JAGADISAN J. - The Income-tax Appellate Tribunal, Madras, has referred the following question of law to this court under section 66(1) of the Income-tax Act :
'Whether the word new in section 10(2)(via) of the Income-tax Act could be construed with reference to the assessable entity or the assets on which depreciation is claimed ?'
The assessee is a registered firm carrying on business in transport service. The partnership consists of the father Veerappa Gounder and his four sons. The business was originally carried on by the father and his sons who together constituted a Hindu undivided family. The family was disrupted and the members of the family entered into a partition arrangement by a deed dated September 30, 1957. The very next day, on October 1, 1957, the erstwhile members of the family constituted themselves into a firm of partnership taking over the joint family transport business as the business of the partnership. That the entire business of the Hindu undivided family was taken over by the newly formed partnership and that the business of the family was continued without any break by the subsequent partnership is not in dispute. For the accounting period between October 1, 1957, and March 31, 1958, relevant to the assessment year 1958-59, the assessee firm claimed additional depreciation in regard to four motor vehicles which were purchased by the original Hindu family and which were transferred from the family to the partnership as a result of the partition and the formation of the partnership. The Income-tax Officer disallowed the claim. On appeal by the assessee, the Appellate Assistant Commissioner of Income-tax, Tiruchirapalli, also negatived the relief to the assessee following the view taken by the Appellate Tribunal in another case. A further appeal by the assessee to the Income-tax Appellate Tribunal also failed as the Tribunal followed its view expressed in another matter. The reasoning of the Tribunal is thus set out in its order :
'The principle underlying the Tribunals decision is that the word new in section 10(2)(via) must be construed with reference to the assessable entity and not the (plant) itself. Applying the same principle, we hold that in the hands of the assessable entity, viz., the firm, the asset is not new. It follows that in our view the claim to additional depreciation is not exigible.'
In this reference before us the view taken by the department and by the Tribunal disallowing additional depreciation in regard to the four vehicles is challenged as erroneous in law. Our attention has not been drawn to any direct decision on the matter by learned counsel on both sides. It, however, appears that there is an unreported decision of the Bombay High Court dealing with this identical question now raised before us in which the High Court has taken the view against the department. A summary of that decision is found in volume I, Taxation Journal, page 295. The facts of that case were as follows : A firm consisting of four brothers was carrying on business in the name of 'Parle Bottling Co.' The business consisted of manufacturing and dealing in squashes, syrups, aerated waters and other products. During the financial year 1949-50 the firm installed certain new machinery and plant for the purpose of its business. On March 24, 1952, the assessee company (Parle Bottling Co. Ltd.) was incorporated to take over the business of the firm of Parle Bottling Company as a going concern. The company took over the business at the book value disclosed in the firms account books. The assessee company thereafter claimed normal depreciation allowance and additional depreciation allowance for the year of account ended March 31, 1953. The claim was disallowed by the income-tax authorities, but was allowed by the Tribunal. The Commissioner challenged the correctness of the decision of the Tribunal and had the matter referred to the High Court. The question referred was :
'Whether the assessee company, as a successor to the business carried on by Parle Bottling Co., is entitled to additional depreciation allowance under section 10(2)(via) of the Indian Income-tax Act in respect of the plant and machinery which were installed by Parle Bottling Co., in the financial year 1949-50 ?'
The High Court answered the question in favour of the assessee. The learned judges of the Bombay High Court expressed the view that there was no reason why the additional depreciation allowance claimed by the assessee should be refused, having regard to the terms of the statute or the principles underlying the grant of depreciation allowance.
We shall now consider the question, apart from the decision of the Bombay High Court referred to above, as to whether the assessees claim is well-founded and supported by the terms of the relevant statutory provisions. The Act provides for three kinds of depreciation allowance. Section 10(2)(via) enacts that an assessee would be entitled to claim depreciation on certain percentage basis on the original cost or written down value in respect of buildings, machinery, plant or furniture. An extra depreciation allowance on machinery and plant for double or multiple shift working is provided for under rule 8. The additional depreciation allowance, which is the one claimed by the assessee in the instant case, is granted by the terms of section 10(2)(via). Omitting words, which are not relevant for the present case, that provision reads as follows :
'In respect of depreciation of buildings newly erected, or of machinery or plant being new which has been installed, after the 31st day of March, 1948, a further sum (which shall be deductible in determining written down value) equal to the amount admissible under clause (vi).... 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 1st day of April, 1949, and ending on 31st day of March, 1959.'
The conditions prescribed by this section are :
(1) The subject-matter, building, machinery or plant should be new.
(2) The building, machinery or plant should have been installed after the 31st day of March, 1948.
(3) The benefit of depreciation allowed would enure for five successive assessments for the financial years next following the previous year in which it was erected or installed.
(4) This period of five years should fall within the period commencing on the 1st day of April, 1949, and ending on the 31st day of March, 1959.
The allowance can be claimed by the assessee for a period of five years provided the building or machinery was erected or installed after the 31st March, 1948. The statute has, however, fixed an outer limit beyond which the benefit cannot be claimed or availed of. After the 31st day of March, 1959, the benefit of this section would be lost. This means that in a case where the building or a plant was erected or installed on the 31st day of March, 1957, the additional depreciation allowance could be claimed only for one year.
In the present case, prima facie, all the requirements of section 10(2)(via) are fully complied with. It is not disputed that these vehicles were purchased brand new after the 31st March, 1948, that the additional depreciation was granted to the quondam Hindu undivided family and that the claim of the assessee firm is not beyond the outer limit of 31st of March, 1959. As stated already, the accounting year in respect of which the depreciation claim is made is the period October 1, 1957, to March 31, 1958, the assessment year being 1958-59 which terminates on the 31st day of March, 1959.
The point in controversy between the department and the assessee is shortly this : The department would contend that the benefit of depreciation under section 10(2)(via) would apply only to a case where the assessee himself had purchased the plant or machinery first-hand or brand new and could not be claimed by an assessee who did not so purchase but who merely took over the business along with the plant or machinery from another person who had, of course, purchased them new. The assessees contention is that if the plant or machinery is new and would be eligible for allowance in terms of section (10) (2) (via), the fact that during the period of five years or the period prescribed under section 10(2)(via) there is a transfer of the business as such together with the newly acquired plant or machinery to another, by act of parties or by operation of law, would not defeat the claim for allowance. The department lays stress on the identity of the assessee and contends that it is only the assessee who acquires the plant or machinery as new could claim the benefit and that the benefit would be lost to another who takes the very plant or machinery though as part of acquisition of a going concern. This contention is not one which strictly follows upon the language of the enactment. Learned counsel for the department submits that it is implicit in section 10(2)(via) that an assessee who purchase a plant or machinery new and discontinues the business by handing it over to his successor, by transfer or otherwise, effectively puts section 10(2)(via) out of operation and the succeeding assessee has no right under it. The question is really one of first impression and has to be answered only having regard to the language of section 10(2)(via) and to the well-settled cannons of construction of fiscal enactments. It is true that an assessee who claims the benefit by way of allowance or deduction in the computation of his income, profits or gains should bring himself strictly and literally within the statute. Otherwise he would not obtain any concession or benefit under the Act. But it must also be remembered that the true guide in interpreting statutory provisions is only to attribute to the words employed their plain and grammatical sense. It would not be permissible to make inroads upon the statutory language by assumptions or presumptions of any kind, either in favour of the taxing department or in favour of the taxed subject. Now, looking at the section quite carefully and closely, we are unable to hold that the assessee who takes over a business as a going concern would not be eligible for the additional depreciation allowance to which the building, plant or machinery became eligible in the hands of his predecessor. The scheme of depreciation allowance enacted under section 10(2)(vi) and 10(2)(via) of the Indian Income-tax Act does not compel us to hold that an assessee who succeeds to a business should be deemed to have started the business afresh and should not be deemed to continue the existing business. In our opinion what is really important is the business which is certainly the income-yielding asset and which is the source from which the taxable income is determined and not the assessee who actually becomes subject to the payment of tax. Of course there cannot be an assessment without an assessee; nor can there be an assessee without a source of income. The claim for deduction by way of depreciation allowance is one that is primarily attached to the building, machinery or plant though the relief by way of allowance can only be claimed by the assessee who carried on the business during the accounting period. Acceptance of the contention of learned counsel for the department would really amount to reading more words in the relevant statutory provision than are found, and this certainly is not a proper rule of construction of statutes. We find ourselves in agreement with the view expressed by the Bombay High Court on this question.
The question is answered in favour of the assessee. The department will pay the assessee his costs. Counsels fee Rs. 250.