Value of asset under Wealth-tax Act due to devaluation. - Income Tax - 474/CBDT

INSTRUCTION NO. 474/CBDT November 15, 1972 Section(s) Referred: 43A Statute: Income - Tax Act, 1961 Reproduced below is para 47(a) of the Comptroller Auditor General's Report for 1970-71 pertaining to section 43A of the I.T. Act, 1961:- (a) Where an assessee had acquired any capital asset from a country outside India for the purposes of his business on deferred payment terms or against a foreign loan before the date of devaluation of the rupee viz., 6th June, 1966, the additional rupee liability incurred by him in meeting the instalments of the cost of the asset or of the foreign loan falling due for payment after the date of devaluation, is allowed to be added to the original actual cost of the asset for the purpose of calculating the depreciation allowance. A non-resident company had no foreign liability outstanding on the date of devaluation. However the assessee claimed depreciation of Rs. 16,33,305 for the assessment year 1968-69 after enhancing the written down value of the assets by the fall in the value of the rupee in relation to the pound sterling consequent upon the devaluation of rupee and the claim was allowed by the I.T. Officer. As no foreign liability was outstanding, the incorrect enhancement in the written down value resulted in excess allowance of depreciation by Rs. 11,03,158 for the assessment years 1967-68 and 1968-69 resulting in total short levy of tax of Rs. 7,81,942. 2. Public Accounts Committee in its meeting held in the last week of October 1972 commented adversely on the commission of such avoidable mistakes. In view of the magnitude of the short levy of tax the Board has decided to have a general view of the cases completed after devaluation in order to find out that similar mistakes have not been committed in other cases also. Such a review should accordingly be made and completed by 15th January, 1973. The result should be communicated to Board by 25th January, 1973 positively. Necessary instructions may please be issued to adhere to the dates indicated in this letter. 3. Attention is also invited to Board's Instruction No. 467 issued from F.No. 328/120/72-WT dated 24-10-1972 regarding variation in value of assets under the Wealth-tax Act due to devaluation. Income-tax Officers may be directed to keep in mind that enhancement of the value of asset under the Wealth-tax Act due to the devaluation will not necessarily mean allowance of depreciation on enhanced value under the I.T. Act in all cases. In cases where the full price of the asset has been paid for before the date of devaluation, the depreciation will continue to be allowed on the original cost. Only in those cases in which the assessee had an outstanding liability in regard to the purchase price which was discharged after the devaluation that the depreciation will be allowed on the enhanced cost.