1993 (11) TMI 23 - HC - Income Tax

Summary

Issues involved: Application u/s 256(2) of the Income-tax Act, 1961 regarding the allowance of depreciation when income is computed by applying a flat rate.

Summary:
The judgment pertains to two applications u/s 256(2) of the Income-tax Act, 1961, arising from a common order by the Income-tax Appellate Tribunal for the assessment years 1987-88 and 1988-89. The main question raised was whether the Tribunal was justified in allowing depreciation when the Income-tax Officer had already estimated income after allowing admissible depreciation. The assessee, a contractor, had claimed depreciation which the Income-tax Officer disallowed when applying a net rate of ten per cent. for the assessment year 1987-88. However, for the year 1988-89, a similar net rate was applied without specific observations. The Commissioner of Income-tax (Appeals) upheld the ten per cent. rate but allowed the depreciation claimed by the assessee. Both parties filed cross-appeals before the Income-tax Appellate Tribunal, which partially allowed the assessee's appeal by reducing the net profit rate to nine per cent. The Revenue sought a reference u/s 256(1) of the Act, which was dismissed, leading to the current applications.

The High Court rejected the applications, stating that the Income-tax Appellate Tribunal's decision was in line with a circular issued by the Central Board of Direct Taxes, allowing depreciation separately when income is computed using a net rate. The Court found no provision in the Income-tax Act disallowing depreciation when a flat rate is applied. It was noted that the Tribunal's decision did not raise any legal question, as the Income-tax Officer's assessment order did not support the disallowance of depreciation. The Court also highlighted that the Tribunal had considered the assessee's past history and determined a reasonable flat rate of nine per cent., which had been consistently applied without factoring in depreciation claims. A previous court decision cited by the Revenue was deemed irrelevant to the current case. Ultimately, both applications were dismissed as lacking merit, with costs imposed on the applicants.