# COMMISSIONER OF INCOME TAX v. MAHENDRA MILLS

- **Citation:** [2000] 2 S.C.R. 465
- **Court:** Supreme Court of India
- **Decided:** 2000-03-15
- **Case number:** Civil Appeal No. 5394 of 1994
- **Bench:** D.P. Wadhwaand S.S. Mohammed Quadri
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-income-tax-v-mahendra-mills-17329
- **Pages:** 30

## Headnote

Income Tax:
Sections 32, 34, 28 and 29-Depreciation allowance-Grant of-Claim
for depreciation and furnishing of prescribed particulars by assessee is necessary-In its absence, there is no mandate on the income-tax officer to
compute the income by allowing depreciation-Circular No. 29D(XIX-14) of
1965, F. No. 451239165.JTJ dated August 31, 1965 and Circular No. 14(SL-35)
of 1955 dated April 11, 1955.
Section 139(5)-Assessment based on revised return-Claim of depreciation cannot be granted on the original return.
Worru and Phrases :
Actually allowed-Meaning of-In the context of Sections 16, 34 and 37
of the Income-tax Act.
Respondent-assessee did not claim any depreciation for the assessment year, Income-tax officer allowed the depreciation. Both the Commissioner of Income-Tax (Appeals) and the Tribunal decided in favour of the
assessee and against the appellant. High Court held that in the absence of
claim by the assessee, the income-tax officer could not grant depreciation
allowance. Hence the present appeals.
Dismissing the appeals, the Court
HELD : 1.1. Section 34 of the Income-tax Act provides that depreciation as deduction under Section 32 of the Act shall be allowed only if
prescribed particulars have been furnished. Further, Section 34 of the Act
is not in the nature of merely an enabling provision. In the absence of
particulars of depreciation as required by Section 34, there is no mandate
on the Income Tax Officer under Section 29 to compute the income by
allowing depreciation under Section 32 of the Act. Thus, it cannot be
accepted that since Section 32 provides for depreciation it has to be allowed
465
A
B
c
D
E
F
G
H
466
SUPREME COURT REPORTS
[2000] 2 S.C.R.
A
in computing the income of the assessee. [ 491-F, 492-D]
1.2. Rule SAA of the Income Tax Rules though deleted provides for
particulars required for the purpose of deduction under Section 32 of the
Act. In the absence of rule SAA, return of income in the form prescribed
itself requires particulars to be furnished in great detail if the assessee
B
claims depreciation. [ 491-G]
c
D
E
F
1.3. Circular No. 29D(XIX-14) of 196S, F. No. 4S/239/6S.ITJ dated
August 31, 1965 provides that depreciation cannot be allowed where the
required particulars have not been furnished by the assessee and no claim
for the depreciation has been made in the return. Income-Tax Officer in
such a case is required to compute the income without allowing the depreciation. Further, Circular No. 14(SL-3S) of 1955 dated April 11, 19SS
merely imposes a duty on the officers of the department to assist the tax
payers by advising the assessee to claim or not to claim depreciation if
either course is beneficial to the assessee. If he does not wish to avail that
benefit for some reasons, benefit cannot be forced upon him( [ 472-D-E]
1.4. When revised return is a valid return and the assessee has
withdrawn the claim of depreciation it cannot be granted relying on the
original return when the assessment is based on the revised return. [ 493-D] ·
1.S. Allowance of depreciation is calculated on the written down
value of the assets, which written down value would be the actual co!>t of
acquisition less the aggregate of all deductions "actually allowed" to the
assessee for the past years. "Actually allowed" does not mean notionally
allowed. If the assessee has not claimed deduction of depreciation in any
past year it cannot be said that it was notionally allowed to him. A thing is
"allowed" when it is claimed. There is subtle distinction when one examines
the language used in Section 16 and that in Sections 34 and 37 of the
Income-Tax Act. [ 493-E-F]
CITv. Dharampur LeaJher Co. ud., (1966) 60ITR16S; Beco Engineering Co. ud. v. CIT, (1984) 148 ITR 478; CIT v. Shri Someshwar Sahakari
G
Sakhar Karkhana Ltd., (1989) 177 ITR 443; CIT v. Friends Corporation,
(1989) 180 ITR 334; CIT v. Arun Textiles, (1991) 192 ITR 700; Chief CIT
(AdministraJion) v. Machine Tool Corporation of India Ltd., (1993) 201 ITR
101; CIT,

## Text

_Characters 0–39,840 of 74,069. This is a partial read: ask again with offset=39840 for what follows._

COMMISSIONER OF INCOME TAX
v.
MAHENDRA MILLS
MARCH 15, 2000
[D.P. WADHWAAND S.S. MOHAMMED QUADRI, JJ.]
Income Tax:
Sections 32, 34, 28 and 29-Depreciation allowance-Grant of-Claim
for depreciation and furnishing of prescribed particulars by assessee is necessary-In its absence, there is no mandate on the income-tax officer to
compute the income by allowing depreciation-Circular No. 29D(XIX-14) of
1965, F. No. 451239165.JTJ dated August 31, 1965 and Circular No. 14(SL-35)
of 1955 dated April 11, 1955.
Section 139(5)-Assessment based on revised return-Claim of depreciation cannot be granted on the original return.
Worru and Phrases :
Actually allowed-Meaning of-In the context of Sections 16, 34 and 37
of the Income-tax Act.
Respondent-assessee did not claim any depreciation for the assessment year, Income-tax officer allowed the depreciation. Both the Commissioner of Income-Tax (Appeals) and the Tribunal decided in favour of the
assessee and against the appellant. High Court held that in the absence of
claim by the assessee, the income-tax officer could not grant depreciation
allowance. Hence the present appeals.
Dismissing the appeals, the Court
HELD : 1.1. Section 34 of the Income-tax Act provides that depreciation as deduction under Section 32 of the Act shall be allowed only if
prescribed particulars have been furnished. Further, Section 34 of the Act
is not in the nature of merely an enabling provision. In the absence of
particulars of depreciation as required by Section 34, there is no mandate
on the Income Tax Officer under Section 29 to compute the income by
allowing depreciation under Section 32 of the Act. Thus, it cannot be
accepted that since Section 32 provides for depreciation it has to be allowed
465
A
B
c
D
E
F
G
H
466
SUPREME COURT REPORTS
[2000] 2 S.C.R.
A
in computing the income of the assessee. [ 491-F, 492-D]
1.2. Rule SAA of the Income Tax Rules though deleted provides for
particulars required for the purpose of deduction under Section 32 of the
Act. In the absence of rule SAA, return of income in the form prescribed
itself requires particulars to be furnished in great detail if the assessee
B
claims depreciation. [ 491-G]
c
D
E
F
1.3. Circular No. 29D(XIX-14) of 196S, F. No. 4S/239/6S.ITJ dated
August 31, 1965 provides that depreciation cannot be allowed where the
required particulars have not been furnished by the assessee and no claim
for the depreciation has been made in the return. Income-Tax Officer in
such a case is required to compute the income without allowing the depreciation. Further, Circular No. 14(SL-3S) of 1955 dated April 11, 19SS
merely imposes a duty on the officers of the department to assist the tax
payers by advising the assessee to claim or not to claim depreciation if
either course is beneficial to the assessee. If he does not wish to avail that
benefit for some reasons, benefit cannot be forced upon him( [ 472-D-E]
1.4. When revised return is a valid return and the assessee has
withdrawn the claim of depreciation it cannot be granted relying on the
original return when the assessment is based on the revised return. [ 493-D] ·
1.S. Allowance of depreciation is calculated on the written down
value of the assets, which written down value would be the actual co!>t of
acquisition less the aggregate of all deductions "actually allowed" to the
assessee for the past years. "Actually allowed" does not mean notionally
allowed. If the assessee has not claimed deduction of depreciation in any
past year it cannot be said that it was notionally allowed to him. A thing is
"allowed" when it is claimed. There is subtle distinction when one examines
the language used in Section 16 and that in Sections 34 and 37 of the
Income-Tax Act. [ 493-E-F]
CITv. Dharampur LeaJher Co. ud., (1966) 60ITR16S; Beco Engineering Co. ud. v. CIT, (1984) 148 ITR 478; CIT v. Shri Someshwar Sahakari
G
Sakhar Karkhana Ltd., (1989) 177 ITR 443; CIT v. Friends Corporation,
(1989) 180 ITR 334; CIT v. Arun Textiles, (1991) 192 ITR 700; Chief CIT
(AdministraJion) v. Machine Tool Corporation of India Ltd., (1993) 201 ITR
101; CIT, v. Andhra Cotton Mills Ltd., (1996) 219 ITR 404; CIT v. J.K.
Industries Ltd., (2000) 241ITR537, approved.
H
Garden Silk Weaving Factory v. CIT, (1991) 189 ITRS12; CIT, Calcutta
C.I.T. v. MAHENDRA MILLS [D.P. WADHWA, J.]
467
v. Jaipuria China Clay Mines (P) Ltd., (1966) 59 ITR 555, distinguished.
A
Ascharajlal Ram Prakash v. CIT, (1973) 90 ITR 477; Vasa-Prakash
Bottling Co. v. CIT, (1980) 122 ITR 9; CIT v. Southern Petro Chemical
Industries Corporation Ltd., (1998) 233 ITR 400; CIT v. Gujarat State Warehousing Corporation, (1976) 104 ITR 1, overruled.
Hopeville Estate v. State of Tamil Nadu, (1978) 112 ITR 861 and
Chokshi Metal Refinery v. CIT Gujarat-II, (1977) 107 ITR 63, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5394 of 1994.
From the Judgment and Order dated 24.11.87 of the Gujarat High Court
B
in I.T.R. No. 30 of 1984.
C
WITH
Civil Appeal Nos. 4356/97 and 7030 of 1995.
From the Judgment and Orders dt. 25.6.91 and 3.11.93 of the Gujarat
and Bombay High Courts in I.T.R. Nos. 2/80 and 103 of 1988.
D
M.L. Verma, Soli Dastur, A.D.N. Rao, T.C. Sharma, Ms. Sushma Suri,
S.K. Dwivedi, Pardivalla, Sameer Parekh, Zulfikar Safi, P.H. Parekh, K.
Venugopal, S.N. Terdol, Ranbeer Chandra and Ms. A. Subhashini f,-,,. the
appearing parties.
It is:
The following Judgment/Orders of the Court was delivered :
D.P. WADHWA, J. A common question of law arises in these appeals.
"Whether, on the facts and in the circumstances of the case, the
Tribunal was right in coming to the conclusion that the Income-tax
Officer could not grant depreciation allowance to the assessee under
the Income-tax Act, 1961 when the same was not claimed by the
assessee?"
The question was referred at the instance of Revenue to the High Court
by the Income Tax Appellate Tribunal ('Tribunal' for short) for its opinion and
answered in affirmative in favour of the assessee and against the Revenue.
This question has been answered differently by various High Courts one
in favour of the assessee and the other in favour of the Revenue.
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F
G
Section 32 has since been amended by the Taxation Laws (Amendment
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SUPREME COURT REPORTS
[2000] 2 S.C.R.
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and Miscellaneous Provisions) Act, 1986, with effect from 1.4.1988. However,
the answer to the question remains of substantial importance as various matters
are stated to be pending in the High Courts relating to Assessment Years prior
to 1.4.1988. Section 32 as it stood prior to 1.4.1988, in relevant part, is as
under:
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"32. (1) In respect of depreciation of buildings, machinery, plant or
furniture owned by the assessee and used for the purposes of the
business or profession, the following deductions shall, subject to the
provisions of Section 34, be allowed -
(i)
(ii)
in the case of buildings, machinery, plant or furniture, other than
sh~ps covered by clause (i), such percentage on the written down
value thereof as may in any case or class of cases be prescribed:
Provided that where the actual cost of any machinery or plant
does not exceed seven hundred and fifty rupees, the actual cost
thereof shall be allowed as a deduction in respect of the previous
year in which such machinery or plant is first put to use by the
assessee for the purposes of his business or profession:
Provided further that no deduction shall be allowed under this
clause or clause (iii) in respect of any motor-car manufactured
out:Side India, where such motor-car is acquired by the assessee
after the 28th day of February, 1975, and is used otherwise than
in a business of running it on hire for tourists;"
"32(2) Where, in the assessment of the assessee (or, if the assessee
is a registered firm or an unregistered firm assessed as a registered
firm, in the assessment of its partners), full effect cannot be given to
any allowance under clause (i) or clause (ii) or clause (iia) or clause
(iv) or clause (v) or clause (vi) of sub-section (1) or under clause (i)
of sub-se.::tion (lA) in any previous year, owing to there being no
profits or gains chargeable for that previous year, or owing to the
profits or gains chargeable being less than the allowance, then, subject
to the provisions of sub- section (2) of Section 72 and sub-section (3)
of Section 73, the allowance or part of the allowance to which effect
has not been given, as the case may be, shall be added to the amount
of the allowance for depreciation for the following previous year and
".
C.l.T. v. MAHENDRA MILLS [D.P. WADHWA, J.]
469
deemed to be part of that allowance, or if there is no such allowance
A
for that previous year, be deemed to be the allowance for that previous
year, and so on for the succeeding previous years."
We may also quote Sections 28 and 29 :
"28. The following income shall be chargeable to income-tax under
B
the head "Profits and gains of business or profession", -
(i}
the profits and gains of any business or profession which was
carried on by the assessee at any time during the previous year;
(ii) any compensation or other payment due to or received by,-
(a)
any person, by whatever name, called, managing the
whole or substantially the whole of the affairs of an
Indian company, at or in connection with the termination
c
of his management or the modification of the terms and
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conditions relating thereto;
(b) any person, by whatever name called, managing the
whole or substantially the whole of the affairs in India of
any other company, at or in connection with the termination of his office or the modification of the terms and
E
conditions relating thereto;
(c) any person, by whatever name called, holding an agency
in India for any part of the activities relating to the
business of any other person, at or in connection with the
termination of the agency or the modification of the
terms and conditions relating 'thereto;
(d)
any person, for or in connection with the vesting in the
Government, or in any corporation owned or controlled
F
by the Government, under any law for the time being in
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force, of the management of any property or business;
(iii) income derived by a trade, professional or similar association
from specific services performed for its members;
(iv) the value of any benefit or perquisite, whether convertible into
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G
H
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SUPREME COURT REPORTS
[2000) 2 S.C.R.
money or not, arising ·from business or the exercise of a
profession.
"Income from pro.fits and gains of business or pro_fession, how
computed
29. The income referred to in Section 28 shall be computed in
accordance with the provisions contained in Sections 30 to 43A."
Assessee is a company and maintains accounts on mercantile basis. For
the assessment year 1974-75, assessee did not claim any depreciation.
Income-tax Officer, however, allowed depreciation. Assessee appealed to
CIT (Appeals) who allowed the appeal. Revenue then took the matter to the
Tribunal which dismissed the appeal of the Revenue. At the instance of the
Revenue, the question of law as set out in the beginning of the judgment was
referred to the Gujarat High Court for its opinion. High Court by the
impugned judgment following its earlier decision in Chokshi Metal Refinery
v. Commissioner of Income-Tax, Gujarat-II, (1977) 107 ITR 63 (Guj)
ans.;ered the. question in affirmative, in favour of the assessee and against
the Revenue. Aggrieved, revenue has come to this Court.
lncome•tax Officer in Assessment Order noted that assessee did not
claim current depreciation. It was contended before him that the allowance
of depreciatiOn is a right given to the assessee and like all other rights and
privileges assessee has full freedom to claim or not to claim it and that right
cannot be a burden. A privilege cannot be to a disadvantage and an option
cannot become an obligation. Income-tax Officer did not accept the contention of the assessee and computed the current depreciation for a sum of
Rs.37,61,652 which he allowed.
Mr. Verma, learned senior counsel for the Revenue submitted that
Sections 28, 29 and 32(1) and 32(2) are to be read together and so read,
depreciation had to be allowed under law and it is not relevant if it is claimed
by the assessee or not. He said there is conflict of judgments of the High
Courts. While some judgments support the view· canvassed by him, others
support the view of the assessee. Section 28 lays down as to what Income shall
be 'Chargeable to income tax under the head "Profits and gains of business or
profession" and Section 29 mandates that income referred to in Section 28
shall be computed in accordance with the provisions contained in Sections 30
to 43A. That being the law, Income-tax Officer was bound to allow depreciation whether the assessee chooses to claim the same or not. To arrive at the
'
C.I.T. v. MAHENDRA MILLS [D.P. WADHWA, J.]
471
profit, depreciation has to be deducted commercially, accountably as well as
A
statutorily. Written down value of the plant and machinery for the next year
will have to be claimed which cannot be the written down value of. the current
year. Sub-section (2) of Section 32 prescribes mechanism as to how the
deduction is to be allowed. Mr. Verma said if the claim for depreciation was
a case of choice for the assessee, it would negate the decision of this Court
B
in Commissioner of Income-Tax, Calcutta v. Jaipuria China Clay Mines (P)
Ltd., (1966) 59 ITR 555 (SC) and Garden Silk Weaving Factory v. Commissioner of Income-tax, (1991) 189 ITR 512 (SC)]. Income-tax Officer during
the course of assessment can call for the records.
Mr. Verma said that during the course of assessment proceedings,
Income-tax Officer can call for the account books of the assessee, look into
the same and calculate the depreciation allowable under Section 32. To carry
forward loss one has to arrive at the net income which can be done only after
adjusting depreciation though now after change in law depreciation cannot
be carried forward beyond certain years.
Mr. Verma submitted that looking at the language used in Section 29
the Income-tax Officer is duty bound to allow depreciation in order to
compute the income referred to in Section 28 of the Act which he is to do
keeping in view of the provisions contained in Sections 30 to 43 (now
Section 43D). The assessee need not make any .claim for depreciation of the
current year. It is admissible under the law. Section 32 only requires as to
how the allowance of depreciation is to be quantified. As any claim of
depreciation made by the assessee is not binding on the Income-tax Officer
similarly not to claim the same is also not binding on the Income-tax Officer
and he can from the available material allow admissible deduction for the
current year in arriving at the true income of the assessee.
Mr. Dastur, who on our request appeared as amicus curiae, submitted
that view canvassed by the Revenue is not correct. He said if the assessee
does not claim depreciation or does not furnish particulars for claiming
depreciation as prescribed under Section 34 of the Act in his return of
income, depreciation cannot be thrust upon him. To get depreciation allowance, there must be a claim for that under Section 32 which would subject
to furnishing of particulars under Section 34 of the Act. The word "furnishing" in Section 34 would mean 'what is given voluntarily'.
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SUPREME COURT REPORTS
[2000] 2 S.C.R.
A
Section 34 of the Act prescribes conditions for depreciation allowance.
B
c
Sub-section (1) of Section 34 is relevant and it is as under :
"34.(1) The deductions referred to in sub-section (l) of sub-~ction
(lA) of section 32 shall be allowed only if the prescribed particulars
have been furnished; and the deduction referred to in section 33 shall'
be allowed only if the particulars prescribed for the purpose of clause
(i) and clause (ii) of sub-section (1) of section 32 have been furnished
by the assessee in respect of the ship or machinery or plant."
\
Mr. Dastur referred to a circular of the Central Board of Direct Taxes
(CBDT) which provides that depreciation could not have been allowed.
Circular of the Central Board of Revenue (No. 29D (XIX-14) of 1965, F. No.
45/239/65.ITJ dated August 31, 1965) was to the effect that "where the
required particulars have not been furnished by the assessee and no claim for
depreciation has been made in the return, the Income-tax Officer should
estimate the income without allowing depreciation allowance". Thus, unless
D
the particulars of depreciation are furnished, no depreciation allowance could
be allowed. He referred to yet another circular of the CBDT which provides
that it is the duty of the Income Tax Officer to advise the assessee of his right
to claim depreciation etc. but that would arise only if the assessee is ignorant
of his right. Moreover, the duty of the Income Tax Officer is to give advice
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F
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to the assessee of his right and no more. The circular of the Central Board of
Revenue (No. 14 (SL-35) of 1955 dated April 11, 1955) required the officers
of the department "to assist a taxpayer in every reasonable way, particularly
in the matter of claiming and securing reliefs ..... Although, therefore, the
responsibility for claiming refunds and reliefs :rests with the assessees on
F·
whom it is imposed by law, officers should - (a) draw their attention to any
refunds or reliefs to which they appear to be clearly entitled but which they
have omitted to claim for some reason or other ...... "
When there are two provisions under which an assessee could claim
some benefit, it is for the assessee to choose one. Reference was made to
claim for medical reimbursement for the current year which is different than
claim for depreciation. This is so because depreciation is a claim on written
down value and if depreciation is not claimed in the current year, written
down value would remain the same for the following year. Prior to the
amendment of Section 32 business loss could be carried forward for eight
years. There was no time limit for the claiming of depreciation. This is not
so now. Earlier, therefore, it was always for the assessee to claim business
~.
.. /
_.,
C.I.T. v. MAHENDRA MILLS [D.P. WADHWA, J.]
473
loss first and current depreciation thereafter if he so desired. There was, thus,
A
basic difference in carry forward loss and carry forward unabsorbed depreciation. Mr. Dastur said it is not correct to say that if the contention of the
assessee is correct, that would negate the decision of the Supreme Court in
the cases of CIT v. Jaipuria China Clay Mines, 59 ITR 55S and Garden Silk
Weaving Factory v. CIT, 189 ITR S 12. He then referred to Rule SAA in the
Income Tax Rules, 1962 (Rules) which was inserted by the Income Tax
(Amendment) Rules, 1981 with effect from April 1, 1981. It was omitted by
Income Tax (Third Amendment) Rules, 1987 with effect from April 2, 1987.
Rule SAA is as under:-
B
"5AA. (1) For the purposes of the deduction referred to in sub-section
C
(1) or sub-section (IA) of Section 32 and sub-section (1) of Section
32A, the following particulars shall be furnished in a columnar form,
namely: -
(i)
description of assets in respect of building, indicate whether the
building is taken on lease or is owned by the assessee;
D
(ii)
written down value of existing assets;
(iii) actual cost of assets acquired during the previous year;
(iv) capital expenditure on additions or alterations;
(v)
period of user only where return relates to assessment year
1969-70 or any earlier year;
(vi) amount of moneys payable and scrap value in respect of assets
E
sold, discarded, demolished or destroyed;
F
(vii) amount on which depreciation is allowable total of items (ii)
to (iv) exclusive of amounts relating to assets referred to in item
(vi);
(viii) rate of depreciation;
(ix) total number of days worked to be furnished only if extra shift
allowance is claimed;
(x)
total number of days worked - double shift and triple shift (to
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be furnished only if extra shift allowance is claimed);
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c
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SUPREME COURT REPORTS
[2000] 2 S.C.R.
(xi) depreciation claimed -
(a)
initial depreciation;
(b)
normal depreciation (including extra depreciation for approved hotels);
(c)
additional depreciation;
(d) extra-shift allowance - double shift and triple shift;
(xii) total depreciation;
(xiii) investment allowance claimed (also indicate rate);
(xiv) remarks (indicate the amount of initial depreciation, investment
allowance or development rebate allowed in respect of the assets
in an earlier year).
(2) Where the depreciation in respect of any asset is not admissible
as a deduction under clause (ii) of sub-section (4) of Section 37 or
sub-clause (ii) of clause (c) of Section 40 or sub-clause (ii) of clause
(a) of sub-section (S) of Section 40A, such depreciation shall be
excluded for the purposes of sub-rule (l)."
This Rule SAA prescribed the particulars for depreciation necessary to
be furnished for allowance of depreciation. Prior to insertion of Rule SAA
return of income tax in the form prescribed itself required particulars to be
furnished if the assessee claimed depreciation.
Mr. Dastur said that the case set up by the assessee before the Income
Tax Officer was correct. It was wrong on the part of the Income Tax Officer
to refuse depreciation in the face of the provision of law to the contrary. He
said that calling the books of the assessee for the purpose of computing
depreciation is of no relevance inasmuch as depreciation in the books cannot
necessarily be the amount of depreciation which is allowable under the Act.
Section 37 also uses the words "shall be allowed in computing the
income chargeable". Under this Section any expenditure which is not expenditure as described in Sections 30 to 36 and is also not in the nature of capital
expenditure or personal expenses and laid out or expended wholly or excluH
sively for the purpose of business or profession of the assessee shall be
--
-
'(
!
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C.I.T. v. MAHENDRA MILLS [D.P. WADHWA, J.]
475
allowed in computing the income chargeable under the head "Profits and gains
of business or profession". It was submitted that expenditure can be allowed
only if it is claimed. Similar is the language used in Section 34 of the Act. Here
also depreciation can be allowed only if it is claimed after giving necessary
particulars as required in a return of income, which is to. be submitted in the
form prescribed. If reference is made to the form of return relevant at the time,
complete details are required to be given for the purpose of claiming
depreciation. This is under the heading "Statement of particulars under Section
32A( 4)/34(1) regarding investment allowance, depreciation and development
rebate".
The provisions containe.d in Sections 34 and 37 were contrasted with
Section 16 which deals with deduction from salary. The language here is "the
income chargeable under the head "salary" shall be computed after making
the following deductions namely: -".
Mr. Dastur like Mr. Verma also referred to judgments of the High
Courts giving diverse views. High Courts of Allahabad and Madras supported
the view canvassed by the Revenue while the High Courts of Bombay,
Gujarat, Punjab and Haryana, Karnataka, Andhra Pradesh, Calcutta and
Kerala supported the case of the assessee. We may now refer to some of the
judgments cited at the Bar beginning with Jaipuria China Clay Mines and
Garden Silk Weaving Factory cases.
Commissioner of Income Tax, Calcutta v. Jaipuria China Clay Mines
(P) Ltd., (1966) 59 ITR 555 SC was a case under the Income Tax Act, 1922.
The question which came up for consideration before this Court was:
"whether, in the facts and circumstances of the case, the unabsorbed
depreciation of the past years should be added to the depreciation of the
current year and the aggregate of the unabsorbed depreciation of the current
year and the aggregate of the unabsorbed depreciation and the current year's
depreciation be deducted from the total income of the previous year relevant
for the assessment year 1952-53?"
A
B
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D
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The Court noted the following facts in the case :
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"The Income-tax Officer assessing the respondent, Mis. Jaipuria
China Clay Mines (P) Ltd., Calcutta, hereinafter referred to as "the
assessee" for the year 1952-53 computed its total income at Rs.
14,041 before charging depreciation for that year. From that figure
he deducted depreciation for the year amounting to Rs. 5,350, thus
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computing a profit of Rs. 8,681. From this figure he deducted an
equivalent amount, i.e., Rs. 8,681, in respect of losses during 194748, and he thus worked out the business income as nil. He then
computed the dividend income at Rs. 2,01,130 and determined the
total income at this figure and levied tax on it. The assessee had in
its favour an unabsorbed depreciation aggregating to Rs. 76,857 and
it contended before the Income-tax Officer that this sum should be
d~ducted from the income received from dividends, which, if done,
would reduce the total income to Rs. 1,32,955, but the Income-tax
Officer refused to accede to this contention. The Appellate Assistant
Commissioner upheld the order of the Income-tax Officer and the
assessee's appeal to the Appellate Tribunal met with the same fate.
The High Court, however, accepted the contention of the assessee
and answered the question referred to it in favour of the assessee."
The Court said that the answer to the question depended upon the interpretation of Sections 6, 10 and 24 of the 1922 Act. The Court also observed that
it was concern~d with the law as it stood on April 1, 1952. It analysed the
sections stating that the scheme of the Act is that the tax is levied in respect
of the total income of the previous year of every individual, Hindu undivided
family, etc., and the total income consists of income under various heads such
as Salaries, Interest on securities, Income from property, Profits and gains of
business, profession or vocation, and Income from other sources and Capital
gains. Various sections deal with how income, profits and gains under each
head have to be computed. Section 10 deals with the computation of profits
and gains of any business carried on by an assessee. Section 10(2) prescribes
the allowances which have to be deducted before computing the profits and
gains; one of the allowances is "depreciation", and this is provided under subclause (vi). Section 24 provides for set-off of losses in computing aggregate
income. After referring to proviso (b) to Section 10(2)(vi) this Court observed:
"Apart from authority, looking at the Act as it stood on April 1,
1952, it is clear that the underlying idea of the Act is to assess the
total income of an assessee. Prima facie, it would be unfair to
compute the total income of an assessee carrying on business without
pooling the income from business with the income or loss under
other heads. The second consideration which is relevant is that the
Act draws no express distinction between the various allowances
mentioned in section 10(2). They all have to be deducted from the
gross profits and gains of a business. According to commercial
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principles, depreciation would be shown in the accounts and the
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profit and loss account would reflect the depreciation accounted for
in the accounts. If the profits are not large enough to wipe off
depreciation, the profit and loss account would show a loss. Therefore, apart from proviso (b) to section 10(2)(vi), neither the Act nor
c0mmercial principles draw any distinction between the various
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allowances mentioned in section 10(2); the only distinction is that
while the other allowances may be outgoings, depreciation is not an
actual outgoing."
Proviso (b) to Section 10(2)(vi) is as under: -
"(b) where, in the assessment of the assessee or if the assessee is a
registered firm, in the assessment of its partners, full effect cannot be
given to any such allowance in any year not being a year which ended
prior to the 1st day of April, 1939, owing to there being no profits
or gains chargeable for that year, or owing to the profits or gains
chargeable being less than the allowance, then, subject to the provisions of clause (b) of the proviso to sub-section (2) of section 24, the
allowance or part of the allowance to which effect has not been given,
as the case may be, shall be added to the amount of the allowance
for depreciation for the following year and deemed to be part of that
allowance for depreciation for the following year and deemed to be
part of that allowance, or if there is no such allowance for that year,
be deemed to be the allowance for that year, and so on for succeeding
years."
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In conclusion this Court agreed with the High Court and answered the
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question in favour of the assessee.
In Garden Silk Weaving Factory v. Commissioner of Income-Tax,
(1991) 189 ITR 512 (SC) questions before this Court were: "(1) Whether,
on the facts and in the circumstances of the case, the Tribunal was right in
law in holding that the assessee, a registered firm, is entitled to cairy forward
unabsorbed depreciation from earlier years and that it will be deemed to be
an allowance in the nature of depreciation in the previous year relevant to
the assessment year 1968-69? (2) Whether the claim of the assessee to carry
forward and set off loss of Rs.3,49,242 against its total income for the
assessment year 1968-69 has been rightly rejected?"
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It will be seen that the issues which were before the Court are not the
same which we are now considering. In the case ·of Garden Silk Weaving
Factory reliance was again placed on the earlier decision of this Court in
Jaipuria China Clay Mines (P) Ltd. 's case. The whole stress of argument of
Mr. Verma was that net income has to be ascertained and for that purpose
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Income Tax Officer is duty bound to look into the amount of depreciation
available for that assessment year and to allow credit for the same to arrive
at the net income. This, he said, would be so irrespective whether the
assessee has claimed depreciation or not and whether particulars of depreciation have been furnished or not. We do not think these two judgments of
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this Court on which strong reliance was placed by Mr. Verma advance his
case. Issues in those cases were entirely. different having no bearing on the
question before us.
CIT v. Dharampur Leather Co. Ltd., (1966) 60 ITR 165 (SC) was a
case under the Income-tax Act, 1922. Sub-section (1) of section 10 deals
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with the tax payable by an assessee in respect of the profits or gains of any
business, profession or vocation carried on by him. Sub-section (2) requires
such profits or gains to be computed after making the allowances therein set
out. Clause (vi) thereof speaks of allowances in respect of depreciation of
buildings, machinery, plant, etc., and the proviso (a) to clause (vi) reads thus:
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"Provided that the prescribed particulars have been duly furnished". In
proceedings for the Assessment Year 1955-56, the Income-tax Officer held
that depreciation must be computed as if income of the assessee had been
worked out properly in the earlier years when it was exempted and
depreciation had been allowed at the usual rates. It was contended by the
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assessee that no depreciation had in fact been actually allowed to the assessee
in any earlier years and, therefore, the depreciation should be computed on
the original cost of various items of plant and machinery and other assets
of the assessee. The Income-tax Officer, however, rejected this contention
and held that depreciation must be computed on the written down values of
machinery computed as if the income of the assessee had be.en worked out
properly in the years when the company was exempted and the depreciation
being allowed at the usual rates. The assessee failed before the Appellate
Assistant Commissioner and the Appellate Tribunal. The Appellate Tribunal
held that the words "actually allowed" in section 10(5)(b) of the Act were
wide enough to cover the case of the assessee. The High Court, however,
held that if in the prior years no depreciation had been actually allowed then
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479
the actual cost incurred by the assessee for acquiring the machinery would
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be the written down value of the machine~y. This Court rejected the
contention of the Revenue that on a proper interpretation of Section 10(5)(b)
of the Act the depreciation must be deemed to have been allowed to the
assessee for the years in which the income of the assessee was exempted.
The Court interpreted the words "actually allowed" occurring in Section
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lO(S)(b) to hold that the words "actually allowed" did not include any
notional allo\\:'ance.
In Beco Engineering Co. Ltd. v. CIT, (1984) 148 ITR 478 (P&H)
assessee claimed depreciation in its original return. Later he filed a revised
return in which he withdrew the claim for depreciation. Income-tax Officer
was ?f the view that it was statutorily binding upon him to compute the total
income which must take into consideration the deduction of depreciation
allowance. High Court held that in case the assessee had not claimed
depreciation allowance he could not be granted the same by the Income-tax
Officer. In regard to the revised return High Court took the view that the
original return could not be adverted to.
In CIT v. Shri Someshwar Sahakari Sakhar Karkhana Ltd., (1989) 177
ITR 443 (Born.) two issues were raised. One issue was whether the assessee
had a choice in the matter of claiming a deduction on account of depreciation
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and the second issue was whether, having claimed in the original return, the
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Income-tax Officer was entitled to rely on the particulars furnished therein
and allow a deduction on account of depreciation regardless of the fact that
the assessee had stated in the revised return that he did not want it. After
examining judgments of the various High Courts and of this Court in CIT
v. Dharampur Leather Co. Ltd., (1966) 60 ITR 165 (SC) the Court said:-
"In our view, to sum up on the first issue, the assessee has a choice
to claim or not to claim a deduction on account of depreciation. If
he chooses not to claim it, the Income-tax Officer is not entitled to
allow a deduction on account of depreciation."
In CIT v. Friends Corporation, (1989) 180 ITR 334 (P&H) the question
before the High Court was whether on the facts and in the circumstances of
the case the Appellate Tribunal was right in law in holding that the Incometax Officer could not suo motu allow depreciation on the three tankers held
by the assessee. Second question was whether on the facts and in the
circumstances of the case the Tribunal was right in law in accepting the
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contention of the assessee that he had not made an effective claim in the return
for claiming depreciation. For tlie Assessment Year 1976-77 assessee filed its
return of income showing loss of Rs. 22,521. No particulars of the depreciation
for the tankers were filed. Income-tax Officer, however, worked out depreciation on the tankers from what he gleaned from the assessee' s account. High
Court said that depreciation allowance is, at any rate, a benefit available to the
assessee to avail of, but if the assessee chooses not to claim it, it would be
contrary to reason and law to hold that it must be forced upon him. High Court
said:
"There is no gainsaying that allowance for depreciation is a benefit
available to the assessee to claim, but not one that can be thrust upon
him against his wishes. At any rate, in order to claim depreciation,
the assessee must furnish the requisite particulars as prescribed by
the Income-tax Act and the Rules made thereunder. In the absence
of such particulars, the assessee cannot avail of, nor indeed can he
be held entitled, to depreciation. It would be pertinent in this behalf
to advert to the judgment of this Court in Beco Engineering Co. Ltd.
v. CIT, (1984) 148 ITR 478, where a reference was made to Circular
No. 29D(XIX- 14) of 1965, dated August 31, 1965, issued by the
Central Board of Direct Taxes which provides that where the
required particulars have not been furnished by the assessee and no
claim for depreciation has been made in the return, the Income-tax
Officer should estimate the income without allowing depreciation
allowance. Further, it was held that from the language of section
32(l)(ii) and 34(1) read with the circular, it was clear that in case
an assessee had not claimed depreciation, the Income-tax Officer
could not give him depreciation allowance."
In CIT v. Arun Textiles "C", (1991) 192 ITR 700 (Guj.) the assessee
withdrew the claim of depreciation in the revised return. Income-tax Officer
nevertheless allowed depreciation, which was claimed in the original return.
The Court noticed from the provisions of section 32(1) of the said Act that
the deduction in respect of depreciation on the items mentioned therein shall
be allowed subject to the provisions of section 34 of the Act. Under section
34(1) of the said Act as was applicable during the relevant year, it was, inter
alia, provided that the deductions referred to in sub-section ( 1) of section 32
shall be allowed only if the prescribed particulars have been furnished. The
form prescribed by rule 12 required particulars to be given for the purpose of
the claim for deductions under the said provision. It is not that when
depreciation is allowable, the Income-tax Officer has no option but to grant
C.I.T. v. MAHENDRA MILLS [D.P. WADHWA, J.]
481
it even if the assessee makes clear its intention not to claim the depreciation.
The Court said: -
"Under clause (ii) of sub-section (1) of section 32, such percentage
on the written down value of the specified assets is to be allowed as
a deduction in respect of the depreciation of the assets. It appears that
allowance in such cases is, therefore, to be calculated on the written
down value of the assets. The written down value of assets is defined
in section 43(6) of the Act and, in respect of the assets acquired prior
to the accounting year, the written down v'alue would be the actual
cost of acquisition less the aggregate of all the deductions "actually
allowed" to the assessee in the past years. It would follow that, where
depreciation may be merely allowable but which is not computed, it
cannot be said to have been "actually allowed". Therefore, depreciation which is not claimed cannot be made to reflect in the written
down value of the assets. If the idea behind the provisions was to
provide for compulsory deductions for the depreciation, then the
written down value of assets acquired before the previous year would
have been defined so as to mean actual cost less all depreciation
allowable and not "actually allowed" as provided in section 43(6)(b)
of the Act. The provisions of section 32(1) of the Act are intended
to confer benefit on the assessee of claiming deductions on account
of depreciation in respect of the specified classes of assets and,
whenever it is claimed, it ought to be allowed."
High Court also noticed that in that case admittedly the assessee had
filed his revised return in which he has not claimed deductions in respect of
depreciation under Section 32(l)(ii) of the Act and said: -
"The provisions of section 32 are intended to give benefit to the
assessee for claiming deductions in respect of depreciation on the
type of assets mentioned therein. Furthermore, a mere claim to
deduction would not be enough since the deductions are to be allowed
subject to the provisions of section 34 which required necessary
particulars to be furnished in the prescribed form.