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TMI Blog1970 (8) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... 955. During the relevant accounting year the assessee carried on the business up to 31st March, 1955. Thereafter, according to agreement with the Madhya Pradesh State Electricity Board the assessee sold most of its plant and machinery as installed at the generating centre for a total sum of Rs. 3,27,689. In the relevant assessment year the question arose what should be considered as the assessee-company's profits within the meaning of the second proviso to section 10(2)(vii) of the Act. The Income-tax Officer determined the same at Rs. 1,53,569. The assessee was aggrieved by the order of the Income-tax Officer and preferred an appeal before the Appellate Assistant Commissioner. The Income-tax Officer found that the assessee had derived profits assessable under section 10(2)(vii) of the Income-tax Act on the sale of its plant and machinery in respect of which the depreciation has been allowed. The actual question raised in the reference was not argued expressly before the Income-tax Officer. This particular question in fact cropped up before the Appellate Assistant Commissioner. It will be, therefore, appropriate to set out here the reasons and facts as given by the Appellate Assist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal was that in respect of the second proviso to section 10(2)(vii), which applied in the present case, the meaning of the expression "written down value" should be taken from the general definition given in section 10(5)(b) of the Act. The reasons which were found acceptable by the Tribunal may be briefly set out here. The Tribunal decided that the expression "a further sum" in section 10(2)(vib) is more in the nature of development rebate which was allowed to new industries as an incentive and, therefore, could not be called depreciation which is normally allowed on account of wear and tear at rates much below the rates prescribed for the "further sum". The Tribunal regarded this "further sum" as being obviously allowed as an item of extraordinary expenditure along with other items of expenditure deductible under section 10(2). By making this approach the Tribunal pointed out that there was really no contradiction between section 10(5)(b) and section 10(2)(vi) because according to the Tribunal by the expression "all depreciation actually allowed" used in section 10(5)(b) the legislature could not have contemplated the words "further sum" mentioned in section 10(2)(vi) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10(5)(b) of the Act because the legislature while introducing the second branch in 1946 added a proviso to section 10(5)(b) modifying the written down value in such cases. His second proposition on this branch of the argument is that there is also no justification for considering this second branch of section 10(2)(vi) introduced in 1946 in the light of section 10(2)(vib) inserted in 1955. This, in brief, is the substance of the arguments advanced by Mr. Pal for the revenue to criticise the Tribunal's decision as wrong. Section 10 of the Income-tax Act, 1922, is notorious for its numerous sub-sections with still more numerous sub-clauses, historically introduced in different years and presenting an area of confusion and complexity, whose total canvas is difficult to keep in mind and yet which is a need for coming to a correct interpretation of some of its various sub-sections and sub-clauses. This is an area of law where we think it is better to follow the procedure of considering the case law and the authorities in the first instance before coming to our interpretation of the actual clauses, with which this reference is concerned, instead of the usual procedure of putting forth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s allowed every year till the cost price is wiped out by the amount of depreciation, in other words, till the written down value is reduced to zero. It is provided in the first part of clause (vi); (2) initial depreciation, which is allowed only in the first year of the new construction or the first year of the use of the new plant or machinery; this is commonly understood as initial depreciation and is provided in the latter part of clause (vi); (3) additional depreciation provided in clause (via) which is allowed for the first 5 years of a building which is newly erected or for the first five years of the use of the plant or machinery. Now, according to the department, all these 3 kinds of depreciation were liable to be included in computing the written down value, while according to the assessee-company the amount of initial depreciation was not liable to be included in the computation of the written down value." This is the whole point of controversy both before the Bombay High Court whose decision we axe now noticing and also on this reference before us. The ratio of the Bombay decision appears at pages 426-427 of the report. This may be stated in a few broad propositions. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n sale allows it. We have carefully studied and scrutinised the facts of the Bombay decision and also the reasons and we have come to the conclusion that that case is on all fours with the present reference before us. We see no reason to disagree with the conclusion of the Bombay authority. For the revenue reliance was placed also on the decision of the Madras High Court in Popular Ltd., Madurai v. Commissioner of Income-tax where Rajagopalan J., at page 314 (of 28 I.T.R.) interpreting section 10(2)(vi) of the Income-tax Act, 1922, expressed the view: "In our opinion, the proper construction to be placed upon this clause is that the further depreciation allowance of 20 per cent. should not be deducted in determining what the written down value is for the purpose of clause 10(2)(vi), that is the first paragraph thereof, but it could and should be taken into account for any of the other purposes specified in the Act." The same view was expressed by the Bombay High Court in Asoka Mills Co. Ltd. v. Commissioner of Income-tax where again the same opinion was expressed that although initial depreciation was not taken into account for the purpose of determining the written down value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(vi) but also the depreciation allowances provided under clause (via) or under any Act repealed hereby or under the Indian Income-tax Act 1886. Hence, the ingenious construction tried to be placed by Shri Srinivasan cannot be accepted " Apart from these authorities on which Mr. Pal for the revenue relies in support of his argument, he has also relied on certain observations of the Supreme Court in Commissioner of Income-tax v. Bipinchandra Maganlal & Co. Ltd., appearing in the judgment of Shah J., at page 295 (of 41 I.T.R.) saying: "In computing the profits and gains of the company under section 10 of the Act, for the purpose of assessing the taxable income, the difference between the written down value of the machinery in the year of account and the price at which it was sold (the price not being in excess of the original cost) was to be deemed to be profit in the year of account, and being such profit, it was liable to be included in the assessable income in the year of assessment. But this is the result of a fiction introduced by the Act. What in truth is a capital return is by a fiction regarded for the purposes of the Act as income. Because this difference between the price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... follows from a comparison of these different sub-clauses of section 10. For instance, sub-clauses (vi) and (via) expressly mention the word "depreciation". But sub-clause (vib) speaks of "development rebate" and not "depreciation" and sub-clause (vii) of section 10 of the Indian Income-tax Act speaks of the case of sale or discarding, demolition or destruction of any building, machinery or plant. Therefore, it was argued by the amicus curiae that the word depreciation under section 10(5)(b) should be confined to what is described in sub-clauses (vi) and (via) as depreciation and not to the cases of development rebate under sub-clauses (vib) or to a case of sale under sub-clause (vii) as in the present reference. There is a good deal of force in the above argument. But the authorities which we nave discussed do not seem to justify acceptance of this argument. The scheme of section 10(2) of the Indian Income-tax Act, 1922, appears to put all allowances on the same pedestal. The reason for saying so is also plain from the opening words of section 5 where the meaning appears to be given to different words used only in sub-section (2) of section 10 of the Indian Income-tax Act. That be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of section 10(5) must be deemed not to apply to initial depreciation. (2) We do not think that the provisions of section 10(2)(vi) can be read so that section 10(5) would override or control its provisions. On the other hand, it seems to us that a specific provision was made in section 10(2) because of the special nature of the allowance granted by that clause and the bracketed words are not limited only to that sub-section." It has been pointed out to us that there are some apparent contradictions in these observations. But it will be needless to pursue them having regard to the view that we have already expressed our conclusion on the authorities discussed. Besides, as Kotval C. J. himself said in that decision that all these observations on the sub-clauses of section 10(2) really were obiter as that was not the subject-matter for decision in that Bombay case which was only concerned with what was an error apparent from the record in dealing with a notice under section 154 of the Income-tax Act, 1961. The only other case to which we shall make a bare reference is the decision of the Supreme Court in Commissioner of Income-tax v. Express Newspapers Ltd. where Sub ..... X X X X Extracts X X X X X X X X Extracts X X X X
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