2008 (10) TMI 369 - HC - Income Tax

Deduction in relation to any block of assets - assessee is a limited company - claimed depreciation - depreciation was restricted to the extent of seventy five per cent - third proviso to clause (ii) of section 32(1) does not lay down any condition that this restrictive clause with regard to claim on depreciation would apply only if the assets had been put to non-business use - assessee them-selves filed a revised return restricting the depreciation to 75 per cent. and that this point was specifically argued before the Commissioner - counsel for the appellant submits that the appeal is restricted to the quantum of depreciation and not with regard to additional tax especially if a revised return has been filed. is clear that this is a special amendment brought about to meet a particular critical situation and was applied for only one year so that addi-tional resources could be mobilised and, therefore, the approach that has been adopted by the Tribunal with regard to depreciation claimed, other-wise, cannot apply - Held that - Tribunal had totally misunderstood this third proviso to clause (ii) of section 32(1) for the year 1991-92. Depreciation is restricted to 75 per cent. and this restriction is applicable only to companies and also only for the assessment year 1991-92. The appellant being a com-pany and the assessment year in question being 1991-92, the question raised by the Revenue must be answered in favour of the Revenue. Accord-ingly, the tax case (appeal) is allowed. No costs

Summary

Issues:
1. Interpretation of the third proviso to section 32(1) regarding depreciation restriction for companies for the assessment year 1991-92.
2. Whether the restriction on depreciation to 75% applies only if assets are used for non-business purposes.
3. Impact of the Taxation Laws (Amendment) Act, 1991 on depreciation rates.
4. Validity of additional tax levied due to depreciation restriction.

Issue 1: Interpretation of the third proviso to section 32(1)
The case involved a limited company claiming depreciation for the assessment year 1991-92, which was restricted to 75%. The Income-tax Appellate Tribunal ruled in favor of the company, stating that unless assets were proven to be used for non-business purposes, the restriction on depreciation for business use was impermissible. The Tribunal set aside the restriction and canceled the additional tax levied.

Issue 2: Condition for Depreciation Restriction
The appellant argued that the third proviso to clause (ii) of section 32(1) did not specify that the depreciation restriction to 75% applied only if assets were used for non-business purposes. The amendment was introduced to restrict depreciation to mobilize additional resources due to the Gulf crisis, applicable only for the assessment year 1991-92 and solely to companies. The appellant contended that the restriction should apply regardless of asset use, and the Tribunal had misunderstood the provision.

Issue 3: Impact of Taxation Laws (Amendment) Act, 1991
The judgment highlighted that the Taxation Laws (Amendment) Act, 1991 introduced the third proviso to clause (ii) of section 32(1) to restrict depreciation to 75% for the assessment year 1991-92. The amendment aimed to address the financial challenges arising from the Gulf crisis and required extra advance tax to be paid by a specified date.

Issue 4: Validity of Additional Tax
The respondent argued that the appellant had filed a revised return limiting depreciation to 75%, which was also presented before the Commissioner of Income-tax (Appeals). The appellant contended that the appeal focused on the depreciation quantum and not on additional tax, especially after filing a revised return. Ultimately, the court ruled in favor of the Revenue, allowing the tax appeal and emphasizing that the restriction applied specifically to companies for the assessment year 1991-92.

In conclusion, the judgment clarified the interpretation of the third proviso to section 32(1) regarding depreciation restriction for companies for the assessment year 1991-92. It emphasized the specific application of the restriction, the impact of the Taxation Laws (Amendment) Act, 1991, and the validity of the additional tax levied in light of the depreciation restriction.