The judgment of the court was deliverd by
CHANDRA REDDY C.J. - This reference raises questions of interest and importance and is bare of authority. It involves the following questions :
'1. Whether by reason of the sale of motor-car for Rs. 4,025 the assessee sustained any loss thereon for the purpose of making the allowance spoken of in section 10(2)(vii) and
2. If the answer to the above question is in the affirmative, whether the said loss is Rs. 78 or Rs. 708 or another sum ?'
The circumstances leading to this reference may be briefly stated. The assessee family is a dealer in tobacco. A new Vauxhall motor-car was purchased by this family on December 12, 1952 for Rs. 13,144 for the use partially of the family business and partially for non-business purpose, such as personal requirements of the members of the family. The accounts of the business were made up for the year ending with March 31 of every year. For the assessment years 1953-54, 1954-55 and 1955-56 the Income-tax Officer made allowance of depreciation under sections 10(2)(vi) and 10(2)(vi-a). The car was sold for Rs. 4,025 on August 22, 1955, i.e., in the 'previous year' ended with March 31, 1956, relevant to the assessment year 1956-57. In that year also the Income-tax Officer determined the depreciation allowance under section 10(2)(vi) and 10(2)(vi-a) and computed the loss permissible under section 10(2)(vii) at Rs. 78.
Contending that the loss sustained by the assessee in that deal was Rs. 708 and not Rs. 78 the assessee carried the matter in appeal to the Appellate Assistant Commissioner. The appellate authority confirmed the assessment concurring in the view of the Income-tax Officer.
In further appeal taken by the assessee to the Income-tax Appellate Tribunal, this contention was repeated by the assessee. The Appellate Tribunal felt that the procedure adopted by the department in arriving at the written down value was erroneous, since it had not taken into account the depreciation allowable under clauses (vi) and (vi-a) in the determination of the written down value. The Tribunal expressed the view that the method of computation adopted by the department was more favourable to the assessee in that if the method indicated by them was adopted, the sale of the car should have resulted in a profit and not in a loss. However, as there was no appeal by the department against the assessment made by the Income-tax Officer, the Tribunal opined that they could not enhance the assessment. In the result, the appeal was dismissed. The questions stated above have been referred to us under section 66(1).
The point calls for decision here is whether the written down value of the vehicle should be arrived at after taking into account the normal depreciation and additional depreciation to which an assessee is entitled under section 10(2), clauses (vi) and (vi-a) or the depreciation allowance that is actually allowed to him by reason of section 10(3) of the Act.
This depends upon the language of section 10(2), clauses (vi), (vi-a), (vii), section 10(5)(a) and (b).
'10.(2) Such profits or gains shall be computed after making the following allowances, namely....
(vi) in respect of depreciation of such buildings, machinery, plant or furniture being the property of the assessee, a sum equivalent.... to such percentage on the original cost thereof to the assessee as may in in any case or class of cases be prescribed... to such percentage on the written down value thereof as may in any case or class of cases be prescribed :
and where the buildings have been newly erected or the machinery or plant being new, not being machinery or plant entitled to the development rebate under clause (vi-b), has been installed, after the March 31, 1945, and before the April 1, 1956, a further sum which shall however not be deductible in determining the written down value for the purposes of this clause in respect of the year of erection or installation equivalent, - ....
(c) in the case of machinery or plant, to twenty per cent. of the cost thereof to the assessee :...;
(vi-a) in respect of depreciation of buildings newly erected, or of machinery or plant being new which has been installed after the day of March 31, 1948, a further sum (which shall be deductible in determining the written down value) equal to the amount admissible under clause (vi) (exclusive of the extra allowance for double or multiple shift working of the machinery or plant and the initial depreciation allowance admissible under that clause for the first year of erection of the building or the installation of the machinery or plant) in not more than five successive assessments for the financial years next following the previous year in which such buildings are erected and such machinery and plant installed and falling within the period commencing on the day of April 1, 1949, and ending on the day of March 31, 1959;....
(vii) in respect of any such building, machinery or plant which has been sold or discarded or demolished or destroyed, the amount by which the written down value thereof exceeds the amount for which the building, machinery or plant, as the case may be, is actually sold or its scrap value...
(3) Where any building, machinery, plant or furniture in respect of which any allowance is due under clause (iv), clause (v), clause (vi) or clause (vii) of sub-section (2) is not wholly used for the purposes of the business, profession or vocation, the allowance shall be restricted to the fair proportional part of the amount which would be allowable if such building, machinery, plant or furniture was wholly so used...
(5) In sub-section (2) paid means actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under this section; plant includes vehicles, books, scientific apparatus and surgical equipment purchased for the purposes of the business, profession or vocation; and written down value means -
(a) in the case of assets acquired in the previous year, the actual cost to the assessee :
(b) in the case of assets acquired before the previous year the actual cost to the assessee less all depreciation actually allowed to him under this Act or any Act repealed thereby, or under executive order issued when the Indian Income-tax Act, 1886 (2 of 1886) was in force :...'
It is manifest from clauses (vi) and (via) of section 10(2) that a certain percentage by way of depreciation allowance is to be granted on the written down value of the vehicle. What the written down value is, is to be judged with reference to the definition contained in section 10(5)(a) and (b) extracted above.
We have to adjudicate upon the claim of the assessee on the basis of the definition of written down value of the vehicle, since section 10(2)(vii) contemplates the ascertainment of the loss in the light of the difference between its written down value and the price for which it is sold. The matter is a bit complicated by reason of the existence of section 10(3) which restricts the allowance admissible under clauses (iv), (v), (vi) or (vii) of sub-section (2) when the asset envisaged therein is not wholly used for the purposes of the business, profession or vocation, to the fair proportional part of the amount which would be allowable if such building, machinery, plant or furniture was wholly so used. It is this sub-section that impelled the Tribunal to take the view that the entire depreciation allowance calculated at rates mentioned in the two clauses should be taken into account in computing the written down value. The Tribunal thought that an assessee situated in that position would; be deriving an undue advantage if only the allowance admissible under section 10(3) were to enter the calculation of writting down value and that, to some extent, that would be defeating the object of section 10(3).
We feel that we cannot subscribe to the opinion of the Tribunal in regard to the interpretation of the relevant statutory provisions. Considerations such as those which the Tribunal had in mind are irrelevant in construing the provisions of the statute. If the statute allows certain advantages to an assessee, there is no reason why he should be deprived of it on pre-conceived notions. The decision of the question is to be solely gided by the language of section 10(5)(b) and not by section 10(3), which only lays down that if an asset is used partly for business purposes and partly for non-business purposes the assessee should be entitled only to proportion of the amount allowable under certain clauses of that section.
We have, therefore, to answer the questions posed before us with reference to the definition of 'written down value'. In this connection we cannot ignore the words 'depreciation actually allowed' to the assessee in section 10(5)(b). Having regard to that language, we do not think that we will be justified in taking into account the notional allowance that might be admissible under the clauses. The Legislature has advisedly used the words 'actually allowed to the assessee.' If the intendent of the Legislature was that the whole of the depreciation allowance permissible under those clauses were to be taken into account, surely it would have used appropriate language to convey that thought. We cannot assume that the Legislature was not aware of the distinction between 'depreciation allowable to an assessee' and 'depreciation allowed to him', as used in clause (b) of section 10(5). That the Legislature is aware of this difference is apparent from the language used in the proviso to clause (b). It is worthy of note that in the proviso the Legislature indicated the meaning of 'written down value' in that clause by appropriate language namely, ' written down value means the actual cost to the assessee reduced by an amount equal to the depreciation calculated at the rate in force on that date that would have been allowable had the building been used...'
Thus a comparison of these two sections leads us to the inevitable inference that the Legislature had in mind only the depreciation allowance that was granted to an assessee under section 10(3) or under some other provision. That the Legislature bore always in mind the difference between the expressions, 'what is actually allowed' and 'what is allowable' could also be gleaned from section 9(1)(iv) in which the word 'payable' is used and section 10(5) which defines 'paid' as actually paid. The notion of actual payment in emphasised there. All these indications are pointers to the conclusion that it is only such depreciations as are in fact granted to an assessee that should enter in the determination of the written down value.
We have to deal with another theory propounded by the Tribunal and which is sought to be sustained by the learned counsel for the department, namely that the concept underlying section 10(3) is that the asset used partly for business purposes and partly for non-business purposes should be regarded as half the asset used for business purposes and, therefore, in calculating the original cost price of the asset, only half its price should be taken into account. We find it difficult to share this view as there is no basis for such division or the splitting up of the asset into two. On the other hand, the language of section 10(3) makes it plain that such a theory cannot be sustained. It is not the division of the asset as being used for business and non-business purposes that is contemplated by the section but only apportionment of the depreciation allowance as between the use of it for business purposes and its use for non-business purposes. However, that need not detain us any longer as we are not convince that such a proposition can be sustained either on the language of any section or on authority.
If that were the correct view, we think that the Income-tax Officer could not adopt a different bias for the assessment year 1956-57 by taking into consideration the whole of the depreciation allowance permissible under clauses (vi) and (via). Adopting the same procedure he should have taken into account Rs. 630, in which case the loss sustained by the assessee would have been estimated at Rs. 708 and not Rs. 78.
In the result, questions Nos. 1 and 2 referred to us should be answered in favour of the assessee. The assessee will get his costs from the department. Advocates fee is fixed at Rs. 100.
Questions answered accordingly.