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Issues involved: Interpretation of the definition of "actual cost" for allowing depreciation on house service connections laid before April 1, 1961 under the Income-tax Act, 1961.
Summary: The High Court of Madras addressed a question referred by the Income-tax Appellate Tribunal regarding the deduction of consumer contributions from the actual cost of house service connections for allowing depreciation. The Tribunal held that under section 43(1) of the Income-tax Act, 1961, consumer contributions should not be deducted for assets existing before April 1, 1961. The Court analyzed the relevant provisions and explanations under the old and new Acts to determine the correct interpretation. The Court noted that the Indian Income-tax Act, 1922, allowed deductions for contributions by the Government or public authorities, while section 43(1) of the 1961 Act extended this to contributions by any person or authority. The Tribunal's contention that the new definition of "actual cost" should only apply to assets post-April 1, 1961, was deemed invalid. The Court emphasized that section 43(6)(b) applies to assets pre and post-April 1, 1961, and the old Act's definition of "actual cost" is no longer applicable post-repeal. Additionally, the Court highlighted that the legislative intent behind the new provision was to rectify anomalies in depreciation allowances, especially for businesses like electricity distribution. The Tribunal's reasoning based on Explanation 4 to section 43(1) was deemed irrelevant, as it did not support the limitation of the new definition to post-1961 assets only. Ultimately, the Court concluded that the definition of "actual cost" under section 43(1) should be applied to determine the written down value for assessment years 1962-63 onwards, irrespective of asset acquisition dates. In conclusion, the Court answered the question in the negative, ruling against the assessee. Due to the absence of precedent on the issue, no costs were awarded.
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