1998 (3) TMI 82 - HC - Income Tax

Summary

Issues Involved:
The issue involves the application of the modified depreciation rates introduced by the Income-tax (Fourth Amendment) Rules, 1983, specifically whether these rates should apply to assessments pending before the amendment came into force or only to assessments from the year 1984-85 onwards.

Judgment Details:

Issue 1 - Application of Depreciation Rates:
The assessee, a public limited company owning a spinning mill, claimed depreciation at 10% on general plant and machinery for the assessment year 1981-82 based on the schedule in the Income-tax Rules before the Fourth Amendment Rules of 1983. The Income-tax Officer initially allowed this claim. However, the assessee later contended that the amended rates from the Fourth Amendment Rules should apply even for pending assessments after the amendment's effective date. The Commissioner of Income-tax (Appeals) disagreed, stating that the amended rates should only apply from the assessment year 1984-85 onwards. The Tribunal upheld this decision, ruling that the modified rates should only apply to assessments starting from 1984-85.

Issue 2 - Interpretation of Rules:
The dispute centered around Rule 5 of the Income-tax Rules, 1962, which provides for depreciation calculation. The relevant sub-rule specifies the percentages for depreciation of assets used for business purposes. The amendment in Appendix I of the Rules increased the depreciation rate from 10% to 15% for machinery and plant. The crucial point was whether this amendment should have retrospective effect, as the Rules did not explicitly state so.

Issue 3 - Legal Precedents:
The judgment referred to legal precedents, such as the case of S. P. Jaiswal Estates Pvt. Ltd. v. CIT, where it was held that the higher rates of depreciation introduced by the Fourth Amendment Rules were intended to apply only from the assessment year 1984-85. The court also cited the case of CIT v. S. Palaniswamy, where a similar view was upheld by the High Court.

Conclusion:
The High Court concluded that the Income-tax (Fourth Amendment) Rules, 1983, should not be applied retrospectively to cases pending before the amendment's effective date. The enhanced depreciation rate of 15% was deemed applicable only from the assessment year 1984-85 onwards. The judgment favored the Revenue over the assessee, emphasizing that the amended rules could only be allowed for assessments starting from 1984-85.