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TMI Blog2009 (2) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 rate ought to have been deducted and not 100 per cent as done by the AO. In this connection reliance was placed by the assessee on Section 43(6)(b) of the 1961 Act. Accordingly, by additional grounds which were allowed to be raised, the assessee sought a direction from CIT(A) to the AO to determine the "written down value" in accordance with the provisions of Section 43(6)(b) by deducting only 40 per cent of the depreciation computed at the prescribed rate, bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 latter defines "written down value" under Section 43(6) to mean - (a) in the case of assets acquired in the previous year, the actual cost to the assessee; (b) in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation(s) actually allowed under the 1961 Act. 8. The key word in Section 43(6)(b) of the 1961 Act is "actua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-resident under Income-tax Act, 1922, only that part of its profits attributable to the sale proceeds of goods received in British India were brought to tax. For the assessment years in question, in ascertaining the "written down value" of the building, machinery and plant, under paragraph 2 of the Taxation Laws Order, 1950, only the greater of the two depreciations "actually allowed" in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 computation the income chargeable to tax by applying Rule 8 comes to Rs.240. Under Illustration `A', the normal depreciation is Rs.100 which is deductible from Rs.1000 being the income from sale of tea. On the other hand, under Illustration `B', we have taken 40 per cent of each of the items, namely, income from sale of tea, depreciation and other expenses. Accordingly, on comparison it may be noted that w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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