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2018 (2) TMI 1157 - HC - Income TaxDepreciation allowability - tribunal restricting the depreciation allowed to the amount worked out on the written down value of the assets as against the original cost of the assets claimed by the assessee - Income from the manufacture of rubber which was earlier treated as agricultural income was made assessable to the extent of 35% of the income derived from the business - Held that - As has been held in J.K.Synthetics Ltd. Vs. C.T.O 1994 (5) TMI 233 - SUPREME COURT and Maruti Wire Industries Ltd. Vs. S.T.O Mattancherry 2001 (3) TMI 856 - SUPREME COURT OF INDIA a legislative casus omissus cannot be supplied by a judicial interpretative process (sic). On the above reasoning, we are unable to accept the dis-allowance of the depreciation and the computation made of the written down value. We answer the questions raised by the assessee in favour of the assessee and against the Revenue. AO is directed to employ the deeming provision for computing the written down value de hors the depreciation granted under the AIT Act and take 35% of the cost of the total assets as written down value, allowing the depreciation for the relevant assessment year to that extent. The Assessing Officer shall deem the written down value to be the cost of the assets and compute the depreciation allowable at 35% of such deemed written down value and apply it to the portion of the income derived from the agricultural business, that is assessable under the IT Act.
Issues Involved:
1. Restriction of depreciation to the written down value versus original cost of assets. 2. Applicability of Rule 7A of the Income Tax Rules and Section 43(6) of the Income Tax Act for depreciation claims. Detailed Analysis: 1. Restriction of Depreciation to the Written Down Value versus Original Cost of Assets: The appellant, engaged in the manufacture and sale of latex and rubber, claimed depreciation on the entire cost of plant and machinery, treating 35% as the actual cost allowable for depreciation. The Assessing Officer, however, restricted the depreciation to the written down value of the assets, as per Section 43(6) of the Income Tax Act (IT Act), which defines written down value as the actual cost less all depreciation actually allowed under the IT Act. The Officer argued that allowing depreciation on the original cost would result in a double benefit to the appellant. This view was affirmed by the Commissioner of Appeals and the Tribunal, which relied on CIT v. Parry Agro Industries Ltd. to support their decision. 2. Applicability of Rule 7A of the Income Tax Rules and Section 43(6) of the Income Tax Act for Depreciation Claims: The appellant contended that the Tribunal's reliance on CIT v. Parry Agro Industries Ltd. was misplaced, as it pertained to Section 80HHC of the IT Act. Instead, the appellant cited Commissioner of Income Tax v. Doom Dooma India Ltd., where the Supreme Court held that the "actual cost to the assessee" in Section 43(6) refers to the cost incurred in acquiring the assets, regardless of whether they were acquired in the previous year or earlier, provided no depreciation was claimed previously. The Supreme Court had emphasized that depreciation should be allowed on the actual cost if no depreciation was previously claimed, even if the assets were acquired before the previous year. Verification of Depreciation Claims: The Court directed the Assessing Officers under the Agricultural Income Tax Act (AIT Act) and the IT Act to verify previous assessments. The reports indicated that the appellant had claimed depreciation under the AIT Act in previous years but not under the IT Act. The Court had to determine whether depreciation should be based on the entire cost of the assets or the written down value after accounting for depreciation allowed under the AIT Act. Judgment and Reasoning: The Court referred to Madeva Upendra Sinai v. Union of India, which clarified that the written down value of assets acquired before the previous year, where no depreciation was allowed under the IT Act, should be the actual cost. The Court noted that the IT Act does not specifically mention the AIT Act for reducing depreciation from the actual cost. Therefore, the written down value for the first year of assessment under the IT Act should not exclude depreciation allowed under the AIT Act. Legislative Amendments: The Court acknowledged that the legislature addressed the issue of double benefits through Explanation 7 to Section 43(6) of the IT Act, inserted by the Finance Act, 2009, effective from 1.4.2010. However, this amendment did not apply retrospectively to the relevant assessment year (2002-03). The Court emphasized that it could not supply a legislative casus omissus through judicial interpretation. Conclusion: The Court concluded that the appellant was entitled to claim depreciation based on the actual cost of the assets, without reducing depreciation allowed under the AIT Act. The Assessing Officer was directed to compute the written down value as the cost of the assets and allow depreciation at 35% of this value for the relevant assessment year. The appeal was allowed in favor of the appellant, and the questions raised were answered against the Revenue.
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