TMI Blog1979 (1) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... n to a decision of this court in Income-tax Reference No. 20 of 1966 (decided by Kantawala C.J. and Tulzapurkar J. on August 7, 1975 (since reported as CIT v. Bombay State Transport Corporation [1977] 106 ITR 303). In the said reference question No. 1 pertains to similar contributions by this very assessee to the insurance fund. These contributions which were then considered by the said Division Bench were for the assessment years 1956-57, 1957-58, 1958-59 and 1959-60. In the reference before us we are concerned with the assessment year 1961-62. Mr. Joshi fairly fairly conceded that question No. 1 will be required to be answered in the affirmative and in favour of the assessee in view of the aforesaid decision of the Division Bench of this court. Accordingly, the facts pertaining to the said question need not be set out in this judgment. In this reference, we are concerned with the assessment year 1961-62, the relevant accounting year being the financial year ended March 31,1961. The assessee before us is The Bombay State Road Transport Corporation (now known as The Maharashtra State Road Transport Corporation) and, as its name suggests, carried on the business of road transport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le year. The ITO, however, who finalised the assessment of the assessee-corporation for that assessment year, negatived the assessee's claim for the allowance. However, it appears from the order that no reason was furnished for the said disallowance. The assessee carried the matter in appeal to the AAC. The AAC upheld the assessee's claim observing : " The reasons for disallowing the depreciation are not clear from the assessment order. In view of the facts explained by the counsel, it is quite clear that the assets have been used in business the income of which has been included in the total income and I do not see any reason for disallowing depreciation for one month. The ITO is directed to allow the same. There would be a reduction of Rs. 2,80,362 subject to verification of actual figures by the ITO. " The department thereafter carried the matter in appeal to the Income-tax Appellate Tribunal. The contention advanced on behalf of the revenue before the Tribunal was that the so-called agreement between the two corporations to claim such depreciation proportionately, i.e., for a period of one month by the assessee-corporation and for a period of the subsequent eleven months ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was specifically to be provided for under s. 10(2)(vi). Accordingly, it was held that there was a conflict between the section and the rule and to the extent of that conflict the rule was required to be struck down and the case was governed by the section. In the view that it took the Tribunal chose not to rest its decision on the alternative contention of the assessee based upon the letters exchanged by the two corporations with the respective Commissioners. It is from the decision of the Tribunal in Income-tax Appeal No. 5533 of 1966-67 that the reference has been made to the High Court at the instance of the Commissioner. Mr. Joshi first drew our attention to the relevant statutory provision. The word " prescribed " is defined under s. 2(10) in the following manner : " 2. (10) ' prescribed ' means prescribed by rules made under this Act. " He then drew our attention to the relevant portions of s. 10 : " 10. (2) Such profits or gains shall be computed after making the following allowances, namely : .......... (vi) in respect of depreciation of such buildings, machinery, plant or furniture being the property of the assessee, a sum equivalent, where the assets are sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entage of allowable depreciation had been prescribed in the Schedule and that the rate was mentioned as nil only for certain types or parts of machinary or plant and the reason for this was made clear in the remarks column of the Schedule which makes it clear that the full cost of replacement of the assets was allowable as a revenue expenditure. Where 100 per cent. of the cost of replacement of the assets was allowable as a revenue expenditure bearing in mind the nature of the assets, it will be clear that the item, although technically part of plant and machinery and, therefore, a capital asset, was not to be treated as such for special considerations pertaining to the nature of the asset and the fact of its probable short life and duration. We do not find in the Schedule any other provision for nil rate of depreciation on any item of buildings, plant, machinery or furniture or fittings (except in the special cases mentioned just above where the full cost of replacement is allowable as a revenue expenditure). Thus, where any class of these assets is to be treated as a capital asset for which depreciation is to be allowed, some positive rate of depreciation is prescribed by the Sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in favour of the view that this is not within the competence of the rule-making authority. To put it in other words, a rule made in this manner which provides for a nil percentage of depreciation on a certain class of asset, or a class of cases, to use the langnage of s. 10(2)(vi), cannot be accepted as a rule made for carrying out the purposes of the Act ; indeed, such a rule may be regarded as patently violative of the purposes of the Act, i.e., of s. 10(2)., The purpose of s. 10(2)(vi) is to make allowance for some depreciation on these four types of assets and a rule which provides a nil percentage of depreciation cannot be regarded as having been made for carrying out the purposes of the Act. As stated earlier, there is something to be said for the contentions advanced on behalf of the Commissioner by Mr. Joshi, but on the second branch of the argument which we have dealt with above, we are inclined to accept the view of the Tribunal and uphold the same. We may end by saying that even if two views were possible on this question, we would be required to take the view favourable to the assessee and hold that the portion of r. 8(2) which makes provision for nil percentage of depr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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