1980 (8) TMI 32 - HC - Wealth-tax

Summary

Issues Involved:
1. Deduction of initial and additional depreciation for assessment years 1958-59 and 1959-60.
2. Allowance of depreciation as per income-tax records versus actual amount written off in the books.
3. Deduction of arrears of dividend on cumulative preference shares for assessment years 1958-59 and 1959-60.
4. Deduction of additional managing agency commission for assessment year 1959-60.

Detailed Analysis:

1. Deduction of Initial and Additional Depreciation:
The assessee, a public limited company, claimed deduction of initial and additional depreciation on fixed assets for the assessment years 1958-59 and 1959-60. The Tribunal rejected the objections raised by both the assessee and the revenue, confirming the deduction of normal depreciation from the value of the fixed assets. The court, following its earlier decision in MCC No. 309/1968 (CWT v. Gwalior Rayon Silk Mfg. Co. Ltd.), answered the question in the affirmative and in favor of the revenue, thus denying the allowance of initial and additional depreciation.

2. Allowance of Depreciation as per Income-Tax Records:
The revenue contended that the deduction of depreciation should be based on the amount actually provided in the books of account rather than as per income-tax records. The Tribunal directed to allow depreciation as per income-tax records for the assessment years 1958-59 and 1959-60. The court upheld this decision, answering the question in the affirmative and in favor of the assessee.

3. Deduction of Arrears of Dividend on Cumulative Preference Shares:
The assessee claimed deduction of arrears of dividend on cumulative preference shares amounting to Rs. 54,79,375 for 1958-59 and Rs. 49,22,434 for 1959-60. The Tribunal rejected this claim based on the decision of the Madras High Court in Kothari Textiles Ltd. v. CWT. The court held that dividends on preference shares, shown as "Contingent liability not provided for" in the balance-sheet, were not deductible from the assets as this liability had not become a debt. The court referred to the legal position in Palmer's Company Law and the Supreme Court's decision in Kesoram Industries and Cotton Mills Ltd. v. CWT, concluding that unless the general body declared the dividends on or before the valuation date, the liability did not amount to a debt. Therefore, the court answered this question in the affirmative and against the assessee.

4. Deduction of Additional Managing Agency Commission:
For the assessment year 1959-60, the assessee claimed a deduction of Rs. 6,32,832 as additional managing agency commission, which was not shown in the balance-sheet due to pending government approval. The Tribunal accepted this claim, considering it a "debt owing" from April 1, 1957, onwards. However, the court referred to the Supreme Court's decision in Kesoram Industries, emphasizing that a debt must exist on the valuation date to qualify for deduction. The court found that the liability was contingent on the valuation date and had not crystallized into a "debt owed" or "debt owing." Thus, the court answered this question in favor of the revenue and against the assessee.

Conclusion:
In summary, the court ruled in favor of the revenue on the issues of initial and additional depreciation and additional managing agency commission, while ruling in favor of the assessee on the issue of allowing depreciation as per income-tax records. The claim for deduction of arrears of dividend on cumulative preference shares was denied. Each party was directed to bear its own costs.