2006 (10) TMI 99 - HC - Income Tax

Book profits - CIT(A) allowed the claim of the assessee holding that depreciation provided under the Companies Act was the minimum but there was no bar to higher depreciation being claimed by the assessee under IT Act and, thus, for purposes of Section 115-J of the Act, depreciation actually debited could be allowed - Tribunal upheld the said view - In view of judgment of SC, We, accordingly, answer the question against the revenue and in favour of the assessee higher depreciation permissible

Summary

Issues:
Interpretation of depreciation for Section 115-J of the Income Tax Act for the assessment year 1989-90.

Analysis:
The Income Tax Appellate Tribunal referred a question to the High Court regarding the allowance of depreciation as per income tax rules for computing income under Section 115-J of the Income Tax Act. The assessee had claimed depreciation in accordance with the Income Tax Act, which was rejected by the Assessing Officer, stating that depreciation for Section 115-J should be as per Schedule XIV of the Companies Act, 1956. However, the CIT(A) allowed the higher depreciation claimed by the assessee, emphasizing that the Companies Act provided for a minimum depreciation, but there was no prohibition on claiming higher depreciation. The Tribunal upheld this view, leading to the question being referred to the High Court.

The assessee's counsel relied on a Supreme Court judgment in Apollo Tyres Limited v. Commissioner of Income Tax, which highlighted that the Assessing Officer's role was limited to ensuring that accounts were certified by the authorities under the Companies Act and not to re-scrutinize them. The Kerala and Madhya Pradesh High Courts had previously held that depreciation could not be calculated as per Income Tax Rules for Section 115-J. The Gujarat High Court also supported the view that the Company could opt for higher depreciation than the minimum prescribed by the Company Law Board for dividend distribution.

The High Court considered the Supreme Court's judgment and disagreed with the views of the Madhya Pradesh and Kerala High Courts, as well as upheld by the Gujarat High Court. The High Court concluded that the Assessing Officer's jurisdiction was limited to verifying certified accounts under the Companies Act and not to dictate the depreciation calculation method. Therefore, the High Court ruled in favor of the assessee, allowing the higher depreciation claimed and disposed of the reference accordingly.