2001 (3) TMI 83 - HC - Income Tax

Summary

Issues:
Whether depreciation allowance is an expenditure to be considered for weighted deduction under section 35C of the Income-tax Act, 1961?

Analysis:
The case involved a dispute regarding the treatment of depreciation allowance as an expenditure eligible for weighted deduction under section 35C of the Income-tax Act, 1961. The assessee claimed weighted deduction on the expenditure, which included depreciation on certain assets. The Assessing Officer disallowed the claim, stating that depreciation is not an expenditure for weighted deduction under section 35C. The Commissioner of Income-tax (Appeals) allowed the claim, relying on judgments from the Calcutta High Court and the Andhra Pradesh High Court. The Department appealed to the Tribunal, which upheld the decision. Subsequently, the Department filed an appeal under section 260A of the Income-tax Act.

Arguments:
The Department argued that section 35C is an independent section providing weighted deduction for specific goods or services supplied to cultivators, and depreciation should not be equated to expenditure under this section. They contended that depreciation is not an actual expenditure but a notional one, therefore not eligible for deduction. The Department acknowledged previous judgments but emphasized the absence of a specific judgment from the court on the interpretation of section 35C.

On the other hand, the assessee argued that depreciation is not a notional expenditure but a form of capital expenditure. They relied on various judgments, including one from the Supreme Court, to support their claim that depreciation should be considered an actual expenditure eligible for deduction under section 35C. The assessee highlighted the beneficial intent of section 35C to encourage agricultural activity, supporting their interpretation.

Findings:
The court found merit in the assessee's argument, emphasizing that section 35C falls under Chapter IV, which deals with the computation of business income. The court noted that depreciation could not be claimed under section 37 as it excludes capital expenditure. Therefore, the Legislature provided for deduction under section 35C for cases involving capital expenditure. The court agreed with previous judgments that depreciation on assets used in providing goods or services to cultivators should be treated as an expenditure for tax purposes. Consequently, the court ruled in favor of the assessee, allowing the depreciation to be considered for weighted deduction under section 35C.

In conclusion, the court answered the question in the affirmative, favoring the assessee and rejecting the Department's appeal. The reference was disposed of accordingly.