TMI Blog2009 (2) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... reciation to be computed in cases falling under Rule 8 of the Income-tax Rules, 1962, which deals with taxability of composite income? These are the two questions which arise for determination in this batch of civil appeals. Background facts in Civil Appeal No. of 2009 (Arising out of S.L.P.(C) No.13070 of 2007) 5. The facts in all these civil appeals are similar. Respondent- assessee, at the relevant time, was in the business of growing and manufacturing of tea. In this case we are concerned with the assessment year 1988-89. Applicability of Rule 8 is not in dispute. Assessee raised additional grounds before CIT(A) at the time of hearing of the appeal inter alia stating that the AO had erred in determining the opening "written down value" of the block of assets without following the provisions of Section 43(6)(b) of the 1961 Act. According to the assessee for arriving at the opening "written down value" of the block of assets, the AO erred in deducting 100 per cent of the depreciation for the preceding year calculated at the prescribed rate from the opening "written down value". However, the assessee claimed that only 40 per cent of the depreciation allowed at the prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... straight-line method, the entire depreciation is written off sooner than in the "written down value" method, if the figures of the actual cost and the prescribed percentage are the same in either case. Section 32 (2) allows the carry forward and unabsorbed depreciation allowances to any subsequent year, without any time limit, where such non-absorption is "owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains being less than the allowance". Depreciation loss under Section 32 (2) stands on the same footing as any other business losses. An assessee claiming depreciation of assets has to show that such assets are owned by him and are used by him in the accounting year for the purpose of his business, the profits of which are being charged [See: Section 32(1)(i)]. Further, the total of all deductions in respect of depreciation under Section 32(1)(i), made year after year, should not, in any event, exceed the actual cost of the assets to the assessee [See: Section 34(2)(i)]. The definition of "actual cost" is to be found in Section 43(1) and the definition of "written down value" is to be found in Section 43(6) of the 1961 Act. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y taken into account or granted and given effect to, i.e. debited by the Income-tax Officer against the incomings of the business in computing the taxable income of the assessee". Answer to Question No.(2) - computation of depreciation in cases covered by Rule 8 which deals with taxability of composite income 10. In the case of Commr. of Income-tax, Madhya Pradesh, Nagpur and Bhandara v. Nandlal Bhandari Mills Ltd. - (1966) 60 ITR 173, which judgment was in the context of composite income, the question inter alia arose whether depreciation "actually allowed" would mean depreciation deducted in arriving at the taxable income or the depreciation deducted in arriving at the world income (composite income). In that case the assessee was a company incorporated in Indore. It owned and ran a textile mill. Until 1.4.1950, when Income-tax Act, 1922 was extended to Part B States including Madhya Bharat of which Indore became a part, the assessee was assessed at Bombay under the Income-tax Act, 1922 as a non-resident and for some years as resident. The assessee was also assessed in Indore under the Indore Industrial Tax Rules, 1927. For those years in which it was assessed as a non-reside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Supreme Court, the Court was concerned with the world income, in this case we are concerned with the composite income. Therefore, in our view the judgment of the Supreme Court, above referred to, is squarely applicable to the present case. Therefore, we do not see any infirmity in the impugned judgment of the High Court. 12. Be that as it may, we can give the following illustration(s) which will give an example of how the "written down value" needs to be computed: Illustration `A' Income from sale of tea Rs. Less: Expenses - 1000 Depreciation (100) Others (300) Business Profit 600 Income subject to charge under the Income Tax Act by application of Rule 8 (40% of 600) 240 Illustration `B' Rs. Income from sale of tea (40% of 1000) 400 Less: Expenses - Depreciation (40) Others (40% of 300) (120) Business Profit subject to charge of income tax (40% of 600) 240 13. Analysing the above two charts, we find that at the end of computatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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