9911796707
TMI Blog1981 (9) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... the relief admissible was to the extent of the profits or gains which did not exceed 6% per annum on the capital employed in such industrial undertaking computed in the prescribed manner. The computation of the capital for the said s. 84 was prescribed under r. 19 of the I.T. Rules, 1962. The assessee had in its return claimed that a sum of Rs. 35,542, allowable to it as the initial depreciation under s. 32(1)(iv) of the I.T. Act on the value of certain labour quarters constructed by the company, should be excluded in arriving at the written down value of the company's assets. The ITO did not accept the said claim of the assessee and, for the purposes of determining the capital employed, computed the written down value of the company's assets by taking into consideration along with other depreciations, also the said amount of Rs. 35,542 allowed as an initial depreciation. He, accordingly, held the capital of the company to be Rs. 1,26,91,355 and calculated on that amount the allowance on profits permissible under s. 84. Against the said order of the ITO the assessee appealed to the AAC. Before the AAC, the same contentions were raised. The AAC, however, accepted the contentions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction applies shall be taken to be (a) in the case of assets acquired by purchase and entitled to depreciation (i) if they have been acquired before the computation period, their written down value on the commencing date of the said Period..." Rule 19(6) has adopted for that purpose definitions of " depreciation and " written down value " as under: " (6) ...... (iii) 'depreciation' means the allowance admissible under clause (i) or clause (ii) or clause (iv) of sub-section (1) of section 32. (iv) 'written down value' means the written down value computed under sub-section (6) of section 43 as if for the words 'previous year' the words 'computation period' were substituted." (Underlining supplied.) Section 32(1)(ii) of the I.T. Act, which is relevant for our purposes, related to deductions for the usual depreciation allowable for the buildings, machinery, plant, etc., of the company while s. 32(1)(iv), which also applies in this case, provides for deductions for what is known as the initial depreciation permissible for one year in respect of newly constructed buildings solely used for the residences of the persons employed as in this case. The provisions of s. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hand [1968] 67 ITR 653 (Bom), contended that by reason of the last part of s. 32(1)(iv) the said initial depreciation allowable to the assessee was to be excluded from the computation of the capital employed by the company under s. 84 read with r. 19. In our view, on a proper reading of the said provisions, the said contention of the learned counsel cannot be accepted. Computation of capital employed by a company for the purposes of giving benefit to the newly established undertaking, as in this case, under s. 84 of the I.T. Act was to be done in a manner prescribed under the said rule 19. In this case, the company's assets, admittedly being entitled to depreciation under the said r. 19(1)(a)(i) for the purposes of s. 84, the capital employed by the company was to be taken to be the written down value of the assets on the commencement date of the said period. Rule 19 itself has adopted for that purpose certain definitions of " written down value " and " depreciation ". Under r. 19(6)(iv) the written down value was to be computed as provided under s. 43(6) of the I.T. Act quoted above. Under the said s. 43(6) the written down value was to be the actual cost less all depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for deductions for usual depreciation, that the initial depreciation allowable under cl. (iv) was not to be deductible. The purpose of cl. (ii) was the determination of deductions for computation of usual depreciation, which was to be a prescribed percentage of the written down value, which but for the said later part of cl. (iv) would have been required to be calculated by taking into consideration the said initial depreciation along with the usual depreciation actually allowed, as provided under s. 43(6)(b) quoted above. The said provisions of cl. (iv) do not speak about the exclusion of the said initial depreciation for a computation of the written down value for all purposes. The said later part of the provisions of s. 32(1)(iv), therefore, cannot be so read as to control the definitions of " written down value " under s. 43(6)(b), which included all depreciation actually allowed, and that of " depreciation " which included initial depreciation under s. 32(1)(iv) as well, which were specifically adopted for the purposes of s. 84 read with the said r. 19, for computing the capital employed. The said contention of the learned counsel for the assessee, therefore, cannot be accepte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, the court had itself at page 661 (of 67 ITR) of the report observed: Prima facie, and we deliberately say that whatever we are deciding here is, only prima facie, for, we are not called upon to decide it, the contention cannot be upheld." Even the said observations of the court show that the observations of the learned judges of this court on the question before us, which they were not called upon to decide, were clearly obiter dicta. The reasoning of the court for such conclusion, to be found at pp. 660 and 661, appears to be on the basis that s. 10(5) of the Act of 1922 (equivalent to s. 43(6)(b) of the present Act) defined the expression " written down value " with reference to sub-s. (2) of s. 10, which equally applied to both the parts of s. 10(2)(vi), namely, usual and initial depreciation, and, therefore, if the said cl. (vi) were intended to be excluded from the operation of s. 10(5), the same would not have been generally worded to apply to s. 10(2) as a whole. Nor did the words at the end of the second part of s. 10(2)(vi), namely, " Which shall, however, not be deductible in determining the written down value for the purposes of this clause ", excluded the defini ..... 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