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2005 DIGILAW 1737 (MAD)

The Commissioner of Income-Tax v. Binny Limited

2005-11-08

P.D.DINAKARAN, T.V.MASILAMANI

body2005
Judgment :- (The above T.C. (Appeal) is preferred under Section 260A of the Income-Tax Act, 1961 against the order of the Income Tax Appellate Tribunal, ‘B’ Bench, Chennai, dated 18.11.2004 made in ITA No.1313/Mds/1996.) P.D. Dinakaran, J. The above tax case appeal is directed against the order of the Income-tax Appellate Tribunal in ITA.No.1313/Mds/1996, dated 18.11.2004. 2. The Revenue is the appellant. The assessment year involved is 1990-1991. The assessee is a Public Limited Company, engaged in the business of manufacture and sale of textiles, machineries and real estates. For the assessment year 1990-1991, the assessee Company filed return of income on 31.12.1990 admitting NIL income. The same has been processed under section 143(1)(a) of the Income Tax Act and notices under section 143 (1) has been issued to the assessee and the case was heard on several hearing dates. The assessing Officer noticed that the assessee had not claimed depreciation. The case of the assessee was that it had a choice in the matter of claiming deduction on account of depreciation in its return of income. The assessing Officer did not accept the said contention and arrived at the total income of the assessee after allowing depreciation on the basis of the details furnished by the assessee. 3. The assessee, not satisfied with the order of assessment dated 1.3.1993, preferred an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals), by his order dated 17.10.1998, confirmed the order of assessment dated 1.3.1993. 4. Aggrieved by the order of the Commissioner of Income tax (Appeals), the assessee approached the Income Tax Appellate Tribunal, which allowed the appeal by setting aside the order of the authorities below. The Tribunal came to such conclusion following the decision of the Supreme Court in the case of C.I.T Vs. Mahendra Mills (243 ITR 56). 5. The above said order of the Tribunal is challenged by the revenue by filing the present appeal, raising the following substantial questions of law, "1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that, even though the assessee had not claimed the depreciation before the assessing Officer for the assessment year 1990-1991, the assessing officer cannot grant depreciation in completing the assessment is valid in law? 2. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that, even though the assessee had not claimed the depreciation before the assessing Officer for the assessment year 1990-1991, the assessing officer cannot grant depreciation in completing the assessment is valid in law? 2. Whether on the facts and in the circumstances of the case the Appellate Tribunal was right in law in holding even though the new explanation 5 is inserted in section 32(1)(ii) to clarify that the provision of sub-section 1 of section 32 shall apply whether or not the assessee has claimed the deduction or depreciation in computing its total Income is valid in law?" 6. When the matter was taken up, the learned counsel appearing for the revenue fairly conceded that both the above questions are covered by the decisions reported in 243 ITR 56 (C.I.T vs. Mahendra Mills) and 259 ITR 77 (C.I.T. Vs. Sree Senha Valli Textiles P. Ltd) respectively. 7. In C.I.T. Vs. Mahendra Mills (243 ITR 56), the decision rendered by the Supreme Court, the question before the Court was, "Whether, on the facts and in the circumstances of the case, the Tribunal was right in coming to the conclusion that the Income-tax Officer could not grant depreciation allowance to the assessee under the Income-tax Act, 1961, when the same was not claimed by the assessee?" The Apex Court considered the above question in detail and finally held as follows, "... Allowance of depreciation is calculated on the written down value of the assets, which written down value would be the actual cost of acquisition less the aggregate of all deductions "actually allowed" to the assessee for the past years. "Actually allowed" does not mean "notionally allowed". 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. 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 and an option cannot become an obligation." (Emphasis Supplied) In view of the law settled as above by the Supreme Court, the first question is answered in the affirmative against the revenue and in favour of the assessee and we hold that the Tribunal was right in law in holding that if the assessee had not claimed the depreciation before the assessing officer, then the assessing officer cannot grant depreciation. 8. With regard to the second question raised, the same is covered by an earlier decision of this Court reported in 259 ITR 77 (C.I.T. Vs. Sree Senha Valli Textiles P. Ltd.). In that case, the Court observed as under, "The Supreme Court in the case of CIT V. Mahendra Mills (2000) 243 ITR 56, has held that if the revised return filed by the assessee is a valid return and the assessee has withdrawn the claim for depreciation that it had made in the original return, then the assessment based on the revised return without considering the claim for depreciation would be a proper assessment. The court observed that the privilege of claiming depreciation cannot be converted into a disadvantage, and the option cannot become an obligation. Though after that judgment was rendered by the apex Court, Explanation 5 was inserted in section 32(1) of the Income-tax Act, 1961, by the Finance Act 2001, with effect from April 1, 2002, declaring that "for the removal of doubts" the provisions of sub-section (1) will apply whether or not the assessee claims deduction in respect of depreciation in computing his total income, that Explanation cannot be regarded as taking away the effect of the judgment of the Supreme Court for the years prior to the date of introduction of the Explanation. The law declared by the Supreme Court cannot be regarded as having merely raised doubts. The law declared by the Supreme Court cannot be regarded as having merely raised doubts. The interpretation of the relevant provisions of the Act by the apex court settles the law, and unless the subsequent amendment to the statute is expressly given retrospective effect, the law laid down by the apex court will remain the binding law for the period prior to the amendment. The newly added Explanation takes effect only on and from April 1, 2002, and will not be applicable for prior years. For the assessment year 1988-89, no depreciation was required to be allowed if the same had not been claimed. If a claim made in the original return had been given up in the revised return, there was no obligation to consider the claim for depreciation." In view of the above settled propositions, the second question is also answered in the affirmative against the revenue as we find that the Tribunal was right in law in holding that even though the new explanation 5 is inserted in section 32(1)(ii) to clarify that the provision of sub-section 1 of section 32 shall apply whether or not the assessee has claimed the deduction or depreciation in computing total income. 9. Consequently, the tax case appeal is dismissed. No costs.