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Issues: Assessment of depreciation and business expenditure for the assessment years 1966-67 and 1969-70.
Assessment Year 1966-67: The Income-tax Officer disallowed depreciation and deduction of business expenditure as he found that the assessee had not commenced manufacturing and any production was only on an experimental basis. However, the Appellate Assistant Commissioner allowed the claims, stating that the business had been set up during the relevant accounting year, relying on legal precedents. The Tribunal upheld this decision, emphasizing that the business had been established, and thus, depreciation and expenses should be allowed. Assessment Year 1969-70: The Income-tax Officer disallowed depreciation as the plant and machinery did not work for the whole year and production was limited. The Appellate Assistant Commissioner and the Tribunal held that since the business had been set up in the previous year, depreciation and development rebate should be allowed automatically for this year as well. Legal Precedents: The Tribunal distinguished the decision of the Allahabad High Court by emphasizing the Supreme Court's ruling in the case of Ramaraju Surgical Cotton Mills Ltd., which allowed deduction of business expenditure once the business was set up. The Tribunal also referred to other cases such as CIT v. Saurashtra Cement and Chemicals Industries Ltd. and CIT v. Incheck Tyres Limited to support the allowance of expenses incurred in setting up the business. Conclusion: The High Court upheld the decisions of the lower authorities, stating that the business had been set up in the assessment year 1966-67, and this finding was final. Following legal precedents and considering the establishment of the business, the Court ruled in favor of the assessee, allowing depreciation and expenses claimed for both the assessment years.
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