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Popular Ltd., Madurai Vs. Commissioner of Income-tax, Madras - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberCase Referred No. 59 of 1951
Judge
Reported inAIR1955Mad669; [1955]28ITR309(Mad)
ActsGovernment of India Act, 1935; Income-tax and Excess Profits Tax (Amendment) Act, 1947; Income-tax Act, 1922 - Sections 10(2)
AppellantPopular Ltd., Madurai
RespondentCommissioner of Income-tax, Madras
Appellant AdvocateM. Subbaraya Aiyar, Adv.
Respondent AdvocateC.S. Rama Rao Sahib, Adv.
Cases ReferredNavinchandra Mafutial v. Commissioner of Income
Excerpt:
- .....depreciation allowed to the assessee 'under section 10 (2) (vi) is also to be deducted from the cost to the assessee of the assets in arriving at the written down value? 2. the decision of the supreme court in navinchandra mafutial v. commissioner of income-tax, bombay, (s) : [1954]26itr758(sc) , (a) concludes the first question. we answer the first question in the negative and against the assessee.3. the assessee firm conducted the business of a public transport (bus) service in tirunelveli district during the year of account, april 1946 to march 1947. it discontinued that business sifter 30th september 1946 and sold its entire fleet of buses on 1-10-1946 to the southern roadways, ltd., madurai, for a sum of rs. 2,25,700. the departmental authorities and the tribunal agreeing with.....
Judgment:

Rajagopalan, J.

1. This reference under Section 66 (1) of the Income-tax Act raised two questions:

'1. Whether the provision imposing income-tax on capital gains, made by the Indian Income-tax and Excess Profits Tax (Amendment) Act, 1947, (No. 22 of 1947) is, ultra vires?

2. Whether in computing the capital gain assessable to tax under Section 12-B of the Indian Income-tax Act, 1922, the initial depreciation allowed to the assessee 'under Section 10 (2) (vi) is also to be deducted from the cost to the assessee of the assets in arriving at the written down value?

2. The decision of the Supreme Court in Navinchandra Mafutial v. Commissioner of Income-tax, Bombay, (S) : [1954]26ITR758(SC) , (A) concludes the first question. We answer the first question in the negative and against the assessee.

3. The assessee firm conducted the business of a public transport (bus) service in Tirunelveli district during the year of account, April 1946 to March 1947. It discontinued that business sifter 30th September 1946 and sold its entire fleet of buses on 1-10-1946 to the Southern Roadways, Ltd., Madurai, for a sum of Rs. 2,25,700. The departmental authorities and the Tribunal agreeing with them, held that the written down value of these buses should he computed as Rs. 1,89,441. The difference between the sale price and the written down value, that is, Rs. 36,259 was assessed as capital gains under Section 12-B of the Act. The computed-written down value also included a sum of Rs. 25,970 which was the initial depreciation allowed in the accounting year 1945-48, and a sum of Rs. 11,506 which constituted the initial depreciation allowed in the year of account 1946-47, totalling Rs. 37,476. Both these were the 20 per cent further allowances for which Section 10 (2) (vi) of the Act provided with reference to the machinery and plant purchased and installed after 31st March 1945. The contention of the assessee was that this further allowance of 20 per cent of the cost of the new buses purchased after 31st March 1945 should not be taken into account in computing the written down value of the buses which the assessee firm sold on 1-10-1946. That contention was negatived by the Tribunal.

4. The relevant portion of Section 12-B (2) runs;

'The amount of a capital gain shall be computed after making the following deductions from the full value of the consideration for which the sale, exchange or transfer of the capital asset is made, namely;

* * * * * (ii) the actual cost to the assessee of the capitalasset.....

Provided further that where the capital asset in respect of which the assessee has obtained depreciation allowance in any year, the actual cost of the asset of the assessee shall be its written down value as defined in Section 10 : ....'

Thus, the basis for computing the capital gain is the written down value, that is, the written down value as defined by Section 10 of the Act, 'Written down value' has been defined by Section 10 (5) of the Act, the relevant portion of which runs :

'..... written down value means

(a) in the case of assets acquired in the previous year, the actual cost of 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.'

The relevant portion of Section 10 (2) (vi) which provides for depreciation allowances is :

'In respect of depreciation of such buildings, machinery, plant, or furniture being the property of assessee, a sum equivalent .... to such percentage of the original cost thereof to the assessee as may in any case or class of cases be prescribed . . . and where . . . . . the machinery or plant being new has been installed, after the 31st clay of March 1945, 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 .... installation equivalent :

* * * * * (c) in the case of machinery or plant, to twenty per cent of the cost thereof to the assessee;'

5. We are not concerned in this case with the depreciation allowance granted under Part 1 of Section 10 (2) (vi). Under Part 2 of Section 10 (2) (vi) which applied to the plant and machinery purchased after 31-3-1945, for which an extra 20 per cent, was permissible as depreciation allowance, the assessee was allowed to deduct a 5um of Rs. 25,970 in the accounting year 1945-46 and a sum of Rs. 11,506 in the next accounting year 1946-47. The scope of the excluding clause in Section 10 (2) (vi) 'which shall however not be deductible in determining the written down value for the purposes of this clause' was the main subject-matter of the argument before us. The contention of the learned counsel for the assessee was that this further depreciation allowance of 20 per cent should not be deducted from the written down value for any purpose whatever, which meant that in the case of new buses purchased in 1946 and 1946 the actual cost of the buses and not the cost of the buses less the 20 per cent, depreciation actually allowed to the assessee should be taken into account. We are unable to accept this contention.

6. No doubt in Section 10 (2) (vi) (A) where provision was made for depreciation allowance for machinery or plant installed after 31-3-1948, the specific direction was that 'this further depreciation allowance shall be deductible in determining the written down value.' But then, unlike Section 10 (2) (vi), which restricted the further allowance of 20 per cent to the year of purchase, Section 10 (2) (vi) (a) provided for the continuance of that further allowance in each of the five assessment years between 1-4-1949 and 31-3-1954. The construction Mr. Subbaraya Aiyar seeks to place upon the excluding clause in Section 10 (2) (vi) 'which shall however not be deductible in determining the written down value for the purposes of this clause' would realty ignore the phrase 'for the purposes of this clause'. In our Opinion, the proper construction to be placed upon this clause is that the further depreciation allowance of 20 per cent, should not be deducted in determining what the written down value is for the purpose of Clause (10) (2)(vi), i.e., Para. 1 thereof, but it could and should be taken into account for any of the other purposes specified in the Act.

7. The determination of what constituted the written down value of the buses sold by the assessee company really depends for its answer on the provisions of Section 10 (5) of the Act, which alone defined what the written down value means.

8. Under Section 10 (5) (a), the written down value of the buses purchased in the year of account 1946-47, which constituted the previous year in relation to the assessment year 1947-48 in which the assessee was taxed on capital gains under Section -12-B of the Act, was the actual cost of the buses. That left no scope for the deduction of Rs. 11,506, though that was a depreciation allowance granted to the petitioner under Section 10 (2) (vi) of the Act. In computing the normal depreciation allowance for which Part 1 of Section 10 (2) (vi) provided, this sum of Rs. 11,506 should not be taken into account and was not taken into account. That is the real scope of the excluding Clause in Section 10 (2) (vi).

9. Neither the departmental authorities nor the Appellate Tribunal made any distinction between the 20 per cent, allowance made in the accounting year 1945-46 and that made in 1946-47. They appear to have ignored the specific direction of Section 10 (5) (a) of the Act. The assessee is entitled to have this sum of Rs. 11,506 excluded from the computation of written down value of the buses he sold on 1st October 1946.

10. Rupees 25,970 was the further depreciation allowance granted in the year of account 1949-47, and that was governed by the provisions of Section 10 (5) (b) of the Act. The written down value of the buses purchased in 1946-47 is the actual cost to the assessee 'less all depreciation actually allowed to him under this Act.' That the sum of Rs. 25.970 was a depreciation allowance actually allowed to the assesses under the Act, that is, under Section 10 (2) (vi) of the Act, cannot be disputed. As the learned counsel for the respondent pointed out, the use of the word 'and' at the commencement of the paragraph which constitutes Part 2 of Section 10 (2) (vi) links up Para. 1 of that section with Para. 2. The further allowance of 20' per cent, is an allowance for depreciation within the meaning of Section 10 (2) (vi), Since that was a depreciation allowance actually allowed to the assessee under the Act, and as the assets with reference to which that depreciation allowance was made were acquired before the previous year, that is, before 1946-47, this allowance of Rs. 25,970 should be included in computing the written down value_ for purposes of assessing the capital gains under Section 12-B of the Act.

11. Our answer to the second question therefore is that the initial depreciation of Rs. 11,506 allowed in the year of account 1946-47 should be excluded and the initial depreciation of Rs. 25,970 allowed in the accounting year 1945-46 should be included in computing the written down value of the assessees' assets.

12. As neither side has wholly succeeded in itscontentions, there will be no order as to costs on thisreference.


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