1976 (11) TMI 12 - HC - Income Tax

Depreciation Applicable, Income Tax Act, Income Tax Rules, Rate Of Depreciation, Set Off, Unabsorbed Depreciation

Summary

Issues Involved:
1. Entitlement to depreciation allowance under rule 8 for ships in the fleet for more than twenty years.
2. Deletion of addition on account of excess depreciation for the vessel 'Tortugus'.
3. Deletion of enhancement to total income for unabsorbed depreciation.

Issue-wise Detailed Analysis:

1. Entitlement to Depreciation Allowance Under Rule 8:
The primary issue was whether the assessee could claim depreciation allowance under rule 8 of the Income-tax Rules for ships that had been part of its fleet for more than twenty years. The Tribunal ruled in favor of the assessee, interpreting the instructions as misinterpreted by the Appellate Assistant Commissioner. The Tribunal emphasized that depreciation should be allowed on the original cost of the ships as per section 10(2)(vi) and proviso (c) to that section, read with rule 8. The Tribunal argued that the instructions could not override these statutory provisions. However, the High Court found that the instructions issued under rule 33 were binding and valid, even if they deviated from the provisions of the Act. The court concluded that depreciation on ships borne on the fleet for more than twenty years was not allowable, thus answering the question in the negative and in favor of the revenue.

2. Deletion of Addition on Account of Excess Depreciation for 'Tortugus':
The second issue concerned the deletion of Rs. 55,280 added by the Appellate Assistant Commissioner for excess depreciation on the vessel 'Tortugus'. The Tribunal had allowed the depreciation for 473 days, based on the round voyages system of accounting adopted by the assessee. The High Court noted that the instructions did not restrict the depreciation allowance to 365 days of the accounting year. It stated that the depreciation should be allowed for the total number of days spent in the Indian trade, whether at sea or in the harbor. Since the net Indian profit was assessed based on 473 days, the court held that the depreciation should also be allowed for 473 days to ascertain the correct profit. Thus, the court affirmed the Tribunal's decision and answered the question in the affirmative and in favor of the assessee.

3. Deletion of Enhancement to Total Income for Unabsorbed Depreciation:
The third issue was whether the Tribunal was justified in deleting the enhancement of Rs. 97,547 made by the Appellate Assistant Commissioner for unabsorbed depreciation allowed by the Income-tax Officer. The Tribunal had ruled that the instructions had become obsolete after the introduction of section 24(2) of the Act. However, the High Court disagreed, citing the Supreme Court's decision in Commissioner of Income-tax v. Jaipuria China Clay Mines (P.) Ltd., which held that the instructions were still valid. The court noted that the unabsorbed depreciation from the assessment year 1953-54 could not be set off against the profits for the assessment year 1958-59, as the ships in question did not come to India in the relevant accounting year. The court concluded that the enhancement by Rs. 97,547 was not warranted, answering the question in the negative and in favor of the revenue.

Conclusion:
The High Court ruled in favor of the revenue on the first and third issues, denying the depreciation allowance for ships in the fleet for more than twenty years and disallowing the set-off of unabsorbed depreciation. On the second issue, the court ruled in favor of the assessee, allowing the depreciation for 473 days for the vessel 'Tortugus'. The parties were directed to bear their own costs.