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TMI Blog1992 (4) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... ght in holding that the initial depreciation under section 32(1)(v) of the Income-tax Act is required to be deducted in determining the written down values of the depreciable assets in the computation of capital employed for the purpose of section 80J ?" The first two questions involve one matter relating to the exemption from operation of the restrictive provisions of section 40A(8) in respect of payment of interest by a corporate assessee. The assessee in the case claimed exemption from operation of sub-section (8) of section 40A under sub-clause (ix) of clause (b) of the Explanation to the section. The facts leading to this reference are that, during the previous year relevant to the assessment year 1981-82, the appellant had accepted deposits from the public and the total amount of deposits as at March 31, 1981, was Rs. 1,464 lakhs. With effect from December 1, 1980, these deposits were secured by a charge created on the current assets of the company. The fact that a charge was created and that the deposits were secured by such charge was disclosed in the annual report of the appellant. The annual report was duly filed with the Assessing Officer along with the return of incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation (b) below sub-section (8) of section 40A. The said provisions are extracted as under : "Sub-section (8).-Where the assessee, being a company (other than a banking company or a financial company), incurs any expenditure by way of interest in respect of any deposit received by it, fifteen per cent. of such expenditure shall not be allowed as a deduction." The meaning of the provision is that the expenditure incurred by a company, with the exception of a banking company or a financial company, by way of interest on deposits received by it is disallowable to the extent of 15 per cent. thereof. Clause (b) of the Explanation below the section excludes certain borrowings from the connotation of deposits for the purpose of such disallowance. Thus, the said clause carves out certain exceptions to the restrictive provision. Sub-clause (ix) of clause (b) excludes from deposits, the loan secured by the creation of a mortgage, charge or pledge of any assets of the company, Such secured loan shall not be treated as deposits provided the aggregate of all such secured debts owed by the company does not exceed 75 per cent. of the market price of the assets securing the debts. One curiou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Assessing Officer dated August 20, 1984, appearing at page 126 of the paper book where the assessee has made a laconic observation as under : "7. Interest paid on public deposits to the extent disallowable. During the year under review, we have paid a total sum of Rs. 1,82,01,856 on fixed deposits. However, for the purpose of disallowance, we have considered Rs. 1,23,05,262 under section 40A(8) being the interest paid on unsecured deposits covered by section 40A(8). The balance of Rs. 58,96,594 represents interest paid on secured deposits which fall under the exempted category in section 40A(8). " It clearly shows that the assessee's bald assertion that, out of the total interest payment of Rs. 1,82,01,856, the amount of Rs. 58,96,594 represented interest paid on secured deposits falling in the exempted category in section 40A(8), does not suffice for its acceptance. The assessee nowhere indicated as to how the conditions precedent laid down in the exemption clause were satisfied and the Commissioner of Income-tax's order under section 263 was correctly sustained by the Tribunal. In this view of the matter, we answer both the first and second questions in the affirmati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Act, 1922. Therefore, it is only the initial depreciation allowed under the repealed Act of 1922 that is excludible from the aggregate of depreciation actually allowed. In order to supply further support to this line of argument, our attention was drawn to Explanation 3 below section 80J(1A)(11) which clearly says that the written down value has the same meaning as in clause (6) of section 43. By adverting to the said Explanation, it was contended that though section 43 limits the definition of written down value of a depreciable asset only to its use in sections 28 to 41, it cannot be argued that the definition is of limited application and the expression "written down value" for the purpose of section 801 is open to a separate and independent construction. The meaning of the words "written down value" for the purpose of sections 28 to 41 is the same meaning to be attributed to the expression in applying the provisions of section 801. In the contentions of the Revenue shortly stated, the definition of "written down value" in clause (6) of section 43 merely excludes the initial depreciation under the old Act of 1922, but does not permit such exclusion of initial depreciation unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is no perceivable reason why the initial depreciation under the present Act should have differential treatment : it is a case of mere drafting omission that has gone unnoticed. Along with the initial depreciation under the repealed Act of 1922, which was an incentive given in the garb of depreciation, the initial depreciation in section 32(1)(v) being of the same nature should also find a place in that exclusionary proviso. In any case, the connotation of the expression "depreciation actually allowed" it intended not to take into account any depreciation other than normal depreciation. This is also manifest from the language of clause (v) of sub-section (1) of section 32, which is extracted below : " (v) in the case of any new building, the erection of which is completed after the 31st day of March, 1967, where the building is owned by an Indian company and used by such company as a hotel and such hotel is for the time being approved in this behalf by the Central Government, a sum equal to twenty-five per cent. of the actual cost of erection of the building to the assessee, in respect of the previous year in which the erection of the building is completed or, if such building ..... X X X X Extracts X X X X X X X X Extracts X X X X
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