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TMI Blog2008 (8) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment year 1982-83. The assessee, being aggrieved, carried the matter in appeal before the Commissioner of Income-tax (Appeals). By order dated July 27,1988, the Commissioner of Income-tax (Appeals) came to the conclusion that the WDV was wrongly reduced by deduction of initial depreciation amounting to Rs. 6,74,500 (rupees six lakhs seventy-four thousand five hundred only). It was noted by the Commissioner (Appeals) that the assessee-company had commenced its business of running a hotel with effect from October 25, 1981. Though normal depreciation was allowed in the assessment year 1982-83, initial depreciation was not debited because of the provisions of section 32(1)(v) of the Act, which prohibited such allowance, as they stood at the relevant time. It is further noted by the Commissioner of Income-tax (Appeals) that the written down value at the beginning of the calendar year 1982, being previous year relevant to the assessment year 1983-84, was adopted on the basis of the normal depreciation allowed for the immediate preceding assessment year, namely, the assessment year 1982-83. Thereafter, the same pattern was followed for the assessment year 1984-85, subject to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer was justified in reducing the written down value by the figure of such initial depreciation granted for the assessment year 1982-83. Though served, there is no appearance on behalf of the respondent-assessee. Attention of Mr. Naik was invited to the decision in the case of ITC Ltd. v. CIT [1994] 205 ITR 126 (Cal) and the decision in the case of CIT v. Adyar Gate Hotel Ltd. [2001] 252 ITR 129 (Mad). In relation to the decision of the Calcutta High Court in the case of ITC Ltd. v. CIT [1994] 205 ITR 126, it was contended by Mr. Naik that the same was relatable to the assessment year 1981-82 and the Calcutta High Court was not required to render any opinion in the context of the amendment carried out by the Finance Act, 1983. The said decision, according to him, therefore, could not operate as judgment in relation to controversy involved in the present reference. In relation to the decision of the Madras High Court in the case of CIT v. Adyar Gate Hotel Ltd. [2001] 252 ITR 129, it was submitted that the said decision had omitted to deal with the provisions of section 43(6) of the Act and, hence, could not be treated as an authority for the purposes of resolving the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on actually allowed' shall not include depreciation allowed under sub-clauses, (a), (b) and (c) of clause (vi) of sub-section (2) of section 10 of the Indian Income-tax Act, 1922 (11 of 1922), where such depreciation was not deductible in determining the written down value for the purposes of the said clause (vi)." It is not in dispute that under clause (v) of section 32(1) of the Act, the assessee was granted initial depreciation at the rate of 25 per cent, of the actual cost of erection of the building in the assessment year 1982-83. The said sum had not been taken into consideration for the purpose of determination of the written down value for the purposes of granting depreciation under section 32(1)(ii) of the Act because of the last portion appearing in clause (v) of section 32(1) of the Act. This phrase, "but any such sum shall not be deductible in determining the written down value for the purposes of clause (ii)" has been omitted from the statute by the Finance Act, 1983, with effect from April 1, 1984, and hence, according to the Revenue, it is now open to the Revenue to reduce the written down value by deducting the amount of initial depreciation already granted to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is reduction of the figure of the written down value by all depreciation actually allowed. Once the allowance does not bear the characteristic of depreciation, it cannot be stated that it would form part of all depreciation actually allowed so as to be deductible while computing the written down value. There is one more reason. The scheme of the Act is clear from a conjoint reading of sections 4 and 5 of the Act, which provide for charge of income-tax and scope of total income, respectively. The provisions stipulate that while computing the taxable profits of the year, the Assessing Officer is required to take into consideration all receipts falling within the previous year and all legitimate expenses coupled with the statutory deductions, allowances and exemptions that fall within the previous year. Therefore, at the beginning of the previous year, the written down value which is computed at the end of the immediate preceding previous year, becomes the starting point for the purposes of computing depreciation allowable in the year in question and any allowance which has not gone into computation of the written down value in any of the earlier years cannot be brought into the zone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Report that: "The depreciation to be allowed in that assessment year is to be allowed with reference to the written down value as at the commencement of the year which figure had been calculated by excluding the initial depreciation as that was the mode in which the written down value was required to be determined prior to April 1, 1984." The legislative intent is thus clear taking into consideration the scheme of the Act as laid down hereinbefore. However, even if the view canvassed by the Revenue can be stated to be a possible view, one may usefully refer to the decision of the apex court as stated in the case of Mysore Minerals Ltd. v. CIT [1999] 239 ITR 775 at page 778: "Section 32 of the Income-tax Act confers a benefit on the assessee. The provision should be so interpreted and the words used therein should be assigned such meaning as would enable the asses-see securing the benefit intended to be given by the Legislature to the assessee. It is also well settled that where there are two possible interpretations of a taxing provision, the one which is favourable to the assessee should be preferred." Thus, the position in law is clear. Initial depreciation granted unde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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