DIXIT C.J. - In this reference under section 66(1) of the Indian Income-tax Act, 1922, the question which we have been asked to answer is :
'Whether, for the assessment year 1957-58, the assessee is entitled to get depreciation allowance under section 10(2) (vi) and development rebate under section 10(2) (vib) in respect of the bus No. MPN-44 taken on hire purchase agreement basis from the supplier ?'
The assessee carries on the business of motor transport and maintains a fleet of buses for that purpose. During the year of account, he claimed depreciation allowance under section 10(2) (vi) in respect of one of the buses bearing registration No. MPN-44 which was in his possession under a hire purchase agreement. The claim was disallowed by the Income-tax Officer on the ground that the said bus was not the property of the assessee at the material time. The Appellate Assistant Commissioner upheld this rejection in appeal. The claim was again pressed before the Appellate Tribunal. Along with it the assessee also urged before the Tribunal for the first time that he should have been allowed development rebate in respect of the bus under section 10(2) (vib). It was not disputed before the Tribunal that the assessee did not become the owner of the bus in the year of account. The Tribunal rejected both the claims by observing that having regard to the provisions of section 10(2) (vi) and section 10(2) (vib) the claims could not be allowed.
Shri Dabir, learned counsel appearing for the assessee, argued that even if the assessee did not become the owner of the bus in the material year, yet he was entitled to depreciation allowance and development rebate under the aforesaid clauses. To support this contention he relied on instalment Supply (P.) Ltd. v. Union of India, Shamsher Ali Abdul Hussain v. Commissioner of Income-tax, Commissioner of Income-tax v. Sri Rama Vilas Service (Private) Ltd. and the circular issued by the income-tax department for the guidance of the Income-tax Officers for dealing with allowances under section 10(2) (vi) of the Act.
In our judgment, the claim of the assessee is utterly untenable. The language of clause (vi) if section 10(2) is plain enough to show that the asset in relation to which depreciation allowance is claimed under that clause must be the property of the assessee. The words 'being the property of the assessee' used in clause (vi) do not lead to any other conclusion. In Jogta Coal Co. Ltd. v. Commissioner of Income-tax, the Supreme Court following the Privy Councils decision in Commissioner of Income-tax v. Buckingham & Carnatic Company Limited, has held that the word 'assessee' in section 10(2) (vi) refers to the person who owns the property in question and the cost to be considered for the purpose of calculating depreciation allowance is the original cost of the purchaser who is being assessed and not written down value to his predecessor. There can, therefore, be no doubt that, for claiming depreciation allowance in respect of an asset, the assessee must be the owner of the asset. The same requirement is essential for development rebate under clause (vib). It is true that this clause does not in so many words say that the machinery or plant should be the property of the assessee. But that clause is one of the fascicle of provisions dealing with depreciation allowance and other allowances and development rebate in respect of the assets which are the property of the assessee. Clause (vib) speaks of development rebate equivalent to twenty-five per cent, of the actual cost of such machinery or plant to the assessee. The rebate is thus calculated on the basis of the cost to the owner-assessee. That under clause (vib) development rebate can be allowed only to the owner of a machinery or plant also becomes clear by the proviso to that clause that an allowance under that clause shall not be admissible if the particulars prescribed for the purpose of clause (vi) are not furnished by the assessee in respect of the asset. Where an asset is let on hire, it is the assessee who owns the property who is entitled to the allowance in accordance with the provisions of clauses (iv), (v), (vi) and (vii) of section 10(2) as is clear from section 12(3) of the Act.
The decision cited by the learned counsel for the assessee are not in point. In instalment Supply (P.) Ltd. v. Union of India the Supreme Court has not held that under a hire purchase agreement, the hirer always becomes the owner of the property immediately after the execution of the agreement. All that was held in that case was that in agreement of hire purchase with an option to purchase the goods hired contains not only a contract of bailment simplicity but also an element of sale and that Explanation 1 to section (2) (g) of the Bengal Finance (Sales Tax) Act, 1941, introducing into the concept of 'sale' as ordinarily understood a legal fiction 'deeming' a sale under a hire purchase agreement to be a sale for taxability under that Act, was valid. The Madras case, namely, commissioner of Income-tax v. Sri Rama Vilas Service (Private) Ltd. only holds that buses and lorries are 'machinery or plant installed' for the purposes of section 10(2) (via) and section 10(2) (vi-b). The question of ownership of the asset for the purposes of clauses (vi) and (vib) did not arise in that case. The hire purchase in Shamsher Ali Abdul Hussain v. Commissioner of Income-tax was regarded as one of sale in itself giving to the purchaser the facility of paying the price by installments. In that case it was distinctly observed that in the case of hiring it is the lessor who is entitled to claim depreciation allowance and the lessee would be excluded from so doing. Here the assessee was not the owner of the bus in the material year. The circular, which the learned counsel for the assessee prayed in aid of his argument, is only with regard to the method of calculation of the depreciation allowance. It does not lay down contrary to the provisions of clause (vi) that a hirer, who is not the owner of an asset, shall be entitled to the allowance. Even if it had done that, that would not have affected the construction of the clause. The directions issued by the department for the guidance of its officials cannot control or affect the meaning or construction of the provisions of the Act.
For these reasons our answer to the question is in the negative. The department shall have the costs of this reference. Counsels fee is fixed at Rs. 150.
Questions answered in the negative.