9911796707
TMI Blog2012 (7) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of addition made for capital gain. The assessee company is manufacturing compressors and the compressor division was sold as a going concern to Tecumseh India Private Limited. As per the Memorandum of Understanding (MOU) dated 02.07.1997, the terms of MOU are as under :-Tecumseh shall purchase - The plant and machinery, equipment and tooling located at Whirlpool's Faridabad facility (excluding land and building at Faridabad Complex) and the entire assets including land, building, plant and machinery etc., located at Whirlpool's Ballabgarh factory. - The raw materials and work in progress inventory of compressor division. - The assets and machinery used exclusively in the compressor repair facility - To take up the liabilities of the compressor division - The land measuring in aggregate 105983 square meters and buildings constructed thereon situated at 23 Mile Stone, Ballabgarh, Haryana - Take over the employees and workers of Whirlpool numbering approximately 1600 who were working on the compressor manufacturing facility. - Tecumseh shall supply and meet Whirlpool's compressor req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gistration of the said land. Clause 3 of the MOU also specifies that the land measuring 7 acre Part is the subject matter of Notification issued by the Haryana State Government under section 4 and 6 of the Land Acquisition Act, 1894 and accordingly this plot of land shall be transferred to Tecumseh when it is released from the Haryana State Government. However, Clause 3 (ii) of the said MOU, reads that- "(ii) The Seven Acre Parcel is part and parcel of the Compressor Division along with the Main Parcel described in section 3.a above. The Seven Acre Parcel is effectively required for the conduct of the business of the Compressor Division and the Related Operations on the Main Parcel. Until such time as Tecumseh India shall own the Seven Acre Parcel, following the Seven Acre Closing, Tecumseh India and the Compressor Business and Related Operations on the Main Parcel shall have continuous use of the Seven Acre Parcel, and accordingly, Whirlpool hereby grants to Tecumseh India an unrestricted exclusive license to use and build upon the Seven Acre Parcel, for the consideration and on other terms and conditions provided herein (the "License") From the above it is clear that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the head long term capitals gains during the year and not as the capital gain of the assessment year 2000-2001 when the assessee has offered the same to tax under the head capital gains by claiming higher Index benefit." 3. The CIT(A) has granted the relief by holding as under :- "7. I have considered the matter carefully. In my opinion the assessee did not have absolute and clear title over the land once it was under notification of acquisition by the Haryana Government. Once, a land had been notified for acquisition, the same can not be sold/transferred unless and until it is released from the notification. Further, the MOU between the two parties clearly spells out conditions enabling return of land to the assessee and refund of the consideration, if the land would not be released from the acquisition notification. The assessee was not legally competent to transfer the land during the pendency of the notification and could not have got the conveyance deed registered in favour of the Tecumseh without necessary permission/approval of the Haryana Government regarding the acquisition. Attention is drawn here to the decision of the Karnataka High Court in the case of CIT v. H.K. Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment dated 29-3-1993, for applicability of section 53A. The assessee could no longer assert possessory rights against the firm to which possession was already given pursuant to the agreement and that too after receiving the full sale consideration. Thus, there was no merit in the assessee's appeal. 2. Chaturbhuj Dwarkadas Kapadia of Bombay v. CIT 260 ITR 497 (Bom.) Clauses (v) and (vi) were introduced in section 2(47) of the Income-tax Act, 1961, with effect from April 1, 1988. They provide that "transfer" includes (i) any transaction which allows possession to be taken/retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882, and (ii) any transaction entered into in any manner which has the effect of transferring or enabling the enjoyment of any immovable property. Therefore, in these two cases capital gains would be taxable in the year in which such transactions are entered into, even if the transfer of the immovable property is not effective or complete under the general law. Under section 2(47)(v) any transaction involving allowing of possession to be taken over or retained in part performance of a contract of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital asset." 5. On the other hand, the learned AR submitted that the assessee received a sum of Rs. 3.24 crores representing 50% of the total consideration as a partial payment against the sale of plot of land and the balance of Rs. 3.24 crores was kept in an interest bearing escrow account, which, along with interest was to be delivered to the assessee on or before the registration of the land. This sale was subject to the acquisition proceedings and assessee was to get it released and then transfer the land by way of registration. Pending such work the land was licensed to the Tecumesh. These facts are very clear from the terms of agreement dated 2nd July, 1997. This land was released by Haryana Government to the assessee during the previous year relevant to the AY 2000-01 and then the land was registered in the name of transferee. The AO had wrongly invoked the provisions of section 2(47)(v) of Income-tax Act, as the transfer has not taken place during the relevant previous year. Therefore, capital gain did not arise during the year. The CIT(A) had rightly granted the relief by holding that assessee was not having an absolute and clear title over the land once it was under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yce, AIR 1987 Supreme Court 2421 (ii) Buddaiah v. CIT [1985] 155 ITR 277/23 Taxman 226 (Kar.) (iii) Fruit & Vegetable Merchants Union v. Delhi Improvement Trust, AIR 1957 SC 344. 6. We have heard both the sides on the issue in detail and had also perused the agreement dated 02.07.1992 between the assessee and the Tecumesh. As per the clauses of agreement, the Haryana State Government has agreed in principle to release the seven acre parcel from the acquisition Notifications and with this understanding, the clause was also made that assessee shall obtain requisite permission to effectively convey and vest the seven acre parcel in Tecumesh India. This land was agreed to be sold by the assessee to Tecumesh India. As per this agreement, this was also part and parcel of the compressor division and this land was required for the conduct of the business of compressor division and the related operations on the main parcel. The assessee had given the possession and the fruits of the land were enjoyed by the Tecumesh India. The assessee had already received half of the sale consideration and the balance 50% was kept in escrow account. All the interest accrued in escrow account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty" shall have the same meaning as in clause (d) of section 269UA;]" Section 53A of the Transfer of Property Act defines "Part performance thus :- "Part performance.-Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract, then, notwithstanding that where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned predecessor had made detailed discussion of the case in the order for the assessment year 1997-98 and held that by not claiming any depreciation allowances, the assessee company had adopted a colorable tax planning devices and hence the case of the assessee is squarely covered within the purview of the decision of the Supreme Court in the McDowell's case (154 ITR 148). Accordingly, with the available information in the record of assessment calculated and allowed depreciation allowances for that year. Since, the assessee's case for both the years with regard to claim of depreciation allowances are same, 1 am constrained to take a decision contrary to the orders of my predecessor for the assessment year 1997-98. Accordingly, the assessee is granted depreciation amounting to Rs. 54,94,76,671/- as per Annexure "A" to this order. The depreciation shall be allowed to be carried forward for eight succeeding years as per section 32(2) of the I.T. Act and the written down value of the assets/additions to the asset's shall accordingly be reduced and this would be the opening WDV for the assessment year 1999-2000." 9. The CIT(A) granted the relief by holding as under :- "8. Grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue for consideration for their Lordship was: "Whether on the facts and in the circumstances of the case, the Tribunal was justified in coming to the conclusion that depreciation allowance ought to be deducted while computing the total income for the purposes of deduction under section 80HH?" Hon'ble Bombay High Court held that the controversy in Mahendra Mills, 243 ITR 53 (SC) was not concerning deductions under section VIA of Income Tax Act Therefore, that judgement was not to apply to the case where deductions under Chapter VIA have been claimed. Hon'ble Bombay High Court in the case of Indian Rayon Corporation Ltd. held as under : "In the above judgements of the Bombay High Court to which one of us (Kapadiu J.) was a party it has been held, inter alia, that Chapter VI-A of the Income Tax Act deals with special deductions. That, Chapter VI-A for the purposes of computing such deductions, constituted a separate code by itself In order to compute the total taxable income of the assessee, deductions computed under section 80HH have to be reduced from the gross total income of the assessee. The question basically in this matter is concerning computation of deduction under Chap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss profits, for allowing deduction under section 80HHC, depreciation has to be allowed. Accordingly, in our view Ld. CIT(A) had erred in directing the Assessing Officer for assessment years 1998-99 to 2001-02 not to allow depreciation and take initial cost of assets for assessment year 2002-03 for allowance of depreciation and consequent WDV with modifications on account of addition or deletion in respective block of assets in subsequent assessment years. In other words the assessing officer had rightly computed depreciation for assessment years 1994-95 to 1997-98 notionally to arrive at W.D.V. for assessment year 1998-99 and subsequent assessment years. Accordingly, we set aside the order of Ld CIT(A) and restore the order of Assessing Officer. 2. Dabur India Ltd. v. CIT 2008-TIOL-463-HC-DEL-IT (ITA 579/2007) 6. Being aggrieved, the Assessee has raised the following issues before us:- (i) that ITAT ought to have adhered to the principle of consistency and followed the decision of co-ordinate benches of the ITAT in the case of the Assessee for assessment years 1997-98 to 2000-01. It was further submitted by the learned counsel that, in the event, the ITAT was not for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecide this issue in view of the decision it had taken, dehors the amendment, which is that depreciation was required to be charged in calculating eligible profits and gains for the purpose of deduction under Section 80 IB and 80 HHC. 3rd contention 9. On merits, the issue raised by the assessee that if it has an option to claim depreciation under Section 32 of the Act with respect to computation of normal income then the claim of depreciation allowance cannot be thrust upon the Assessee for determining profits and gains eligible for the purposes of ascertaining amount deductible under Section 80 IB and 80 HHC is untenable for the reasons delineated below:- 9.1 To answer this contention we would have to analyse, based on the scheme of the Act, as to the manner in which income of an assessee is to be calculated in the normal course in contrast to calculation of income i.e., profit and gain for the purpose of deduction under Chapter VI-A of the Act, in particular, Section 80 IB and Section 80HHC. 9.2 The Scheme of the Act :- Chapter I of the Act provides for definition of terms and expressions used in the Act. Chapter-II broadly deals with basis of charge, the scope of total incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (omitted by the Finance Act, 1988 w.e.f from 1.4.1989). (C) - Income from house property (D) - Profits and gains of business or profession (E) - Capital gains (F)-Income from other sources. 9.4 In the instant case, we are concerned with "profits and gains of business or profession". Section 28 of the Act provides that, amongst others, income from "profits and gains of business or profession" which was carried on by the assessee during the previous year will be chargeable to income tax under the said Act. Section 29 which is crucial for the purposes of the present appeal, provides that the income referred to in Section 28 shall be computed in accordance with the provisions contained in Sections 30 to 43D. 9.5 It is, thus, evident that in computing the income chargeable to income tax under the head "profits and gains from business or profession", the provisions contained in Sections 30 to 43D will have to be borne in mind. Since we are concerned with the chargeability of depreciation in computing the total income of the Assessee, the reference to Section 32 of the Act becomes necessary. Section 32(1) of the Act allows for deduction on account of depreciation in respect of (i) build ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) states that in computing total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to provisions of Chapter VI-A, deductions specified in Sections 80C to 80U. Sub-Section (2) of Section 80A specifically sets out that the aggregate amount of deductions under this Chapter shall not, in any case, exceed the gross total income of the assessee. Section 80AB which is important, clearly provides where any deduction is required to be made or allowed under any section included in this Chapter under the heading "C-Deductions in respect of certain incomes" in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income. Importantly, gross total income for the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is calculated in accordance with the provisions of the Act alone. Thus, in calculating profits and gains of business "derived" from the industrial undertakings i.e., eligible businesses, under Section 80-IB or export business under Section 80 HHC, we would have to bear in mind the provisions of Sections 30 to 43D as referred to in Section 29, Section 80AB and Section 80B(5). A conjoint reading of these provisions leads to the conclusion that depreciation allowance under Section 32 will have to be deducted in arriving at the "profits and gains" of business derived by an Assessee, from an industrial undertaking specified under Section 80-IB or export business under Section 80 HHC. 12. In the instant case as noticed by the Assessing Officer, the Assessee while claiming depreciation for all his units except six (6) units located in Baddi had attempted to seek a dual benefit, not envisaged under the provisions of the Act. Firstly, by opting out of a claim for depreciation allowance under Section 32 of the Act which resulted in enhancement of profit and gains derived from the industrial undertakings and/or businesses specified under Section 80-IB and Section 80HHC of the Act, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chinery under Section 41(2) as balancing charge. Apart from the issue whether income from sale of machinery and the resulting balancing charge could be included in arriving at profits "attributable" (the expression then appearing in the Act as against "derived") to the business of the Assessee, the other issue which the Supreme Court was called upon to answer was whether unabsorbed depreciation and unabsorbed development rebate would have to be adjusted in computing the eligible profits "attributable" to such business. The Supreme Court answered the question as follows:- "......The court has further observed that in its opinion the deduction under Section 80E is a special benefit given to a company which satisfies the conditions under Section 80E and the deduction permissible thereunder is only from profits and gains attributable to the specified activities and this benefit should not be diminished by the other benefits conferred by the Act, such as the right to have the previous losses set off, that the two serve different purposes and the benefit of both must be available to an assessee, without the one impinging on the other. It will thus appear that the Kerala High Court has r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out the 8% deduction under section 80E(1) cannot be accepted. As observed earlier, on a proper construction of the provision contained in sub-section (1) of section 80E, items like unabsorbed depreciation and unabsorbed development rebate will have to be deducted in arriving at the figure which would be exigible to deduction of 8% under section 80E(1)." 14. The controversy at hand was examined by the Bombay High Court in the case of Indian Rayon Corporation Ltd. v. Commissioner of Income Tax [2003] 261 ITR 98. The Bombay High Court examined the issue at great length. The relevant observations read as follows:- ......Secondly, in any event, the controversy in Mahendra Mills' case [2000] 243 ITR 56 (SC) was not concerning deductions under Chapter VI-A of the Income-tax Act. Therefore, that judgment would not apply to this case. The important distinction, which is required to be noticed in this case, is that we are required to compute the total taxable income of the assessee who has claimed special deduction under Chapter VI-A. For that purpose, one has to keep in mind the provisions of sections 80B(5) and 80AB. Consequently, section 80HH, inter alia, lays down that if the gross to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct deals with special deductions. That, Chapter VI-A, for the purposes of computing such deductions, constituted a separate code by itself In order to compute the total taxable income of the assessee, deductions computed under section 80HH have to be reduced from the gross total income of the assessee. The question basically in this matter is concerning computation of deduction under Chapter VI-A in which section 80HH falls. Profits and gains of a newly established undertaking, therefore, have got to be computed as per the provisions of section 29 to section 43A and if the assessee claims relief under Chapter VI-A of the Act, then it is not open to the assessee to disclaim depreciation allowance. This is because Chapter VI-A is an independent code by itself for computing these special types of deductions. In other words, one must first calculate the gross total income from which one must deduct a percentage of incomes contemplated by Chapter VI-A. That such special incomes were required to be computed as per the provisions of the Act, viz., section 29 to section 43A, which included section 32(2). Therefore, one cannot exclude depreciation allowance while computing profits derived f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articulars included, brought forward WDV, assets acquired during the year, or sold during the year, rates of depreciation, whether asset was used in that year or not. No depreciation was available on an asset if it was sold during the year. This information was considered necessary before claim of depreciation is admitted. One more reason for disallowing claim of depreciation when particulars are not furnished was to facilitate the Assessing Officer to calculate written down value after adjusting actually allowed depreciation. Wherever depreciation was not allowed for want of particulars, the WDV as brought forward from earlier year would be carried forward to subsequent year. Notional depreciation would not be adjusted to work out WDV to be carried forward to the next year. Thus, on one hand, there was a compulsion imposed on the assessee to furnish particulars for claiming depreciation, if it wanted to reduce its tax liability and on the other hand, Hon'ble Supreme Court in Mahendra Mills' case (supra) protected the interest of assessee by prohibiting the Assessing Officer from reducing the depreciation to work out WDV to be carried forward to the next year. It was held in Mahend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough they are words in a legislative enactment, and it is to be remembered that judicial utterances are made in the setting of the facts of a particular case, said Lord Morrin in Herrington v. British Railways Board [1972] 2 WLR 537 (HL). Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases." Thus, the material difference is the deletion of section 34 and therefore, reliance cannot be wholly placed for assessment years, subsequent to 1-4-1988, on the decision in Mahendra Mills' case (supra). Para 26 of that decision as referred to by learned counsel for assessee does not clinch the issue in favour of assessee because that para lays down guidance for the purposes of calculation of depreciation based on actual cost of acquisition and deduction of depreciation actually allowed in earlier years. That is, this para lays down how WDV has to be worked out and for that purpose only actually allowed depreciation has to be considered. It does not lay down a law that even after the deletion of section 34, depreciation could not be worked out by the Assessing Officer, if not claimed by the assessee. While considering the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income." It means that for the purposes of allowing deduction under any section under the head 'C' the amount of income on which deduction is to be allowed will be computed in accordance with the provisions of the Act and that alone should be included in the gross total income. Thus, 'income' included in gross total income is the same as the one on which deductions under chapter VI-A are allowed. If depreciation is allowable, even though not claimed, depreciation has to be allowed in any case to compute income. Such income after allowing depreciation will form part of gross total income. At the relevant time, when section 34 was in the statute, depreciation could be allowed only when particulars were fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion". Therefore, following the same, the issue is decided in favour of the Revenue. The additional ground raised by the revenue stands allowed. The order of the learned CIT(A) is, therefore, set aside on this issue and Assessing Officer is directed to recompute the deduction accordingly." Thus, even in computation of gross total income before allowing deduction under chapter VI-A, the ratio of Vahid Paper Converters by Special Bench would be applicable. It was argued by learned counsel for assessee that there is still a format in the return, which requires particulars to be furnished by the assessee. But the importance of format in the return was in the conjunction with section 34 and rule 5AA. When the two are no longer in statute, format in the return form cannot be substituted for express provisions, which existed at the relevant time. Absence of particulars and data, an assessee is required to fill up in the return, will not disentitle the assessee to claim/allowance/relief. The Assessing Officer is not estopped from computing income as per Income-tax Act, 1961. Format of the return of income does not decide either the statutory liability of the assessee or restricts the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Ramnath Zindal's case (supra). In our view, this aspect is not going to have any effect on the allowability of depreciation as per law. Even without explanation, depreciation is needed to be allowed as per law, whether claimed or not claimed, in view of the deletion of section 34 from the Statute. Reliance was placed by the learned counsel for assessee on CIT v. Snehavalli Textiles (P.) Ltd. [2003] 259 ITR 77 (Mad.) and CIT v. Kerala Electric Lamp Works Ltd. [2003] 261 ITR 721 (Ker.). In Sri Snehavalli Textiles (P.) Ltd.'s case (supra), the question involved was whether depreciation given up in revised return would mean that the assessee is dis-entitled to depreciation allowance. The Tribunal, in that case, held that assessee was not entitled to depreciation and this decision was confirmed by Hon'ble Madras High Court. The Hon'ble High Court held that assessment made on the basis of revised return without considering the claim of depreciation would be a proper assessment. In Kerala Electric Lamp Works Ltd.'s case (supra), the issue was as to whether Explanation 5 to section 32 inserted by Finance Act, 2001 would be applicable from 1-4-2002 or for prior years. It was held that exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oposition, learned Departmental Representative relied upon the recent decision of Hon'ble Supreme Court in the case of CIT v. Gold Coin Health Food (P) Ltd. [2008] 218 CTR (SC) 359 : [2008] 304 ITR 308 (SC), wherein the Hon'ble apex Court held that the amendment to Expln. 4 to section 271 is clarificatory in nature and hence it will have retrospective operation. It was pointed out that despite the fact that above said Explanation was substituted by the Finance Act, 2002 w.e.f. 1st April, 2003, the Hon'ble apex Court has held it to be retrospective in operation. 5.2 On the contrary, learned Authorised Representative placed his reliance on the decision of Mumbai Bench of the Tribunal in the case of Sadhuram Patel & Sons v. ITO [2009] 121 TTJ (Mumbai) 180 : [2008] 16 DTR (Mumbai) 443, wherein the Tribunal, by following the decision of Hon'ble Madras High Court in the case of CIT v. Sree Senhavalli Textiles (P) Ltd. [2003] 183 CTR (Mad) 453 : [2003] 259 ITR 77 (Mad) and the decision of Hon'ble Kerala High Court in the case of CIT v. Kerala Electric Lamp Works Ltd. [2003] 183 CTR (Ker) 182 : [2003] 261 ITR 721 (Ker), has held that Expln. 5 will have only prospective operation. 5.3. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed never to have included' is declaratory, and is in plain terms retrospective. In the absence of clear words indicating that the amending Act is declaratory, it would not be so construed when the amended provision was clear and unambiguous. An amending Act may be purely clarificatory to clear a meaning of a provision of the principal Act which was already implicit A clarificatory amendment of this nature will have retrospective effect and, therefore, if the principal Act was existing law when the Constitution came into force, the amending Act also will be part of the existing law.' In Zile Singh v. State of Haryana [2004] 8 SCC 1, it was observed as follows : "13. It is a cardinal principle of construction that every statute is prima facie prospective unless it is expressly or by necessary implication made to have a retrospective operation. But the rule in general is applicable where the object of the statute is to affect vested rights or to impose new burdens or to impair existing obligations. Unless there are words in the statute sufficient to show the intention of the legislature to affect existing rights, it is deemed to be prospective only- 'nova constitutio futuris formam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not amount to accrued right (p. 392)'. The above being the position, the inevitable conclusion is that Expln. 4 to section 271(1)(c) is clarificatory and not substantive. The view expressed to the contrary in Virtual Soft Systems Ltd. v. CIT [2007] 207 CTR (SC) 733 : [2007] 9 SCC 665 : [2007] 289 ITR 83 (SC) is not correct." 5.4 Both the decisions of Hon'ble Madras High Court in the case of Sree Senhavalli Textiles (P) Ltd. (supra), and that of Hon'ble Kerala High Court in the case of Kerala Electric Lamp Works Ltd. (supra) have been rendered prior to the decision of Hon'ble Supreme Court referred to in para 5.3 supra. The Hon'ble Kerala High Court decided against retrospective operation of the Expln. 5 to section 32 by giving more importance to the date of amendment. The relevant observations are extracted below : "As we have noticed this Explanation was inserted as per the Finance Act, 2001, and the explanation itself was given effect to only with effect from the 1st day of April, 2002, and when the legislature has expressly given effect to the Explanation to commence from 1st day of April, 2002, only we do not see any force in the contention raised by learned counsel appear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to dispense with the restriction of 8 years for carry forward and set off of unabsorbed depreciation. It is further proposed to clarify that in computing the profits and gains of business or profession for any previous year, deduction of depreciation under section 32 shall be mandatory. The proposed amendments will take effect from the 1st April, 2002, and will, accordingly, apply in relation to assessment year 2002-03 and subsequent years." The intention of inserting the impugned Explanation is "to clarify" that the deduction of depreciation under section 32 shall be mandatory. As pointed by learned Departmental Representative, the provision itself starts with the words "For removal of doubts". 5.6. Learned Authorised Representative placed his reliance on the decision of Hon'ble Supreme Court in the case of Mahendra Mills (supra). On a careful consideration of the said decision, we notice that the law relating to depreciation that was prevailing at the relevant point of time was altogether different from the one now exists. The following points highlight the basis on which Hon'ble apex Court arrived at the decision : (a) The year under consideration in that case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31st Aug., 1965, which provides that depreciation could not be allowed where the required particulars have not been furnished by the assessee and no claim for the depreciation has been made in the return.... If section 34 is not satisfied and the particulars are not furnished by the assessee, his claim for depreciation under section 32 cannot be allowed. Sec. 29 is thus to be read with reference to other provisions of the Act. It is not in itself a complete code." (h) In its earlier decision in the case of CIT v. Dharampur Leather Co. Ltd. [1966] 60 ITR 165 (SC), the Court interpreted the words "actually allowed" occurring in section 10(5)(b) of IT Act, 1922 to hold that the words "actually allowed" did not include any notional allowance. By following the said interpretation, the apex Court in this case held as under : "If the assessee has not claimed deduction of depreciation in any past year it cannot be said that it was notionally allowed to him. A thing is 'allowed' when it is claimed. A subtle distinction is there when we examine the language used in section 16 and that of sections 34 and 37 of the Act. It is rightly said that a privilege cannot be to a disadvantage a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed", but only as 'actually allowed.' Hence the AO is right in deducting only the WDV in order to compute the short-term capital gain. [Emphasis supplied]" 12. On the other hand, the learned AR relied on the order of CIT(A) and also on the decision of ITAT Bench 'I' in ITA Nos. 2084 & 3087/Del/2007 in the assessee's own case for assessment years 1997-98 & 1999-2000. He also relied on the following case laws :- (i) CIT v. Shri Someshwar Sahakari Sakhar Karkhana Ltd. [1989] 177 ITR 443/43 Taxman 76 (Bom.) (ii) CIT v. Kolhapur Oxygen Acetylene (P.) Ltd. [1991] 190 ITR 574 (Bom.) (iii) Godavari Sugar Mills Ltd. v. CIT [1994] 208 ITR 801/75 Taxman 281 (Bom.) (iv) Beco Engg. Co. Ltd. v. CIT [1999] 236 ITR 344 (Punj. & Har.) (v) Chief CIT v. Machine Tool Corpn. of India Ltd. [1993] 201 ITR 101/67 Taxman 363 (Kar.) (vi) CIT v. Arun Textile [1991] 192 ITR 700 (Guj.) (vii) CIT v. Andhra Cotton Mills Ltd. [1997] 228 ITR 30/94 Taxman 50 (AP) (viii) CIT v. Agya Wanti [2001] 248 ITR 641/114 Taxman 557 (J&K.) (ix) Sial SBEC Bioenergy Ltd v. Dy. CIT [2004] 4 SOT 730 (Delhi) (x) Medley Pharmaceuticals Ltd. v. ITO [2001] 71 TT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxable income of the assessee. In reply, it was submitted by the Ld. AR of the assessee that prior to its amendment by Finance Act, 1998, section 32 specifically provided that in respect of depreciation of building, machinery, plant or furniture owned by the assessee and used for the purpose of business, deduction shall be allowed subject to provisions of section 34 of the Act. It was submitted that the allowance can be given only when it is claimed. It was also submitted that under section 32, the Assessing Officer cannot force it upon the assessee. Reliance was placed on the judgment of the Hon'ble Bombay High rendered in the case of CIT v. Someshwar Sahkari Karkhana Ltd., 177 ITR 443. The Assessing Officer did not accept the contention of the assessee. It is noted by him that the case law quoted by the assessee pertained to a period when section 34 was on Statute Book. After the deletion of this section w.e.f. 1.4.1988, depreciation shall be granted even if the prescribed particulars have not been furnished. The Assessing Officer trusted upon the assessee of the depreciation of Rs. 2338.88 lakhs. 4. Being aggrieved, the assessee carried the matter in appeal before the Commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the provisions of this subsection shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income." It was held by various High courts relied upon by the Ld. AR of the assessee as noted above that the above Explanation is prospective in nature. No contrary judgment of Hon'ble jurisdictional High Court or of the Hon'ble Apex Court or of any other High Court was brought to our notice and hence respectfully following the judgments of various High Courts and the Tribunal cited above, we uphold the order of the Commissioner of Income-tax (Appeals) on this issue. This ground of the revenue is rejected." Respectfully following the same, we dismiss this ground of revenue's appeal. 12.2 Ground No. 3 in revenue's appeal is against allowing the VRS expenditure of Rs. 1,52,81,000/- as against the capital expenditure treated by the AO. 13. The assessee has debited VRS expenditure and treated the same as revenue expenses. Learned DR submitted that this expenditure was incurred to carry out restructuring and introduced automation on different areas. The assessee has reduced the strength of the employees and for that, the restr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Delhi) where retrenchment compensation paid on the closure of business held to be allowable. He also relied on the decision of Hon'ble Bombay High Court in the case of CIT v. Bhor Industries Ltd., [2003] 264 ITR 180/128 Taxman 626, wherein VRS expenses held to be revenue expenditure. Ld. AR also relied on the following decisions :- (i) CIT v. Simpson & Co. Ltd. [1998] 230 ITR 703 (Mad.); (ii) CIT v. Sri. Ramvilas Service Ltd. [1995] 211 ITR 763/83 Taxman 382 (Mad.); (iii) CIT v. Machinery Mfg. Corpn. Ltd. [1992] 198 ITR 559/[1993] 66 Taxman 143 (Cal.); (iv) Anglo- Persian Oil Co. (India) Ltd. v. CIT [1933] 1 ITR 129 (Cal.); (v) Madura Coats v. Dy. CIT [2005] 273 ITR 32/145 Taxman 226 (Mad.). Ld. AR also relied on the decision of ITAT in the case of Foseco India Ltd. v. Asstt. CIT [ITA No. 4667/Mum./2005] and Siel Ltd. v. Dy. CIT [2008] 20 SOT 144 (Delhi). He final submitted that the provisions of section 35DDA are not applicable in assessee's case as the same has been inserted by the Finance Act, 2001 w.e.f. April 1, 2001. 15. We have heard both the sides in detail. After hearing the same, we hold that the provisions of section 35DDA providing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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