1994 (5) TMI 6 - HC - Income Tax

Issues Involved:
1. Depreciation allowance calculation for an extended previous year.
2. Validity of the Tribunal's cancellation of the Commissioner of Income-tax's order under section 263 of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Depreciation Allowance Calculation for an Extended Previous Year

The primary issue revolves around whether the Tribunal was correct in law in holding that if the assessee had been allowed to vary the meaning of the expression "previous year" to a period of thirteen months or more, the depreciation allowance calculated as per rule 5(1) of the Income-tax Rules, 1962, should be increased proportionately.

Facts:
- The assessee was allowed to change its previous year from the financial year ending on March 31, 1983, to the year ending on September 30, 1983, resulting in an 18-month accounting period.
- The Assessing Officer allowed normal depreciation for 18 months and additional depreciation at 50% of the normal depreciation.
- The Commissioner of Income-tax contended that additional depreciation under section 32(1)(iia) was admissible only for a 12-month period, leading to an excess depreciation allowance of Rs. 4,11,370.

Tribunal's Findings:
- The Tribunal found that the Assessing Officer's allowance of normal depreciation for 18 months and additional depreciation at 50% was justified.
- It held that under rule 5 of the Income-tax Rules, 1962, depreciation may be allowed for a period of 12 months or more, and if the previous year extended beyond 12 months, the calculation of depreciation had to be made accordingly.

Court's Analysis:
- The court examined section 32(1) and rule 5 of the Income-tax Rules, 1962.
- It noted that section 32(1)(iia) provided an extra allowance equal to one-half of the depreciation allowance otherwise admissible, specifically for one year.
- The court emphasized that the additional depreciation allowance is a one-time allowance for one year only and should be calculated based on what is admissible in a normal 12-month period.
- The court reasoned that allowing additional depreciation for an extended period would lead to an absurdity, as it would result in different amounts of additional depreciation for different accounting periods, contrary to the purpose of the statute.

Conclusion:
- The court upheld the Revenue's contention that the additional depreciation allowance should be calculated on the basis of a normal 12-month period, regardless of the extended accounting period.
- Both questions were answered in the negative and in favor of the Revenue.

Issue 2: Validity of the Tribunal's Cancellation of the Commissioner of Income-tax's Order under Section 263

Facts:
- The Commissioner of Income-tax had issued an order under section 263 of the Income-tax Act, 1961, directing the Assessing Officer to recompute the additional depreciation allowed.
- The Tribunal cancelled this order, siding with the assessee's interpretation of the law.

Court's Analysis:
- The court found that the Tribunal's interpretation was incorrect as it did not align with the statutory provisions and the legislative intent behind section 32(1)(iia).
- The court reiterated that the additional depreciation allowance is a one-time allowance for one year and should not be influenced by the length of the accounting period.

Conclusion:
- The Tribunal's cancellation of the Commissioner's order was deemed incorrect.
- The court upheld the Commissioner's directive to recompute the additional depreciation based on a 12-month period.

Summary:
The High Court of Calcutta addressed two key issues regarding the calculation of depreciation allowance for an extended previous year and the validity of the Tribunal's cancellation of the Commissioner's order under section 263. The court concluded that additional depreciation under section 32(1)(iia) should be calculated based on a normal 12-month period, regardless of any extension of the accounting period. Consequently, the Tribunal's decision to cancel the Commissioner's order was overturned, and both questions were answered in favor of the Revenue.

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