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income-tax Officer Vs. Bharat Roadways - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Kolkata
Decided On
Judge
Reported in(1985)12ITD647(Kol.)
Appellantincome-tax Officer
RespondentBharat Roadways
Excerpt:
.....trucks had been acquired earlier and were then entitled for depreciation at the rate of 30; per cent, depreciation on them after 24-7-1980 would be at the rate of 40 per cent. trucks and buses, which will be used on and after 24-7-1980, would be eligible for consideration with regard to their depreciation in the assessment year 1981-82 only. as on 1-4-1981, the law with regard to the depreciation would be as was introduced with effect from 24-7-1980. we visualize no difficulty in giving effect to the above plain meaning of the amended appendix.10. there is a reference in the case of south india road transport (supra) to the decision of the supreme court in the case of mathra parshad & sons v. state of punjab [1962] 13 stc 180. in that case, certain exemption with regard to some.....
Judgment:
1. The assessee is a firm. Its accounting year for the assessment year presently under consideration ended on Diwali 1979.

2. The ITO granted depreciation to the assessee on its buses at the rate of 30 per cent.

3. The assessee challenged the above order of the ITO before the Commissioner (Appeals) and claimed before him that depreciation on buses at the rate of 40 per cent be granted to the assessee in terms of amendment to item No. 9 of Group D forming part of Part I of Appendix I to the Income-tax Rules, 1962 ('the Rules') by the Notification S.O.562(E), dated 24-7-1980, which came into force 'at once'. The above plea of the assessee was accepted by the Commissioner (Appeals). While granting the said relief to the assessee, the Commissioner (Appeals) made, inter alia, the following observations : The manner in which the notification has been inducted is unfortunate. Normally, in income-tax cases, changes are made with effect from a particular date. Ordinarily, date is the 1st April of particular year, indicating that the new. provision would be effective with reference to the assessment year commencing on that date. In certain contingencies, provisions are made operative with effect from the date on which the event takes place. In that case also, ordinarily, the particular date is mentioned intention made clear and the date has some logic, e.g., the first day of the first month, say, 1st June or 1st October or 1st January. In this case, notice is dated 24-7-1980 and it comes into effect 'at once'. It appears to be quite odd that depreciation should be given at the rate of 40 per cent on assets acquired after that date or put into use after that date or with reference to user of the old pre-existing assets after that date. The interpretation of the notification in this regard is lawyer's paradise. One of the constructions also might be that the depreciation should be at the rate of 40 per cent in the assessments made after that date. The appellant has produced a copy of the order of the Tribunal, Hyderabad Bench 'A', in the case of South India Road Transport v. ITO [1983] 4 ITD 176 to the effect that the enhanced depreciation at the rate of 40 per cent would be applicable to the proceedings for the assessment year 1980-81. In view of the intriguing import of the impugned notification, it would be appropriate to abide by the interpretation placed by the Tribunal. Accordingly, the ITO is directed to allow depreciation at the rate of 40 per cent on the lorries. Other grounds of appeal are not pressed.

4. The department challenges the correctness of the aforesaid direction of the Commissioner (Appeals).

5. On behalf of the assessee, reliance is placed on the order of the Commissioner (Appeals) and on the following decision of the Tribunal--South India Road Transport v. ITO [1983] 4 ITD 176 (Hyd.) and Rayalaseema Passenger & Goods Transports (P.) Ltd. v. IAC [1984] 7 ITD 111 (Mad.).

6. The question in controversy before us would, in our opinion, turn on the fact whether the amendment in the depreciation table is procedural in nature or is it an amendment of the substantive law. Section 32 of the Income-tax Act, 1961 ('the Act'), provides for depreciation at the rates as may be prescribed. Rule 5 of the Rules, which has been formulated in pursuance of the provisions of Section 32, stipulates, inter alia, as follows : Subject to the provisions of Sub-rules (2) and (3), the allowance under Clause (i) or Clause (ii) of Sub-section (1) of Section 32 in respect of depreciation of buildings, machinery, plant or furniture...shall be calculated at the percentages specified in the second column of the Table in Part I of Appendix I...

The rates of depreciation mentioned in Appendix I of Part I are this part of Rule 5 and thereby they form part of Section 32(1) itself.

Appendix I of Part I is, therefore, part of substantive law and it is not procedural in its nature.

7. Where there is an amendment of substantive law, it is normally not retrospective unless the amending Act itself makes it retrospective as in the case, for example, Sub-section (1A) of Section 80J of the Act introduced by the Finance (No. 2) Act, 1980. In the present case, the amendment to item No. 9 in Group D in Appendix I of Part I was made by the Notification S.O. 562(E), dated 24-7-1980 'at once'. The interpretation of the phrase 'at once' in the context of the aforesaid notification can only mean, according to us, with effect from 24-7-1980. It is impossible to interpret the phrase 'at once' as meaning with effect from 1-4-1980, particularly when the order, which is to come into effect 'at once', is dated 24-7-1980. This being so, it is not possible for us to hold that the amendment in question was part of the substantive law as it obtained on 1-4-1980. It is not the first amendment of this type, which has come into effect from an odd date in the middle of the financial year. The fourth proviso to Section 10(2)(vii) of the Indian Income-tax Act, 1922 was inserted by the Income-tax (Amendment) Act, 1946 ('the Amendment Act'), with effect from 4-5-1946. The department had in that case contended that the said proviso would apply to the assessment for the assessment year 1946-47.

The above contention was negatived by the Bombay High Court, which held that the fourth proviso to Section 10(2)(vii) did not apply to the assessment for the assessment year 1946-47 as the said proviso was not in force on 1-4-1946 and that the liability of the company had to be determined as on 1-4-1946, when the Finance Act, 1946 came into force.

The above finding of the Bombay High Court was approved by their Lordships of the Hon'ble Supreme Court, who pointed out, inter alia, that the fourth proviso to Section 10(2)(vii), inserted by the Amendment Act, which came into force in May 1946, was not retrospective and was not in force on 1-4-1946 and, therefore, did not apply to the assessment for the assessment year 1946-47. The above ratio of the aforementioned decision of the Hon'ble Supreme Court would, in our opinion, squarely cover the facts of the present case and based on the above ratio, we have no alternative but to hold that the amendment to the substantive law, which was brought into effect from 24-7-1980, could not be made applicable to the assessment for the assessment year 1980-81, as the assessment for that year would be governed by the law as it obtained on 1-4-1980. When we hold as above, we must not be understood to imply that no amendment to substantive law can be retrospective. There can be such retrospective amendment of substantive law, as has been noted by us earlier, but the point to be stressed is that unless the wordings of the amending Act themselves make it clear that the amendment was being made with retrospective effect, the amendment would not be retrospective but would be only prospective.

8. In South India Road Transport's case (supra), our brothers had noted the scheme of depreciation to be granted to an assessee and had made, inter alia, the following observations : ...In other words, the scheme of depreciation is not with reference to the date of acquisition but with reference to the use during the accounting year....

We are in respectful agreement with the above observations of our learned brothers. Applying the above principle to the facts of the present case, we find that there is no user of the machinery in question in the accounting period corresponding to the assessment year 1980-81 and, therefore, the question of granting depreciation on the asset in accordance with the amendment brought into effect on 24-7-1980 would not arise.

9. The significance of the words 'at once' is unambiguous in the context in which these words have been used in the amendment referred to above, namely, that with effect from 24-7-1980, buses and trucks, etc., would be eligible for depreciation at the rate of 40 per cent irrespective of the date of their acquisition. Even if the trucks had been acquired earlier and were then entitled for depreciation at the rate of 30; per cent, depreciation on them after 24-7-1980 would be at the rate of 40 per cent. Trucks and buses, which will be used on and after 24-7-1980, would be eligible for consideration with regard to their depreciation in the assessment year 1981-82 only. As on 1-4-1981, the law with regard to the depreciation would be as was introduced with effect from 24-7-1980. We visualize no difficulty in giving effect to the above plain meaning of the amended appendix.

10. There is a reference in the case of South India Road Transport (supra) to the decision of the Supreme Court in the case of Mathra Parshad & Sons v. State of Punjab [1962] 13 STC 180. In that case, certain exemption with regard to some sales was granted on 27-9-1954.

Their Lordships of the Supreme Court said that the said exemption would also be applicable even in respect of sales made since 1-4-1954 to 26-9-1954. If the above ratio be applied to the facts of the present case, all that can be said is that the amended rate of depreciation on trucks would apply not only with regard to the trucks used from 24-7-1980, but also with regard to the trucks used with effect from 1-4-1980. In income-tax, assessment is made on the income of the previous year and naturally, therefore, depreciation is to be granted on the basis of the user in the previous year. The previous year in the present case, as noted earlier, had ended on Diwali 1979 and as on that date, the rate of depreciation was 30 per cent, the rate of 40 per cent could not be read into the rule as on Diwali 1979.

11. In the case of Rayalaseema Passenger & Goods Transports (P.) Ltd. (supra), it has been observed, inter alia, as follows : ...the Board expressly provided that it [i.e., amendment] will take effect from 24-7-1980 shows that they wanted to apply it to all assessments pending on 24-7-1980. So the amended rules apply to an assessment like the one on hand completed after 24-7-1980....

The above observations clearly imply that the change in the rates of depreciation was an amendment in procedural law and so it would apply to assessments pending as on the date of the amendment. We have seen above, that Appendix I to Part I is not procedural in its content but is part of Section 32(1) and, therefore, forms part of substantive law.

Substantive law cannot be interpreted in a manner that it would apply to the assessment for a given year pending on 24-7-1980, though it did not apply to the assessment for the same year, which had been completed prior to 24-7-1980.

12. For the reasons given above, we hold that the rate of depreciation brought into effect from 24-7-1980 would not govern trucks and buses used prior to 24-7-1980.

13. The departmental appeal is, therefore, eligible to succeed and, accordingly, be allowed.


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