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TMI Blog1970 (8) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... ?" The facts giving rise to this question are as follows: The assessee, Jasrup Baijnath Bahety Sons (P.) Ltd., is a private limited company which owned an electricity generating plant at Khandwa, Madhya Pradesh. The assessment year under reference is 1956-57 for which the relevant previous year is the calendar year ending on the 31st December, 1955. During the relevant accounting year the assessee carried on the business up to 31st March, 1955. Thereafter, according to agreement with the Madhya Pradesh State Electricity Board the assessee sold most of its plant and machinery as installed at the generating centre for a total sum of Rs. 3,27,689. In the relevant assessment year the question arose what should be considered as the assessee-company's profits within the meaning of the second proviso to section 10(2)(vii) of the Act. The Income-tax Officer determined the same at Rs. 1,53,569. The assessee was aggrieved by the order of the Income-tax Officer and preferred an appeal before the Appellate Assistant Commissioner. The Income-tax Officer found that the assessee had derived profits assessable under section 10(2)(vii) of the Income-tax Act on the sale of its plant and machiner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on between the provisions of section 10(2)(vi) and section 10(5)(b) of the Act. The argument for the assessee was that the general definition of the expression "written down value" in section 10(5)(b) could only be interpreted in such a manner as to harmonise with all other sections of the Act. The mainspring of the argument for the revenue before the Tribunal was that in respect of the second proviso to section 10(2)(vii), which applied in the present case, the meaning of the expression "written down value" should be taken from the general definition given in section 10(5)(b) of the Act. The reasons which were found acceptable by the Tribunal may be briefly set out here. The Tribunal decided that the expression "a further sum" in section 10(2)(vib) is more in the nature of development rebate which was allowed to new industries as an incentive and, therefore, could not be called depreciation which is normally allowed on account of wear and tear at rates much below the rates prescribed for the "further sum". The Tribunal regarded this "further sum" as being obviously allowed as an item of extraordinary expenditure along with other items of expenditure deductible under section 10(2). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in section 10(5)(b) of the Act. According to Mr. Pal for the revenue it only provides additional allowance which will not be taken into account for calculating depreciation at the prescribed rate for subsequent assessment years. He follows up this logic by two further propositions: one is that there is no justification for curtailing the scope of section 10(5)(b) of the Act because the legislature while introducing the second branch in 1946 added a proviso to section 10(5)(b) modifying the written down value in such cases. His second proposition on this branch of the argument is that there is also no justification for considering this second branch of section 10(2)(vi) introduced in 1946 in the light of section 10(2)(vib) inserted in 1955. This, in brief, is the substance of the arguments advanced by Mr. Pal for the revenue to criticise the Tribunal's decision as wrong. Section 10 of the Income-tax Act, 1922, is notorious for its numerous sub-sections with still more numerous sub-clauses, historically introduced in different years and presenting an area of confusion and complexity, whose total canvas is difficult to keep in mind and yet which is a need for coming to a correct int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preciation allowed the smaller will it be of the written down value. Clauses (vi) and (via) of sub-section (2) of section 10 of the Act relate to depreciation. It is not in dispute that under these clauses depreciation of 3 kinds is allowed as deduction in the computation of the income of the assessee from business. They are: (1) normal depreciation which is allowed every year till the cost price is wiped out by the amount of depreciation, in other words, till the written down value is reduced to zero. It is provided in the first part of clause (vi); (2) initial depreciation, which is allowed only in the first year of the new construction or the first year of the use of the new plant or machinery; this is commonly understood as initial depreciation and is provided in the latter part of clause (vi); (3) additional depreciation provided in clause (via) which is allowed for the first 5 years of a building which is newly erected or for the first five years of the use of the plant or machinery. Now, according to the department, all these 3 kinds of depreciation were liable to be included in computing the written down value, while according to the assessee-company the amount of initial d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it should not be deductible in determining the written down value under clause (vi). The whole object of the scheme under clause (vii), therefore, appears to be that when a building or machinery or plant is sold, what the revenue seeks to do is to recover back the tax on the amount of depreciation allowed in the event the price obtained by the assessee on sale allows it. We have carefully studied and scrutinised the facts of the Bombay decision and also the reasons and we have come to the conclusion that that case is on all fours with the present reference before us. We see no reason to disagree with the conclusion of the Bombay authority. For the revenue reliance was placed also on the decision of the Madras High Court in Popular Ltd., Madurai v. Commissioner of Income-tax where Rajagopalan J., at page 314 (of 28 I.T.R.) interpreting section 10(2)(vi) of the Income-tax Act, 1922, expressed the view: "In our opinion, the proper construction to be placed upon this clause is that the further depreciation allowance of 20 per cent. should not be deducted in determining what the written down value is for the purpose of clause 10(2)(vi), that is the first paragraph thereof, bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llstop. On a plain reading of section 10(2)(vi) it is clear that that provision deals with the allowances to be given towards depreciation. Now coming to clause (c) of the proviso, the proviso had to be worded in the manner it has been done because the legislature wanted to include within that proviso not only the depreciation allowances provided under section 10(2)(vi) but also the depreciation allowances provided under clause (via) or under any Act repealed hereby or under the Indian Income-tax Act 1886. Hence, the ingenious construction tried to be placed by Shri Srinivasan cannot be accepted " Apart from these authorities on which Mr. Pal for the revenue relies in support of his argument, he has also relied on certain observations of the Supreme Court in Commissioner of Income-tax v. Bipinchandra Maganlal Co. Ltd., appearing in the judgment of Shah J., at page 295 (of 41 I.T.R.) saying: "In computing the profits and gains of the company under section 10 of the Act, for the purpose of assessing the taxable income, the difference between the written down value of the machinery in the year of account and the price at which it was sold (the price not being in excess of the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e next step in this argument is that in the scheme of allowance in sub-clauses (via), (vib) and (vii) of section 10 of the Indian Inoome-tax Act, 1922, there is an apparent difference made between "depreciation" as such and other kinds of "allowance" on the ground of development rebate in the case of sale. This apparent distinction is clear, according to Mrs. Seth, and follows from a comparison of these different sub-clauses of section 10. For instance, sub-clauses (vi) and (via) expressly mention the word "depreciation". But sub-clause (vib) speaks of "development rebate" and not "depreciation" and sub-clause (vii) of section 10 of the Indian Income-tax Act speaks of the case of sale or discarding, demolition or destruction of any building, machinery or plant. Therefore, it was argued by the amicus curiae that the word depreciation under section 10(5)(b) should be confined to what is described in sub-clauses (vi) and (via) as depreciation and not to the cases of development rebate under sub-clauses (vib) or to a case of sale under sub-clause (vii) as in the present reference. There is a good deal of force in the above argument. But the authorities which we nave discussed do not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervations, there are the two following other observations of the learned Chief Justice at page 663: "(1) The provisions of section 10(2)(vi), second part, must be read along with those provisions and so far as the initial depreciation is concerned, it is clearly not to be deducted in determining the written down value for the purposes of clause (vi). Therefore, to that extent the provisions of section 10(5) must be deemed not to apply to initial depreciation. (2) We do not think that the provisions of section 10(2)(vi) can be read so that section 10(5) would override or control its provisions. On the other hand, it seems to us that a specific provision was made in section 10(2) because of the special nature of the allowance granted by that clause and the bracketed words are not limited only to that sub-section." It has been pointed out to us that there are some apparent contradictions in these observations. But it will be needless to pursue them having regard to the view that we have already expressed our conclusion on the authorities discussed. Besides, as Kotval C. J. himself said in that decision that all these observations on the sub-clauses of section 10(2) really were o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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