1991-VIL-607-GUJ-DT

Equivalent Citation: [1991] 192 ITR 700, 98 CTR 117

GUJARAT HIGH COURT

Date: 25.06.1991

COMMISSIONER OF INCOME-TAX

Vs

ARUN TEXTILE 'C'.

BENCH

Judge(s)  : R. C. MANKAD., R. K. ABICHANDANI 

JUDGMENT

The judgment of the court was delivered by

R. K. ABICHANDANI J. -The assessee-firm, in the original return of income for the assessment year 1973-74 filed on June 14, 1973, had claimed depreciation on machinery of Rs. 53,057. In its revised return filed on March 13, 1975, the said claim of depreciation was withdrawn. The Income-tax Officer had, under an assessment order made under section 143(3) of the Income-tax Act, 1961, while noticing that in the revised return of income the assessee had not claimed depreciation, allowed the was not necessary for allowing the depreciation that the factory should work full-fledged and further that the assessee had provided for the depreciation in the account books. The assessee challenged this order in appeal on the ground that it was open to the assessee not to claim the deduction, and since the deduction was not claimed in the revised return, there was no occasion for the Income-tax Officer to allow the same. The Appellate Assistant Commissioner, adopting the reasons contained in the decision of the Allahabad High Court in Ascharajlal Ram Parkash v. CIT [1973] 90 ITR 477, to the effect that depreciation was a statutory charge and the correct profit cannot be computed without allowing depreciation, upheld the order of the Income-tax Officer in allowing depreciation to the assessee. The assessee challenged the said order before the Income-tax Appellate Tribunal which held that there were two courses open to the assessee, one, of claiming depreciation allowance in which event it would be charged tax on a higher amount of balancing charge and, two, of forgoing the claim for depreciation, the result of which would be that the tax payable on the balancing charge would be less. The Tribunal found that it was open to the assessee to pursue the course which leaves it with a lighter burden particularly when there was no effect on the profits and gains which were required to be determined for the year under reference. The Tribunal found that it was open to the assessee to reduce the incidence of tax by forgoing the claim for deduction though, in law, it may be entitled to the same. The Tribunal, therefore, accepted the assessee's contentions as regards the withdrawal of the claim for depreciation allowance and partly allowed the appeal.

In the above background, the Tribunal has referred to us the following two questions under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the said Act") :

"(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the assessee was entitled to withdraw the claim for depreciation of Rs. 53,057 by revised return ?

(2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that two courses were open to the assessee, the one being to allocate amongst the partners the loss which it had suffered and the other being to claim the depreciation and any course which is beneficial to the assessee could be adopted and the incidence of tax can be legitimately reduced ?"

At the hearing of this reference, it was felt that question No. 2 does not correctly bring about the controversy involved and it needs to be recast as under :

Question No. 2. -"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding hat two courses were open to the assessee, one being to claim depreciation and the other being to forgo the depreciation and any course which is beneficial to the assessee could be adopted and the incidence of tax can be legitimately reduced ?"

It was contended by learned counsel, Mr. B. J. Shelat, on behalf of the Revenue that, having regard to the scheme of the Act more particularly to the provisions of sections 28, 29, 32 and 34, it was clear that there was statutory duty cast on the Income-tax Officer to arrive at the real income of the assessee and, for that purpose, it was essential for him to adopt the method prescribed for computing the income. He submitted that, as provided in section 29 of the said Act, the income referred to in section 28 was to be computed in accordance with the provisions contained in sections 30 to 43C of the said Act. He submitted that section 32 provided for depreciation in respect of the items mentioned therein which were owned by the assessee and used for the purpose of business or profession and that the Income-tax Officer was bound to allow the deductions mentioned therein subject to the provisions of section 34 of the Act. He submitted that the use of the word "shall" in section 32(1) clearly indicated that the provision was mandatory in nature and that the Income-tax Officer was bound to allow the deductions listed therein, whether claimed or not. In support of his argument, he also referred to the provisions of section 143(1)(b)(ii) of the said Act as were applicable at the relevant time pointing out that, in making an ex parte assessment under section 143(1)(a), the Income-tax Officer was empowered to allow any deduction which may not have been claimed in the return. Mr. Shelat also argued that, even if the prescribed particulars were not furnished in connection with the depreciation under section 32, the Income-tax Officer had not only jurisdiction but was duty bound to allow the deductions under the said provision for arriving at the real income of the assessee. Learned counsel, Mr. Mehta, appearing for the assessee, on the other hand, submitted that the Income-tax Officer cannot impose a deduction when no claim is made. He submitted that it was open to the assessee to revise his return by withdrawing the claim for depreciation and, once the return was revised, the Income-tax Officer could not have allowed the depreciation on the basis that, in the original return, the claim for depreciation was made by the assessee.

The main aspect that arises for our consideration is whether the assessee had a choice to claim or not to claim deduction in respect of depreciation under section 32(1) of the Act. The provisions of section 32(1)(ii) and section 34(l) read as under :

"32. (1) In respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, the following deductions shall, subject to the provisions of section 34, be allowed ....

(ii) in the case of buildings, machinery, plant or furniture, other. than ships covered by clause (i), such percentage on the written down value thereof as may in any case or class of cases be prescribed :

Provided that where the actual cost of any machinery or plant does not exceed seven hundred and fifty rupees, the actual cost thereof shall be allowed as a deduction in respect of the previous year in which such machinery or plant is first put to use by the assessee for the purposes of his business or profession :

Provided further that no deduction shall be allowed under this clause or clasue (iii) in respect of any motor car manufactured outside India, where such motor car is acquired by the assessee after the 28th day of February, 1975, and is used otherwise than in a business of running it on hire for tourists."

"34. (1) The deductions referred to in sub-section (1) or sub-section (1A) of section 32 shall be allowed only if the prescribed particulars have been furnished ; and the deduction referred to in section 33 shall be allowed only if the particulars prescribed for the purpose of clause (i) and clause (ii) of sub-section (1) of section 32 have been furnished by the assessee in respect of the ship or machinery or plant."

It will be noticed from the provisions of section 32(1) of the said Act that the deduction in respect of depreciation on the items mentioned therein shall be allowed subject to the provisions of section 34 of the Act. Under section 34(1) of the said Act as was applicable during the relevant year, it was, inter alia, provided that the deductions referred to in sub-section (1) of section 32 shall be allowed only if the prescribed particulars have been furnished. The form prescribed by rule 12 required particulars to be given for the purpose of the claim for deductions under the said provision.

Under clause (ii) of sub-section (1) of section 32, such percentage on the written down value of the specified assets is to be allowed as a deduction in respect of the depreciation of the assets. It appears that allowance in such cases is, therefore, to be calculated on the written down value of the assets. The written down value of assets is defined in section 43(6) of the Act and, in respect of the assets acquired prior to the accounting year, the written down value would be the actual cost of acquisition less the aggregate of all the deductions "actually allowed" to the assessee in the past years. It would follow that, where depreciation may be merely allowable but which is not computed, it cannot be said to have been "actually allowed". Therefore, depreciation which is not claimed cannot be made to reflect in the written down value of the assets. If the idea behind the provisions was to provide for compulsory deductions for depreciation, then the written down value of assets acquired before the previous year would have been defined so as to mean actual cost less all depreciation allowable and not "actually allowed" as provided in section 43 (6) (b) of the Act. The provisions of section 32(1) of the Act are intended to confer benefit on the assessee of claiming deductions on account of depreciation in respect of the specified classes of assets and, whenever it is claimed, it ought to be allowed. Even if no formal claim is made in the return but the assessee does not intend to give up the benefit and sufficient particulars are made available to the Income-tax Officer, he can undoubtedly exercise his powers to grant the benefit in an ex parte assessment in view of the provisions contained in section 143(1)(b)(ii) of the Act. This, however, does not mean that, when depreciation is allowable, the Income-tax Officer has no option but to grant it even if the assessee makes clear his intention not to claim depreciation. The contention that, since the law provides under section 143(1)(b)(ii) that the Income-tax Officer shall allow the deduction prima facie admissible but not claimed in the return, it would mean that he is duty bound to grant it even when not claimed cannot be accepted for the simple reason that, if the deductions on such depreciation were intended to be made a compulsory feature, the Legislature would have undoubtedly made a clear provision to that effect. In fact, sub-section (2)(a) of section 143 provides that an assessee can object to such deduction being made under sub-section (1) of section 143 of the Act. Therefore, the assessee can come forward in such a case and make clear its intention that it does not want to compute depreciation or the asset and wants no benefit of claiming any deduction in respect thereof. In the present case, admittedly, the assessee had filed his revised returns in which he had not claimed the deduction in respect of depreciation under section 32(1)(ii). The provisions of section 32 are intended to give benefit to the assessee for claiming deductions in respect of depreciation on the type of assets mentioned therein. Furthermore, a mere claim to deduction would not be enough since the deductions are to be allowed subject to the provisions of section 34 which required necessary particulars to be furnished in the prescribed form. Therefore, until a claim is made for allowing deductions of the nature covered under section 32 along with necessary particulars, there would hardly be any occasion for the Income-tax Officer to "allow" any claim. In the context in which the word "allowed" is used in section 32(1), it is clear to us that the meaning intended is "to admit something claimed". The word "allowed" means "to accept as true or valid, to acknowledge admit, grant", "to admit something claimed, to acknowledge grant, concede" (See the Oxford English Dictionary, Volume I, 1970 Reprint, page 2392). There is nothing in the provisions of section 32(1) read with section 29 of the Act to indicate that even when no claim is made for allowing deduction in respect of the depreciation under section 32(1), the Income-tax Officer is bound to allow a deduction. In our view, it is implicit in the said provisions that the assessee should have made a claim for deduction under the said provisions co enable the Income-tax Officer to consider the same.

The argument of learned counsel for the Revenue is that, unless the depreciation is taken into account, the Income-tax Officer cannot arrive at the correct taxable income of the assessee. It is difficult to accept this argument for, under the scheme of the Act, income is to be charged regardless of depreciation on the value of the assets and it is only by way of an exception that section 32(1) grants an allowance in respect of depreciation on the value of the capital assets enumerated therein. It may appear intriguing on the part of the assessee as to why it does not claim the benefit of deduction from its taxable income, but the choice is clearly its. Where the assessee does not want the benefit, it cannot be thrust upon it. There is no provision which makes it compulsory on the part of the Income-tax Officer to make deductions in all cases. If it were incumbent on the Income-tax Officer to make compulsory deductions irrespective of whether the assessee claimed or not, the statutory requirement of making the claim along with necessary particulars and the provision for "allowing" it would be unnecessary. There is intrinsic evidence under section 43(6)(b) of the Act in the expression "less all depreciation actually allowed" to show that it is not as if all allowable deductions are to be granted by the Income-tax Officer even when the assessee does not want the same. In this context, we may also refer to the Circular of the Central Board of Revenue, 29D(XIX-14) of 1965, (F. No. 45/239/65-ITJ dated August 31, 1965), which directed that, "where the required particulars have not been furnished by the assessee and no claim for depreciation has been made in the return, the Income-tax Officer should estimate the income without allowing depreciation allowance." Thus, as the assessee had not claimed depreciation allowance and had made clear its intention not to claim the same, no necessary particulars were furnished and it is obvious that the Income-tax Officer has no occasion to allow any deductions. It was not open to the Income-tax Officer to advert to the original returns for the purpose of allowing deductions which claim was expressly withdrawn by filing the revised returns.

Mr. Shelat, learned counsel for the Revenue, placed reliance on the decision of the Allahabad High Court in Allahabad Glass Works v. CIT [1961] 42 ITR 439, for contending that the allowance of depreciation under the Act was mandatory. The facts of the case before the Allahabad High Court clearly indicate that it was not a case where the assessee had withdrawn the claim for deduction. In that case, though the cash book was held to be unreliable and the Income-tax Officer had refused to allow the loss, it was held that the allowance of depreciation under section 10(2) of the Act of 1922 was mandatory and not a matter depending on the genuineness of the books of account and that the Income-tax Officer could not, therefore, have refused to allow the depreciation. The authority cannot be read to lay down a proposition that Income-tax Officers are bound in all cases to make deductions even when no deductions are claimed and when the assessee makes it clear that he does not want to claim the benefit. Mr. Shelat also relied on the decision of the Allahabad High Court in Ascharajlal Ram Parkash v. CIT [1973] 90 ITR 477 which lays down the proposition that though the assessee in his return did not claim depreciation nor gave the necessary particulars in the form of return, if the Income-tax Officer, in the course of assessment proceedings, comes to know of the relevant particulars necessary for the grant of deduction for depreciation, he was bound to give effect to it and allow depreciation, as he was bound to arrive at the correct figure of profits and gains of the business of the assessee. This decision cannot help the Revenue because in the instant case, there were no particulars furnished by the assessee and it had made it clear that it did not want to claim the benefit by filing revised returns submitted with a forwarding letter. The decision in Ascharajlal's case [1973] 90 ITR 477 (All), came to be considered in Chokshi Metal Refinery v. CIT [1977] 107 ITR 63 by a Division Bench of this court and it was in terms observed that this court was unable to agree with the conclusions so far as depreciation allowance was concerned because, under section 34(1), the deductions referred to in sub-section (1) of section 32, that is, depreciation allowance, shall be allowed only if the prescribed particulars have been furnished. It was held that once it was found that those necessary particulars were not furnished, the condition precedent to the granting of the depreciation allowance under section 34(1) read with section 32 was not satisfied and, therefore, the Income-tax Officer had no jurisdiction to grant the depreciation allowance in that particular case. For the reasons which we have already indicated and, in view of the decision of this court disagreeing with the conclusions, so far as depreciation allowance is concerned, reached by the Allahabad High Court in Ascharajlal's case [1973] 90 ITR 477, we hold that the Income-tax Officer could not have exercised his power to grant deductions when the assessee had made known its intention not to claim the benefit and no particulars were furnished in respect of the depreciation in question in view of the revised returns having been filed in which the claim was not made. For the same reasons, we are also unable to agree with the decision of the Madras High Court in Dasaprakash Bottling Co. v. CIT [980] 122 ITR 9, which followed the decision in Ascharajlal's case [1973] 90 ITR 477 (All).

A Division Bench of the Punjab and Haryana High Court in Beco Engineering Co. Ltd. v. CIT [1984] 148 ITR 478, held that once the revised return has been filed under section 139(5), the original return was substituted by the revised return as a result of the amendments made in the original return by the revised return. Therefore, where an assessee did not claim depreciation in the revised return, which was claimed in the original return, it was not open to the income-tax authorities to take into consideration the original return for that purpose. It was also held that, in view of the aforesaid Circular dated August 31, 1965, of the Board and from the language of the provisions of section 32(1)(ii) and section 34(1) of the said Act, it was clear that in case an assessee had not claimed depreciation, the Income-tax Officer cannot give allowance of the same to him.We find ourselves in agreement with the ratio of the said decision. In CIT v. Shri Someshwar Sahakari Sakhar Karkhana Ltd. [1989] 177 ITR 443, the Division Bench of the Bombay High Court, while considering the questions which arose in that matter, held that there were two preconditions to the allowance of a deduction for depreciation, namely, that the assessee should have asked for depreciation and that the prescribed particulars should have been furnished. We find ourselves in agreement with the reasoning of and the conclusions arrived at in the said decision.

For the aforesaid reasons, we answer both the questions referred to using the affirmative and against the Revenue.

The reference shall stand disposed of with no order as to costs.

 

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