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TMI Blog1967 (9) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 1959-60. The assessee is engaged in the publishing trade and for its purposes owned three cars as one of its business assets. These cars, however, were also being used partially for the personal use of the directors of the company. There is no dispute that for this personal use the proportionate user for non-business purposes which has been computed at one-third, is correct. In the past years the proportionate depreciation computed for the part user for business was as follows : -------------------------------------------------------------------------------------------------------------------------------------------------- Serial Year of Cost. Depre. (normal additional) No of purchase. allowed up to including Vehicle. 1958-59 assessment. -------------------------------------------------------------------------------------------------------------------------------------------------- Rs. Rs. 1. 1955 11,368 6,221 2. 1956 9,693 3,876 3. 1957 14,500 1,772 -------------------------------------------------------------------------------------------------------------------------------------------------- It appears that all the cars were not purchased in the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the three motor cars as at January 1, 1958 .... While it is open to the Income-tax Officer to disallow any part of the expenses connected with the maintenance of the motor-cars (including depreciation thereon), it appears to me that he cannot bifurcate the price or cost of the asset and demarcate that a particular portion of the cost itself does not pertain to the business. The motor cars remained the full assets of the appellant's business right through. The mere fact that a portion of the depreciation and other expenses was being disallowed, cannot warrant a deduction from the cost itself ... However having regard to the provisions of section 10(5), as it stands, I do not consider that there was any warrant for the method adopted by the Income-tax Officer in his assessment order for 1959-60 for arriving at the written down values of the cars." In the result the Appellate Assistant Commissioner ordered the Income-tax Officer to revert to the old method of computing the written down value which he had followed in the prior years. Against the decision of the Appellate Assistant Commissioner the department went up in appeal to the Tribunal and before that authority there arose a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poses, what is the 'correct mode of computation of the depreciation allowance year after year in respect of that asset ? Is it to be computed on the entire cost of acquisition of the asset without first apportioning it (i.e., the cost of acquisition) to the purposes for which it is acquired or the very cost is to be first apportioned for the purpose of computing depreciation allowance permissible under the Act? " The President took the same view as the Judicial Member and answered the question in favour of the assessee. He held " I have to agree with the arguments of the learned counsel for the assessee that the approach of the Accountant Member through certain obvious absurdities that result from the alternative computations is not a proper approach at all. Whatever absurdities there may be in the result, if the interpretation of the law gives the assessee a certain allowance it becomes his rightful due." After holding this he made certain further remarks which have in effect given rise to the point (b) formulated in the question referred for our decision. Those remarks are to be found in paragraph 9 of his order as follows : " If I may respectfully point out it is only in his a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other case, to such percentage on the written down value thereof as may in any case or class of cases be prescribed ". The depreciation, therefore, is in respect of " such building, machinery, plant or furniture " and it consists of a sum equivalent to " such percentage on the original cost thereof ". By the use of the word " thereof " the section refers back " to such building, machinery, plant or furniture ". Therefore, in terms the depreciation allowance granted by clause (vi) of section 10(2) is in respect of the assets mentioned and it is a sum equivalent to a percentage on the original cost thereof or on the written down value thereof, but in either case it is the cost or the written down value of the asset as an asset and not on a proportionate part of an asset. Therefore, the very nature of the allowance granted by clause (vi) of section 10(2) is upon the asset as a whole and has to be computed upon the asset as a whole. Having regard to the nature of this allowance there can be no scope for splitting up either the original cost or the written down value at that stage. We are in the present case concerned with assets acquired before the previous year and in such a case t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... litting up of the asset into two. On the other hand, the language of section 10(3) makes it plain that such a theory cannot be sustained. It is not the division of the asset as being used for business and non-business purposes that is contemplated by the section but only apportionment of the depreciation allowance as between the use of it for business purposes and its use for non-business purposes." We are in complete agreement with this view of the Andhra Pradesh High Court. As we have said, a more fundamental consideration, namely, the nature of the allowance and the terms upon which it has been granted itself would also lead to the same conclusion. The first part of the question posed, therefore, must be answered in the negative. Then we turn to the second part of the question, which is also upon the authorities fairly clear. We have already referred to the provisions of section 10(2)(vi) and section 10(3). These provisions have to be read in the light of the definitions contained in sub-section (5) of section 10. Omitting the unnecessary words and clauses the sub-section says : "In sub-section (2). . . . ' written down value ' means- (a) in the case of assets acquired i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed ". The Division Bench pointed out that the words " actually allowed " are unambiguous and connote the idea that the allowance was in fact given effect to or ' in other words ' it should be an allowance which has resulted in monetary advantage to the assessee. They made it clear further by observing that " the depreciation allowance may be set off against the profits or gains under section 10(2), clause (vi), in calculating the assessable income ; and when so set off, the depreciation allowance is actually allowed. " While considering this point we may say that cases where the assessee had made a loss should be distinguished from cases where the depreciation allowance is not availed of by the assessee for other reasons. Where an assessee has sustained losses and the depreciation allowance for that reason cannot be granted, it is by virtue of the express provisions of the Explanation to section 10(5), to which we have already adverted, which permits depreciation allowable but not in fact allowed, to be treated as depreciation which is deemed to be actually allowed. In fact, the distinction serves to emphasise the words in clause (b) of section 10(5) " depreciation actually all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wholly so used. It is this sub-section that impelled the Tribunal to take the view that the entire depreciation allowance calculated at rates mentioned in the two clauses should be taken into account in computing the written down value. " It will be noticed that that is precisely what in the ultimate decision of the Tribunal has happened in the present case. Upon the view taken by the President on the difference of opinion between the Judicial Member and the Accountant Member, he has agreed that though the depreciation cannot be computed by splitting up the actual cost it is to be computed by deducting from the actual cost the depreciation allowable. The point was answered by the Andhra Pradesh High Court as follows : " We feel that we cannot subscribe to the opinion of the Tribunal in regard to the interpretation of the relevant statutory provisions. Considerations such as those which the Tribunal had in mind are irrelevant in construing the provisions of the statute. If the statute allows certain advantages to an assessee, there is no reason why he should be deprived of it on preconceived notions. The decision of the question is to be solely guided by the language of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition of that expression in section 10(5). Section 10(3) commences with the words " Where any building, machinery, plant or furniture in respect of which any allowance is due under clause (iv), clause (v), clause (vi) or clause (vii) of sub-section (2) . . . ". In terms, therefore, it refers to those allowances which are mentioned in clauses (iv), (v), (vi) and (vii) of sub-section (2) of section 10. We are in the present case concerned with the allowance in clause (vi) and clause (vi) grants the allowance upon the original cost of the assets mentioned and " in any other case, to such percentage on the written down value thereof as may in any case or class of cases be prescribed ". Therefore, so far as clause (vi) is concerned, the expression " written down value " in the clause last mentioned, must bear the same meaning that is given to it by section 10(5)(b) and it is this clause which is in terms referred to in section 10(3). Therefore, the definition of " written down value " is, so to say by indirect reference, written into sub-section (3) of section 10. In terms, therefore, upon a plain construction of the provisions of section 10 the definition of " written down value " in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preciation as has entered into the computation of the income liable to tax under the Indian Income-tax Act can be taken into account to determine the business asset in view of the definition of " written down value " in section 10(5)(b) of the Act and not the full depreciation calculated in determining his total world income. That decision is Hukumchand Mills Ltd. v. Commissioner of Income-tax. In the Supreme Court decision which we have just cited above in Commissioner of Income-tax v. Nandlal Bhandari Mills Ltd., the Supreme Court affirmed this decision of this court at page 181 by saying " Our conclusion finds support in the judgment of the Bombay High Court in Hukumchand Mills Ltd. v. Commissioner of Income-tax. We endorse the view expressed therein. " A recent decision of the Allahabad High Court in Karamat Khan v. Commissioner of Income-tax has without reference to any of the above authorities taken the same view and the principle was thus put at page 647, " When income is estimated under the proviso to section 13 it may be possible to take the question of depreciation into consideration, but that would not mean that depreciation was ' actually allowed '. What is required i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce shall be restricted to " the fair proportional part of the amount which would be allowable if such asset was wholly so used ". Sub-section (3) is only a sort of exception engrafted upon the provisions of clauses (iv), (v), (vi) and (vii) and it points out that where the asset is not wholly used for the business the full depreciation cannot be granted. Nothing therefore turns upon the construction which we have put upon the words " depreciation actually allowed " in section 10(5)(b). Section 10(3) would still continue to operate in all its force. Mr. Joshi emphasised the word " due " in sub-section (3) and he pointed out that, when the sub-section uses the words " allowance is due ", it means when the assessee is entitled to an allowance, or, in other words, when the allowance is granted to the assessee, but only a proportion of it is restricted. Even assuming that the word " due " implies grant of the allowance or the restricted portion of it we cannot suppose that the word " due " means the same thing as " actually allowed " in section 10(5). When an allowance or a right is due to an assessee, it is something to which he is entitled, but it need not necessarily be granted to h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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