1935 (10) TMI 3 - HC - Income Tax

Summary

Issues Involved:
1. Calculation of depreciation allowance for buildings and machinery.
2. Recalculation of depreciation allowance from previous years.
3. Depreciation allowance on buildings in subsequent assessments.
4. Consideration of depreciation allowed to predecessor companies in subsequent assessments.

Issue-wise Detailed Analysis:

1. Calculation of depreciation allowance for buildings and machinery:
The primary issue was whether the depreciation allowance for buildings and machinery used by the respondent company should be calculated based on the cost to the respondent company or the original cost to the predecessor companies. The High Court of Madras had ruled in favor of the respondent company, allowing depreciation based on the original cost to the predecessor companies. However, the Privy Council disagreed, emphasizing that Section 10(2)(vi) of the Indian Income-tax Act, 1922, clearly states that depreciation should be calculated based on the "original cost thereof to the assessee." The Privy Council concluded that the term "assessee" refers to the current owner of the assets, meaning the respondent company, and thus depreciation should be calculated based on the cost to the respondent company, not the predecessor companies.

2. Recalculation of depreciation allowance from previous years:
This issue was contingent on the outcome of the first issue. The High Court had ruled that the respondent company was entitled to have the depreciation allowance recalculated from the year 1921-22 to 1930-31 based on the original cost to the predecessor companies and to claim the excess depreciation not allowed in those years. However, since the Privy Council ruled that depreciation should be calculated based on the cost to the respondent company, this recalculation was deemed unnecessary.

3. Depreciation allowance on buildings in subsequent assessments:
The High Court had ruled that the respondent company was entitled to claim depreciation on buildings taken over from the predecessor companies at the rates in force each year until the total allowances equaled the original cost to the predecessor companies. The Privy Council, however, stated that since depreciation should be calculated based on the cost to the respondent company, this method of allowance was not applicable.

4. Consideration of depreciation allowed to predecessor companies in subsequent assessments:
The High Court had ruled that in calculating the amount of depreciation allowable in subsequent years, the amount allowed to the predecessor companies should be taken into account. The Privy Council, however, clarified that the depreciation should be based solely on the cost to the respondent company, and therefore, the depreciation allowed to predecessor companies should not be considered.

Conclusion:
The Privy Council allowed the appeal, setting aside the judgment and order of the High Court dated May 2, 1934. The Privy Council held that the respondent company is entitled to depreciation allowance on the assets taken over from the predecessor companies based on the value at which those assets were acquired by the respondent company, not the original cost to the predecessor companies. Consequently, the recalculation of depreciation from previous years and the consideration of depreciation allowed to predecessor companies in subsequent assessments were deemed unnecessary. The respondent company was ordered to pay the costs of the appellant in the High Court and the appeal.