2019 (11) TMI 876 - HC - Income Tax

Claim of depreciation at higher rate - failure to file return of income (ITR) within the time limit prescribed u/s 139(1) - ITAT allowed the claim u/s 32 - condition imposed under Rule 5(1A) proviso (ii) - HELD THAT - In the instant case, admittedly, in the return was filed on behalf of assessee, within the extended period of time provided under Section 139(4) of the Act, and the assessee has claimed depreciation. Thus, the benefit of the aforesaid decision of the Hon ble Apex Court in the case of Commissioner of Income Tax ( 2000 (12) TMI 99 - SUPREME COURT ) would enure to the benefit of the assessee. Rule 5(1A) proviso (ii) - It is pertinent to mention here that the Tribunal while taking into account Section 32 of the Act, has held that since Section 32 of the Act does not provide any specific provision for exercising the option within the time limit, therefore, the condition imposed in the second proviso of Rule 5(1A) of the Rules to the extent that such an option has to be exercised at the time of filing of the return under Section 139(1) of the Act is invalid cannot be upheld. It is trite law that the Tribunal is bound by the provisions of the Act and the Rules and has no power to declare any provisions of either the Act or Rules to be invalid or ultra vires. Therefore, the substantial question of law framed by this Court is answered in favour of the Revenue and it is held that the Tribunal was not correct in holding that in the absence of prescription of any time limit under Section 32 of the Act, the condition mentioned in the second proviso to Rule 5(1A) of the Rules to exercise the option with regard to depreciation at the time of filing of the return under Section 139(1) of the Act is invalid, is not correct. Impugned orders passed by the Tribunal insofar as it pertains to the finding that the second proviso to Rule 5(1A) of the Rules are ultra-vires is hereby set aside.

Summary

Issues:
- Interpretation of Section 32 of the Income Tax Act and Rule 5(1A) of the Income Tax Rules
- Validity of the condition imposed under Rule 5(1A) proviso (ii)
- Exercise of option for depreciation within a particular time limit

Analysis:

Issue 1: Interpretation of Section 32 of the Income Tax Act and Rule 5(1A) of the Income Tax Rules

The case involved appeals under Section 260A of the Income Tax Act, 1961, pertaining to Assessment Years 2009-10 and 2010-11. The primary dispute revolved around the allowance of depreciation under Section 32 of the Act and Rule 5(1A) of the Rules. The Tribunal had allowed the appeal of the assessee, setting aside the disallowance of depreciation by the Commissioner of Income Tax (Appeals). The Tribunal held that the rule-making authority could prescribe the percentage for depreciation but could not impose additional conditions beyond what was provided in the Act. The Tribunal found the second proviso to Rule 5(1A) of the Rules invalid, leading to the Revenue filing the present appeals.

Issue 2: Validity of the condition imposed under Rule 5(1A) proviso (ii)

The Revenue contended that the Tribunal erred in allowing the assessee's claim for depreciation since the return of income was not filed within the prescribed time limit under Section 139(1) of the Act. The Revenue argued that the second proviso to Rule 5(1A) required the option for depreciation to be exercised at the time of filing the return, which the assessee failed to comply with. On the contrary, the assessee relied on the Tribunal's decision and cited relevant provisions to support their position.

Issue 3: Exercise of option for depreciation within a particular time limit

The Court examined the relevant provisions of Section 32 of the Act, Rule 5(1A) of the Rules, and Rule 17(1) of the Rules to determine the validity of the condition regarding the exercise of the option for depreciation. It referred to a Supreme Court decision regarding the necessity of furnishing required information before the completion of assessment. The Court held that the Tribunal cannot declare provisions of the Act or Rules invalid and ruled in favor of the Revenue, stating that the condition mentioned in the second proviso to Rule 5(1A) was not invalid. However, due to the Supreme Court's decision in a similar case, no relief was granted to the Revenue despite the substantial question of law being answered in their favor.

In conclusion, the Court set aside the Tribunal's finding on the validity of the second proviso to Rule 5(1A) but did not grant relief to the Revenue based on the Supreme Court precedent. Both appeals filed by the Revenue were disposed of accordingly.