1. This is a reference at the instance of the Commissioner under s. 256(1) of the I.T. Act, 1961. The question referred to us by the Tribunal reads as follows :
'Whether, on the facts and in the circumstances of the case, it was rightly held that the written down value of the assessee's assets and the actual cost thereof should be taken as per the provisions of the Indian Income-tax Act, 1922, and not as per the provisions of the Income-tax Act, 1961 ?'
2. We are concerned in this reference with the assessment year 1965-66, for which the accounting year is the financial year ended 31st March, 1965. In respect of the assessment made on the assessee under the Indian I.T. Act, 1922, the written down value of the various assets was determined in accordance with the provisions of the said Act. When the I.T. Act, 1961, came into operation as from the assessment year 1962-63, the written down value of the assets was taken as per the calculations made under the old Act and depreciation allowed on the assets accordingly. This was continued to be done up to the assessment year 1964-65. For the assessment year 1965-66 the assessee claimed depreciation on these assets in the same way. The ITO, however, took the view that in view of the new provisions defining 'actual cost' to be found under s. 43(1) of the I.T. Act, 1961, the written down value of the assets was required to be recalculated. In the case of the various assets the consumers of the assessee, which is a limited company engaged in the business of supply of electricity, had contributed and thereby met a part of the cost of the service lines. The ITO, therefore, redetermined the written down value of the assets; he recalculated the actual cost according to the definition in the Act of 1961 and thereafter deducted therefrom the depreciation actually allowed on the assets in all the past years. In the case of some of the assets the depreciation allowed in the past years exceeded the figure of the actual cost as recalculated by applying the provisions of the 1961 Act. This resulted in a negative figure. In the view of the ITO, such assets were not entitled to any further depreciation, but he proceeded further to take the negative figure into consideration in determining the overall written down value by adjusting this negative figure with the positive figure of the assets which were yet entitled to depreciation and allowed depreciation on the net resultant amount.
3. Being aggrieved by the action of the ITO, the assessee carried the matter in appeal to the AAC. The AAC rejected the principal submission made on behalf of the assessee that the action of the ITO in applying the definition of 'actual cost' to be found in the Act of 1961 was not correct. The AAC, however, observed that where the written down value of any particulars asset would result in a negative figure after applying the definition of 'actual cost' to be found in the Act of 1961, depreciation may cease to be allowed thereon but that the so-called negative figure was not required to be further adjusted thereafter against other assets which were yet required to be depreciated. In other words, the conclusion of the AAC was that, although the ITO had considered the statutory provision correctly, the proper result was to hold the assessee ineligible for depreciation of such assets of actual cost as worked out under the new definition. In the operative order, however, the AAC surprisingly dismissed the assessee's appeal totally perhaps assuming that the observations he had made in his order would be sufficient for the assessee to have recomputation done before the ITO.
4. The assessee carried the matter in further appeal to the Tribunal. It was submitted that the written down value of the assets as arrived at on the basis of the actual cost as defined under the Act of 1922 could not be disturbed. Several difficulties and absurdities which would result if the course which found favour with the ITO and the AAC was adopted were pointed out to the Tribunal. It was also contended before the Tribunal that such retrospective operation of the provisions of the Act of 1961 was not warranted. The Tribunal considered the scheme of the Act and in its view the new definition of 'actual cost' provided in the Act of 1961 could not change the definition of 'actual cost' retrospectively. In its words : 'In our opinion, the correct view is that in respect of an asset acquired before the previous year, not governed by the new Act, it can only be actual cost as defined under the old Act and the actual depreciation allowed under the old Act that will give the written down value as defined under s. 43(6) of the new Act. In other cases it will be solely governed by the definition of 'actual cost' as given in s. 43(1) of the new Act. That, in our opinion, is the only way of harmoniously interpreting the action as a whole.' The Tribunal supported the view that it had taken by pointing out that the view which found favour with the ITO resulted in a negative figure of written down value in many cases, which, according to the Tribunal, resulted in an absurd situation. Accordingly, the submission of the assessee were fully accepted. Aggrieved by this decision, the reference has been made to this court from the said order of the Tribunal.
5. Mr. Joshi on behalf of the revenue has drawn our attention to three decisions of three different High Courts which have considered identical statutory provisions and came to the conclusion other than the one that found favour with the Tribunal. All these decisions are reported in 109 ITR and may now be briefly noted.
6. The first of the three decisions to be found in the said volume is that of a Division Bench of the Calcutta High Court in Riverside (Bhatpara) Electric Supply Co. Ltd. v. CIT : 109ITR399(Cal) , where, after pointing out the difference between the provisions contained in s. 10(5)(a) of the Indian I.T. Act, 1922, and s. 43(1) of the I.T. Act, 1961, it is observed as follows (headnote) :
'Section 43 defines certain items and clearly stipulates that, unless the context otherwise requires, the meaning given to the expression in section 43 will have to be given effect to after the coming into operation of the 1961 Act. In respect of an asset acquired prior to the relevant assessment year the asset might have enjoyed depreciation under the 1922 Act. That depreciation has to be excluded in computing actual cost. It is to safeguard this that reference had to be made to the depreciation allowed under the Indian Income-tax Act, 1922, in clause (b) of section 43(6) of the Act of 1961. The actual cost determined for a particular asset can be altered or redetermined for a particular assessment year. That would not amount to giving retrospective effect to any legislation nor would the same affect any vested tights of the assessee. Each year's income-tax assessment is self-contained and there is no question of any res judicata or estoppel by way of a previous year's assessment. `Written down value' and 'depreciation' are not used as having ordinary dictionary meaning but have certain statutory meanings.
'Actual cost' and 'written down value' have to be computed in accordance with the provisions of the Act of 1961, even with reference to assets in use in the previous year for the assessment year 1962-63 but which were acquired prior thereto.
Where the assessee derived income from the business of distribution of electricity and depreciation was allowed to it under the Act of 1922, on the basis that 'actual cost' would include contributions received from consumers for the installation of service lines but, after the passing of the Act of 1961, such contributions had to be excluded in computing 'actual cost', on the question whether for the assessment year 1962-63, the 'actual cost' had to be recomputed.'
7. It was accordingly held by the Calcutta High Court that for determination of assessments after the coming into operation of the 1961 Act, the computation of actual cost must be in accordance with the relevant provisions of the 1961 Act.
8. A Division Bench of the Madras High Court considered these provisions in CIT v. South Madras Electric Supply Corporation Ltd. : 109ITR426(Mad) , where the Tribunal had taken the view similar to the one taken by the Tribunal before us. It was held by the Madras High Court that in view of the repeal of the Indian I.T. Act, 1922, by the I.T. Act, 1961, there was no question of the definition contained in the old provision being applied for the purposes of arriving at the written down value as contemplated by s. 43(6)(b) of the 1961 Act. It was further held that there was nothing in the provisions of the 1961 Act to take the view that the definition of the term 'actual cost' occurring in s. 43(1) should be applied only to assets which came into existence on or after April 1, 1961. It was accordingly held that the conclusion reached by the Tribunal was not correct and the actual cost for the purpose of arriving at the written down value under s. 43(6)(b) of the Act of 1961 for the assessment years 1962-63 onwards will be as defined in s. 43(1) of the Act. In this view it was further held that the contribution by the consumers towards the cost of house service connections would be required to be deducted in arriving at the actual cost thereof.
9. The third decision in which a similar view has been taken was that the Allahabad High Court CIT v. Saharanpur Electric Supply Co. Ltd. : 109ITR545(All) . The Court noted the difference in the provisions between the Indian I.T. Act, 1922, and the I.T. Act, 1961, and rejected the contention of the assessee that in determining the actual cost to the assessee of the service lines in the assessment year 1963-64, the amounts received by it from the consumers were irrelevant. It was specifically held that depreciation to be allowed for the assessment year 1963-64 to the assessee even in respect of the assets acquired by the assessee before April 1, 1961, had to be determined by reference to the written down value as determined in accordance with the provisions of s. 43(1) and s. 43(6) of the I.T. Act, 1961. It may be pointed out that before the Calcutta High Court counsel for the assessee had urged that if the view which found favour with all the three courts was adopted, it would result in various anomalies and absurdities and could not, therefore, be given effect to. It was suggested that if the figure of the actual cost was scaled down as per the definition to be found in the 1961 Act and from that figure the depreciation actually allowed in the past deducted, a negative figure may result. The Calcutta High Court has observed that this would only indicate that the asset was one which was fully depreciated, or, in other words, valueless as far as the calculation of depreciation was concerned and there was no further effect. The alleged absurdity of the negative figure appears to have been properly dealt with and explained away by the Calcutta High Court in the said observations (see page 406 of 109 ITR of the report).
10. Before us Mr. Dastur submitted that although these three decisions did interpret the relevant statutory provisions against the assessee, certain very important aspects of the provisions had not been brought to the attention of the courts; and he tool us through the phraseology to be found in the provisions of the I.T. Act, 1961, under consideration. In this connection he emphasised the words 'as has been met directly or indirectly by any other person or authority' to be found in s. 43(1) and the phraseology employed in s. 43(6)(a) and (b). When we were taken through the three judgments of the Calcutta, Madras and the Allahabad High Courts, we did not find that the said courts had failed to refer to or apply their mind to any relevant statutory provisions or any binding authorities. None of the judgments of the courts could, therefore, be regarded as per incuriam. All that was urged before us was that the courts had failed to deal in their judgments with certain argument in the form and in the manner presented before us. In a number of cases this court has emphasised that in dealing with an all-India statute the principle of uniformity of interpretation, which has been regarded as a salutary principle, should ordinarily be followed. We are of opinion that none of the arguments advanced before us is sufficient for us to depart from this ordinary salutary rule and to interpret the section as if the matter was res integra, and thereafter to holding favour of the assessee. It may be mentioned in passing that during the course of the arguments Mr. Dastur had relied on Explanations 2, 4 and 6 to s. 43(1). Similar argument appears to have been advanced before the High Courts and these provisions also considered though the argument was not advanced in the precise manner in which it was submitted by counsel on behalf of the assessee before us. However, in our opinion, this will not induce us to depart from the normal salutary principle which we have earlier enunciated and which has been the standard practice of this court for several years.
11. Mr. Dastur points out that as the Tribunal granted full relief to the assessee, it did not consider the other aspects of the appeal against the order of the AAC. It is clear that this will be gone into by the Tribunal on receipt of a copy of this judgment which we have given on the reference.
12. In the result, the question referred to us will be required to be answered in the negative and in favour of the revenue.
13. The parties, however, will bear their own costs of the reference.