1990 (8) TMI 194 - AT - Income Tax

Issues Involved:
1. Effective date of applicability of the Income-tax (Fifth Amendment) Rules, 1980.
2. Entitlement of the assessee to claim depreciation at the enhanced rate of 40% for the assessment year 1980-81.

Detailed Analysis:

Issue 1: Effective Date of Applicability of the Income-tax (Fifth Amendment) Rules, 1980

Arguments by Revenue:
The revenue argued that the enhanced rate of 40% depreciation is applicable from the assessment year 1981-82, as the amended rules were effective from 24-7-1980. The revenue contested that the Commissioner of Income-tax (Appeals) erred in allowing the enhanced rate of 40% for the assessment year 1980-81.

Tribunal's Analysis:
1. General Rule of Law:
- It is well settled that the law as on the 1st day of April of any assessment year should govern the assessment for that year.
- This principle is subject to qualification by any express provision or necessary implication, as held by the Hon'ble Supreme Court in CIT v. Isthmian Steamship Lines [1951] 20 ITR 572.

2. Notification Specifics:
- The notification dated 24-7-1980 stated that the rules "shall come into force at once," indicating immediate effect.
- The Tribunal considered that the use of "at once" suggests an exception to the general proposition of law.

3. Conflict of Opinions:
- Hyderabad Bench "A" held that the enhanced rate was applicable for the assessment year 1980-81.
- Calcutta Bench 'C' held the contrary, that the enhanced rates were not applicable for the assessment year 1980-81.

4. Tribunal's Conclusion:
- The Tribunal favored the view that the notification intended immediate effect, thereby applying to the assessment year 1980-81.
- The Tribunal emphasized that fiscal statutes should be interpreted in favor of the taxpayer when two reasonable views are possible.

Issue 2: Entitlement to Claim Depreciation at Enhanced Rate of 40% for Assessment Year 1980-81

Majority Opinion:
1. Substantive Nature of Rules:
- The rules were substantive and affected the rights of the parties.
- The Tribunal held that the words "at once" indicated the rules should be effective from the date of the notification, i.e., 24-7-1980.

2. Redundancy Argument:
- If the rules were not made effective from 24-7-1980, the words "at once" would become redundant, which is not recognized in legal interpretation.

3. Lack of Clarification from CBDT:
- No clarifications were issued by the CBDT post-notification, supporting the immediate applicability.

4. Benefit to Transport Industry:
- The rules were amended to benefit the transport industry, justifying the higher depreciation rate due to economic conditions.

Dissenting Opinion by Judicial Member:
1. Non-Retroactive Application:
- The Judicial Member argued that the notification did not intend retrospective effect and was relevant only from 24-7-1980.
- The assessee's accounting period expired on 31-3-1980, and thus the rate applicable should be the one relevant on that day or at most on 1-4-1980.

2. Procedural vs. Substantive Law:
- The Judicial Member emphasized that substantive provisions cannot apply retroactively unless explicitly stated.

Third Member's Decision:
1. Principle of Law:
- The Third Member agreed with the majority that the law as on the 1st day of April of any assessment year should govern the assessment for that year.
- The notification's immediate effect implied applicability from the beginning of the assessment year 1980-81.

2. Supreme Court Precedents:
- The Third Member cited the Supreme Court's decision in Mahra Parshad & Sons v. State of Punjab [1962] 13 STC 180, which held that exemptions or benefits introduced during the year should apply for the entire year unless specified otherwise.

3. Final Conclusion:
- The Third Member concluded that the notification dated 24-7-1980 should be effective from 1-4-1980, thereby allowing the enhanced depreciation rate of 40% for the assessment year 1980-81.

Final Order:
The matter was referred back to the regular Bench for a decision according to the majority opinion, affirming the entitlement of the assessee to claim depreciation at the enhanced rate of 40% for the assessment year 1980-81.

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