1. The Income-tax Appellate Tribunal. Allahabad Bench, has at the assessee's instance submitted this statement of case to this Court inviting it to answer the following question:
'Whether on the facts and in the circumstances stated above, the basis of valuation of the assets adopted for the assessment year 1954-55 is proper and legal?'
The facts, as they appear in the statement, are these. A partnership firm known as Ram Chand and Sons owned sugar mills and by an agreement dated 15-1 1952 it sold the mills to a private limited company known as Ram Chand and Sons Sugar Mill (P) Ltd. The privatelimited company was formed on 17-1-1962. In the previous year relevant to the assessment year 1953-54, the written down value of the assets in the accounts of the partnership firm was rupees 11 lacs and odd. They were sold by the partnership firm to the private limited company for a sum of Rs. 41,69,681/- on the basis of a valuation of the assets done by an expert valuer alleged to be at the market value. For the assessment year 1953-54 the private limited company, which is the assessee before us, claimed depreciation on the amount of Rs. 41 lacs and odd said to have been paid by it to the partnership firm on purchase.
The Income Tax Officer rejected the value assessed by the expert and held that the value fixed by the assessee company was not genuine and had been made for the purpose of evading income-tax by claiming larger depreciation. Exercising the powers conferred upon him by the first proviso to Sub-section 5 (a) of Section 10 he revalued the assets at Rs. 21 lacs and odd and allowed depreciation to the assessee on this value. There was an appeal from the assessment order passed by him and the Appellate Assistant Commissioner held that the valuation done by the Income-tax Officer was not proper and remanded the case to him to make a fresh valuation after examining the expert valuer. Before this order could be complied with by the Income Tax Officer and the assets could be valued again by him, he took up assessment of the private limited company for the next assessment year 1954-55, which is the assessment with which we are concerned now in this case. Before him the assessee's counsel agreed to the depreciation being allow ed on the sum of Rs. 24 lacs and odd and to have the assessment order rectified under Section 35 on his revaluing the assets for the purpose of the assessment year 1953-54 in compliance with the order of the Appellate Assistant Commissioner. Subsequently he resiled from this agreement. The Income Tax Officer allowed the depreciation on the sum of rupees 24 lacs and odd minus the depreciation allowed by him for the assessment year 1953-54 This order was upheld by the Appellate Assistant Commissioner and the Tribunal.
2. Section 10(1) and (2) lays down that the tax is payable by an assessee under the head 'profits and gains of business' in respect of the profits or gains of any business computed after making allowances mentioned in Sub-section (2). One of the allowances mentioned in Sub-section (2) is in respect of depreciation of buildings, machinery, plant and furniture being the property of the assessee, a sum equivalent to such percentage on the written down value thereof to the assessee as may be prescribed. Sub-section (5) lays down that in this provision 'written down value' means:
'(a) in the case of assets acquired in the previous year, actual cost to the assessee: Provided that where, before the date of acquisition by the assessee, the assets were at any time used by any other person for the purposes of his business and the Income-tax Officer is satisfied that the main purpose of the transfer of such assets, directly or indirectly to the assessee, was the reduction of a liability to income-tax .... .actual cost to the assessee shall be such an amount as the Income-tax Officer may, .. .. .. .. .. .. determine having regard to all the circumstances of the case.. .. .. .. .. ..
(b) in the case of assets acquired before the previous year the actual cost to the assessee less all depreciation actually allowed to him ...... '
3. The written down value for the purposes of the assessment year 1953-64 was governed by the provision in Sub-section 5(a) because the assets were acquired by the assessee in the relevant accounting year. Though they were acquired for Rs. 42 lacs and odd the Income Tax Officer, exercising the power conferred by the proviso, determined the actual cost having regard to the circumstances of the case and assessed it at Rs. 24 lacs and odd. Now we are concerned with the subsequent year 1954-66 and the case is governed by Clause (b) of Sub-section (5). As the provision stands the Income-tax Officer was required to deduct the depreciation actually allowed by him for the 1953-54 assessment year from the actual cost to the assessee in order to arrive at the written down value for the purposes of 1954-55 assessment year. The actual cost to the assessee according to its account books was Rs. 42 lacs and odd and it was contended on its behalf that this is the amount from which the depreciation actually allowed for the assessment year 1953-54 is to be deducted in order to arrive at the written down value for the purpose of allowing depreciation for the assessment year in question. It was contended that the first proviso to the provision (a) is no longer applicable and that the Income Tax Officer cannot now substitute for the actual cost the amount determined by him for the earlier assessment year, and that the written down value for the assessment year is Rs. 42 lacs less by the depreciation allowed for the assessment year 1953-54 (on the sum of Rs. 24 lacs and odd). After hearing Sri Brij Lal Gupta we are satisfied that this contention cannot be accepted.
4. It is to be noted that the provisions in Sub-sections 5 (a) and 6 (b) are complementary to each other; the former applies when the assets were acquired in the accounting vear and the latter applies when the assets were acquired in any earlier year The two provisions being complementary to each other must be read together and it follows that words used in one provision must be understood in the same sense when used in the other provision 'Actual cost' used in provision (b) must mean the same as 'actual cost' in provision (a). A sum cannot be actual cost for the purpose of provision (a) and not for the purpose of provision (b). Whatever is the sum taken to be the actual cost for provision (a) must be of the actual cost for provision (b) also. What is done by virtue of the proviso is to take, in place of the sum actually spent in acquiring the assets, a sum determined by the Income-tax Officer to be the market value. Whatever sum is determined by the Income-tax Officer becomes the actual cost and it is this sum which is referred to by the words 'actual cost' in provision (b).
It is because the legislature intended that the same sum shall be the actual cost for provisions (a) and (b) that it did not re-enact the proviso as a proviso to provision (b) also. Once the proviso had been availed of and that actual cost determined (when applying provision (a)) there was no longer necessity of re-enacting the proviso to provision (b) because the Income-tax Officer was not required to re-determine the actual cost for the subsequent assessment years. Whatever was the amount determined by him for the purpose of provision (a) was to enure for the subsequent assessment years and that is why the proviso was not repeated under provision (b). Moreover, repetition of the proviso under provision (b) would have caused confusion; it would have meant that even if in the earlier assessment year the Income-tax Officer had not exercised the power conferred upon him under the proviso he could in a subsequent year exercise it, which would have been anomalous. The] reference to the depreciation actually allowed in provision (b) means the depreciation allowed on the amount determined under the proviso to be the actual cost for the earlier assessment year; the actual cost in provision (b) must mean that sum on which the depreciation had actually been allowed. The legislature could not have intended that for the purpose of provision (b) the actual cost would be one sum less by the depreciation actually allowed on another sum as the actual cost. For the year immediately succeeding the assessment year for the purpose of Clause (a) the legislature obviously intended that the written down value would be the actual cost determined for the earlier assessment year under the proviso less by the depreciation actually allowed on it. The emphasis placed by the use of the word 'actual' would have lost all meaning if the depreciation that was taken into account was depreciation on a sum other than the actual cost on which it was actually allowed
5. We, therefore, hold that in the assessment year in question the Income-tax Officer bad to take the sum of Rs. 24 lacs and odd as the actual cost, deduct from it the depreciation actually allowed by him for the earlier assessment, year and take the balance as the written down value.
6. Since the assessment order passed by the Income-tax Officer for the earlier assessment year was set aside by the Appellate Assistant Commissioner and the case was remanded, it could be said that there was no actual cost determined by him under the proviso to provision (a) and there was no depreciation also actually allowed by him but this was not argued before the Tribunal or before us.
7. We accordingly answer the question in the affirmative and against the assessee. We direct that a copy of this judgment shall besent under the seal of the Court and the signature of the Registrar to the Income-tax Appellate Tribunal as required by Section 66(6) of the Act. We further direct that the assessee shall pay to the Commissioner of Income-tax his costs of this reference which we assess at Rs. 200. Counsel's fee is assessed at Rs. 200.