1965 (9) TMI 67 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the notice under section 148 of the Income-tax Act, 1961.
2. Whether the petitioner failed to disclose fully and truly all material facts necessary for the assessment.
3. Application of proviso (c) to section 10(2)(vi) of the Income-tax Act, 1922.
4. Determination of "written down value" for depreciation purposes.
5. Presumption of the Income-tax Officer's knowledge of initial depreciation.

Detailed Analysis:

1. Validity of the notice under section 148 of the Income-tax Act, 1961:
The petitioner challenged the validity of the notice issued under section 148 for the assessment year 1956-57, arguing that the period of four years from the end of the relevant assessment year had expired. The court held that excessive depreciation allowance must be deemed to be a case where income chargeable to tax had escaped assessment, as per Explanation I to section 147. Consequently, the notice under section 148 was validly issued.

2. Whether the petitioner failed to disclose fully and truly all material facts necessary for the assessment:
The court examined whether the petitioner omitted or failed to disclose fully and truly all material facts necessary for the assessment. The petitioner argued that it filled in the statutory return according to the particulars mentioned and was not required to disclose that initial depreciation had been allowed in an earlier assessment year. The court concluded that the petitioner was bound to inform the Income-tax Officer of all material facts necessary to make out its claim for depreciation allowance, including the fact that initial depreciation had been allowed earlier.

3. Application of proviso (c) to section 10(2)(vi) of the Income-tax Act, 1922:
The court noted that proviso (c) to section 10(2)(vi) limits the aggregate of all allowances in respect of depreciation to not exceed the original cost of the plant and machinery. The petitioner did not take into account the initial depreciation while entering the written down value, resulting in excessive depreciation allowance. The court held that the petitioner was responsible for the omission in applying proviso (c) to section 10(2)(vi).

4. Determination of "written down value" for depreciation purposes:
The court discussed the definition of "written down value" under section 10(5)(b), which includes all depreciation actually allowed. However, the court found that the special provision in section 10(2)(vi) declares that initial depreciation shall not be deductible in determining the written down value for the purposes of that clause. The court concluded that the petitioner committed no error in not taking into account the initial depreciation while entering the written down value in the return.

5. Presumption of the Income-tax Officer's knowledge of initial depreciation:
The petitioner argued that the Income-tax Officer should be presumed to have known that initial depreciation had been allowed in earlier years. The court rejected this presumption, stating that no foundation had been laid for it and that it was not shown that the Income-tax Officer was aware of the initial depreciation when making the original assessment.

Conclusion:
The court held that the excessive depreciation allowance was computed due to the petitioner's omission or failure to disclose fully and truly all material facts necessary for the assessment. Therefore, the notice issued under section 148 was valid. The petition was dismissed with costs assessed at Rs. 150. The connected writ petitions were also dismissed with no order as to costs.