2015 (2) TMI 680 - HC - Income Tax

Depreciation claim - Manner in which option to be exercised under Rule 5(1A) - return of income filed by the assessee under section 139(1) of the Income-tax Act claiming depreciation can be treated as exercising of option before the due date as prescribed in the second proviso to rule 5(1A) of the Income-tax Rules as held by tribunal - Held that - A reading of the decision of CIT v. Vijaya Hirasa Kalamkar (HUF) 1992 (9) TMI 4 - BOMBAY High Court makes it clear that if the the option in terms of the second proviso to rule 5(1A) of the Income-tax Rules at the time of furnishing of return of income, it will suffice and no separate letter or request or intimation with regard to of exercise of option is required. Since the returns are filed in accordance with section 139(1) of the Income-tax Act and the form prescribed therein make a provision for exercising an option in respect of the claim of depreciation, no separate procedure is required, as contended by the Department. We are in agreement with the reasoning of the Tribunal.- Decided in favour of the assessee.

Issues Involved:
1. Whether the return of income filed by the assessee under section 139(1) of the Income-tax Act claiming depreciation can be treated as exercising of option before the due date as prescribed in the second proviso to rule 5(1A) of the Income-tax Rules.

Issue-wise Detailed Analysis:

1. Whether the return of income filed by the assessee under section 139(1) of the Income-tax Act claiming depreciation can be treated as exercising of option before the due date as prescribed in the second proviso to rule 5(1A) of the Income-tax Rules:

Background: The Revenue challenged the orders of the Income-tax Appellate Tribunal, arguing that the assessees did not exercise their option to claim depreciation under section 32 of the Income-tax Act, 1961, in the manner prescribed under the second proviso to rule 5(1A) of the Income-tax Rules, 1962, before filing their return of income.

Common Facts: The respondent-assessees, companies that installed wind electric generators, claimed depreciation at the rate prescribed under rule 5(1) Appendix I of the Income-tax Rules. The Assessing Officer contended that the assessees should have exercised their option before filing their return of income, which they failed to do, thus limiting their depreciation claim to rule 5(1A) Appendix IA.

Tribunal's Decision: The Income-tax Appellate Tribunal, applying the principle from the case of K. K. S. K. Leather Processors (P.) Ltd. v. ITO, held that as long as the option of depreciation is exercised by the assessees in their return of income along with the audit report and books of account, it is within the time limit prescribed under the second proviso to rule 5(1A) of the Income-tax Rules, and the benefit will flow therefrom.

Revenue's Argument: The Revenue argued that the statute requires the option to be exercised "before" the due date for furnishing the return of income, implying a separate action before the due date, not merely by filing the return on the due date.

Assessees' Argument: The assessees contended that filing the return of income on the due date along with the audit reports showing the claim for depreciation should be treated as exercising the option as required by the second proviso to rule 5(1A). They argued that there is no prescribed form or separate procedure for exercising this option.

Court's Analysis: The court examined the relevant provisions, including section 139(1) of the Income-tax Act and rule 5 of the Income-tax Rules. It noted that the return of income form (ITR-6) contains specific schedules for claiming depreciation, thus providing a methodology for exercising the option. The court emphasized that the statute did not prescribe any other method to exercise the option except through filing the return. The court referenced the decision in CIT v. Vijaya Hirasa Kalamkar (HUF), where the term "before" was interpreted as "up to" or "not after," supporting the view that filing the return on the due date suffices.

Conclusion: The court concluded that the return of income filed by the assessee under section 139(1) of the Income-tax Act, claiming depreciation, can be treated as exercising the option before the due date as prescribed in the second proviso to rule 5(1A) of the Income-tax Rules. Accordingly, the substantial question of law was answered in favor of the assessees and against the Revenue, confirming the Tribunal's orders. The appeals were dismissed.

Additional Considerations: For T. C. (A.) No. 509 of 2013, the question of law was deemed academic as the quantum appeal was decided in favor of the assessee with no further appeal before the court. For T. C. (A.) Nos. 1012, 1014 of 2010, and 272 of 2014, the court noted that the option exercised in the previous assessment year enures to the benefit of subsequent years as per the third proviso to rule 5(1A) of the Income-tax Rules, thus not requiring the assessee to exercise the option each year separately.

Final Order: The court dismissed all the tax case appeals and confirmed the Tribunal's orders, with no costs. Consequently, connected miscellaneous petitions were also dismissed.

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