1961 (10) TMI 90 - HC - Income Tax

Summary

Issues:
Whether depreciation is allowable on the original cost of plant and machinery and other assets acquired and used before July 1, 1953?

Analysis:
The case involved a dispute regarding the allowance of depreciation on the original cost of plant and machinery and other assets acquired and used prior to July 1, 1953. The assessee contended that since no depreciation had been allowed in prior years, the original cost should be considered as the written down value for calculating depreciation. The Income-tax Officer and the Appellate Assistant Commissioner disagreed, stating that depreciation should be computed as if it had been allowed in previous years. The Tribunal upheld this view, considering the exemption granted to the assessee as only against tax payment and not income computation. The Tribunal held that depreciation must be deemed to have been claimed in each year. The High Court analyzed the relevant sections of the Indian Income-tax Act and concluded that if no depreciation had been actually allowed in prior years, the actual cost incurred by the assessee should be considered as the written down value for calculating depreciation.

The court referred to the provisions of Section 10 of the Act, which govern the computation of profits and gains of business. It noted that the written down value of assets acquired before the previous year is the actual cost minus depreciation actually allowed. The court emphasized that if no depreciation had been allowed in prior years, the actual cost would be considered as the written down value. The court rejected the department's argument that the assessee should be treated as if depreciation had been claimed and allowed in previous years, stating that it is not obligatory for the assessee to claim depreciation every year. The court relied on the decision in Commissioner of Income-tax v. Kamala Mills Ltd., which supported the view that unless depreciation had been actually allowed in prior assessments, the written down value remains the cost price of the assets.

In conclusion, the court held that the assessee was entitled to claim depreciation on the basis that the cost price of the assets was the written down value, as no depreciation had been allowed in prior years. The court distinguished the case cited by the department, Commissioner of Income-tax v. National Electrical Industries Ltd., as not relevant to the issue at hand. Therefore, the court answered the question in the affirmative, ruling in favor of the assessee and directing the Commissioner to pay the costs.