-section (1) but only in the subsequent clause. Therefore, it was with specific reference to sub-section (2) that the definition was made and we do not suppose that, if clause (vi) of sub-section (2) of section 10 was intended to be excluded, section 10(5) would have been so generally worded as to apply to sub-section (2) as a whole, nor do we think because the words in the brackets "which shall however, not be deductible in determining the 'written down value' for the purposes of this clause" are used in the second part of section 10(2)(vi), that, therefore, the definition of "written down value" in section 10(5) is excluded. Nowhere is that exclusion indicated either expressly or by implication and it is a cardinal rule of interpretation of statutes that every part of a statute must be given a meaning if possible. Considering the two p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a passage from the Budget Speech of the Finance Minister for the year 1955-56. Be that as it may, it is not necessary to go into the history and genesis of these provisions. Suffice it to say that, prima facie, the provisions of sub-section (5) of section 10 expressly provide that the definition of "written down value" contained in that sub-section shall be read into sub-section (2). The provisions of section 10(2)(vi), second part, must be read along with those provisions and so far as the initial depreciation is concerned, it is clearly not to be deducted in determining the written down value for the purposes of clause (vi). Therefore, to that extent the provisions of section 10(5) must be deemed not to apply to initial depreciation. Mr. Palkhivala also pointed to another fact, that the expression "written down value" in clause (vi) is not throughout used in the same sense. As we have already indicated, the first part of clause (vi) provides for the allowance of normal depreciation, whereas the second part provides for an allowance, which is not really in the nature of depreciation but is in the nature of a rebate of taxes given as an incentive. Nonetheless, the words "wr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be an authority in favour of the inclusion of the allowance under clause (vi) in determining the written down value. At page 427, the division bench remarked: " It is clear that the provision made for not deducting initial depreciation in determining the written down value under clause (vi) is to safeguard the interest of the assessee in the matter of his getting normal depreciation in the subsequent years and it is for that reason that it has been provided that it should not be deductible in determining the written down value under clause (vi). It is also clear that the scheme? under clause (vii) appears to be that when a building, plant and machinery are sold, the revenue seeks to recover back tax on the amount of depreciation allowed in the event the price obtained by the assessee on sale allows it." Thus a clear distinction is drawn between the provisions of clause (vi) and clause (vii) and the reasons given as to why initial depreciation is taken into account when a capital asset is sold. So long, however, as the asset continues in the ownership of the assessee, different considerations would prevail. This decision, therefore, re-emphasises the point which we have made in draw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to account in determining the written down value. The result, therefore, is that the written down value of an asset in a given year does not take into account initial depreciation. . . ." We cannot, therefore, hold upon the authority of any of these decisions that the construction of either clause 10(2)(vi) or of section 10(5) is any different from the one which we have shown on the words of those sections prima facie. We say prima facie expressly because we are not called upon to determine all the questions of interpretation or construction which have been pressed upon us, for the petitioners have come before us against notices under section 154 of the Income-tax Act, 1961. The order passed after the consent order of this court shows that the Income-tax Officer found that there was a mistake apparent from the record within the meaning of section 154. We have already discussed prima facie the questions which arise upon the dispute between the parties and the least that we can say about those questions is that they are not easy of a solution nor is the construction so clear that we can possibly say that there was any question arising "apparent from the record". Indeed, the foreg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vious mistake. To the same effect is the decision in Subbaraja Mudaliar v. Commissioner of Income-tax of a Division Bench of the Madras High Court: " ...a mistake capable of being rectified under section 35 is not confined to clerical or arithmetical mistakes; on the other hand, it does not cover any mistake which may be discovered by a complicated process of investigation, argument or proof. " In the earlier portions of this judgment, we think we have said enough to show that the error which the Income-tax Officer purported to correct as an arithmetical error was not an error apparent from the record. As we have said, the error sought to be corrected prima facie did not exist, but even assuming that upon prima facie examination we are wrong, we are completely satisfied that such an error cannot be corrected under section 154 of the Income-tax Act, 1961. We may also add here that it is not open to the authorities to make an error "an error apparent from the record" by ignoring any relevant provision of the law. In the present case we have shown that section 10(2)(vi) had a vital bearing upon the question but in the order of the Income-tax Officer that section was totally ignore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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