Ita/718/2008 Of The Commissioner Of Income Tax v. M/S New Mangalore Port Trust

1 IN THR HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 28 DAY OF NOVEMBER 2014 PRESENT THR HON'BLE MR. JUSTICE N. KUMAR| AN} THERE HON’BLE MR. JUSTICEK B. MANOH ITA NO.718 OF 2008 BETWEEN; 1.The Commissioner of Income-tax C.R.Building, Attavara Mangalore D2The Asst. Commissioner of Income-tax Circle-1(1), C.R.Building| Attavara, Mangalore .. APPELLANTS (By Sri.K.V. Aravind, Advocate) AND: M/s. New Mangalore Port Trust| Panambur, Mangalore (By Sri.A.Shankar and — ori.M.Lava, Advocates) ~_ RESPONDENT -Q-OQ-O-O-O- This appeal is filed under Section 260-A of Income TaxAct 1961, arising out of order dated 31.01.2008 passed in ITA|No.156/BNG/2007, for the Assessment Year 2003-2004|praying to 1) formulate the substantial questions of law|stated therein and 2) allow the appeal and set aside the order|passed by the ITAT, Bangalore in ITA No.156/BNG/2007,| dated 31.01.2008, confirming the order of the Appellate|Commissioner and contirm the order passed by the Assistant|Commissioner of Income Tax, Circle 1(1), Mangalore in the|interest of justice and equity. This appeal coming on for Hearing this’ day,N.AKUMAR, Jdelivered the following:- JUDGMENT This appeal is preterred by the Revenue challenging theorder passed by the Tribunal adopting the original cost of theassets as written down value and not depreciated cost as per|Dpooks. 2The assessee is a Government of India enterprise. |theaSS@€@S8SclaimeddepreciationTO|theexTen tot123,85,75,000/-. The Assessing Officer allowed depreciation|only for Rs.14,16,91,000/- and rejected the balance claim on the ground while computing the written down value the|depreciation is to be taken into consideration. Aggrieved by|the said order, the assessee preferred an appeal to the|Commissioner of Income-tax (Appeals). 3.The appellate commissioner held the keyword insub-clause (b) of section 43(6) is “actually allowed”. It means|it has to be limited to depreciation actually taken into| 3 account or granted or given efiect to by the assessing olficer|against the income of the business while computing taxable|income by the assessee. It could not mean “notionally|allowed” or merely allowable on a notional basis while|preparing the books of accounts while accounting and_allowed the appeal and granted the benefit. The Tribunal hasalfirmed the said finding. It is against the said order the|present appeal is filed. 4The appeal was admitted on 18.06.2010 toconsider the following substantial questions of law:- “(Y¥ Whether the Appellate Authorities|were correct in holding that the depreciationcannot be allowed on the written down valueof the assets which was reflected during thecurrent assessment year after taking intoconsideration the ordinary wear and tear,unusual damage, its subsequent usefulnessand obsolescence but should be qllolwed onthe original cost of acquisition as income inthe earlier assessment years was exempt? i) Whether the Appellate Authorities|were correct in holding that the value of the 4a assets should be the actual cost and not atthe value as worked out by the AssessingOfficerin.VIEWoftheretrospectiveamendment by introduction of Explanation 6to Section 43 of the Act?~ 5It is not in dispute that for the preceding years,the income ot the assessee was examined under Section|10(20) of the Income Tax Act. Therefore, the question of,claiming depreciation or granting depreciation did not arise,|under the Income Tax Act It is only when such exemption for|payment of income tax was withdrawn, the assessee filed the|returns of the year 2003-04 and the question of claiming|exemption under Section 43(6) arose for the first time. The|said provision reads as under: “section 43(6): The written down value means-| a)in the case of assets acquired in the|previous year, the actual cost to the|asSCSSCLE,previous year, the actual cost to the|asSCSSCLE, 5It is not in dispute that for the preceding years,the income ot the assessee was examined under Section|10(20) of the Income Tax Act. Therefore, the question of,claiming depreciation or granting depreciation did not arise,|under the Income Tax Act It is only when such exemption for|payment of income tax was withdrawn, the assessee filed the|returns of the year 2003-04 and the question of claiming|exemption under Section 43(6) arose for the first time. The|said provision reads as under: “section 43(6): The written down value means-| a)in the case of assets acquired in the|previous year, the actual cost to the|asSCSSCLE,previous year, the actual cost to the|asSCSSCLE, 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, or underthe Indian Income-tax Act, 1922 (11 of|1922). or any Act repealed by that Act, orunder any executive orders issued whenprevious year, the actual cost to the|assessee less all depreciation actually|allowed to him under this Act, or underthe Indian Income-tax Act, 1922 (11 of|1922). or any Act repealed by that Act, orunder any executive orders issued when the Indian Income-tax Act, 1556 (2 of|1886), was inforce.” A reading of the aforesaid provision makes it very clear in the|case of the assets acquired in the previous year, the written|down value is the actual cost incurred by the assessee.|However, if the cost of assets acquired is before the previous|year, the actual cost of the assessee less all depreciation|actually allowed to him under the Act. When admittedly the|assessee was entitled to exemption by virtue of Section 10(20)ot the Act, neither the assessee put forth any claim for|depreciation nor it was allowed by the department. Therefore,in calculating the written down value of the asset, the|question of taking into consideration the depreciation actually|allowed in terms of Section 43(6)(b) did not arise. Therefore,|the written down value of the assets would be the actual cost|incurred by the assessee in acquiring the same. Both the|appellate authorities by a detailed and considered order after|referring to the judgment of the courts have rightly held in thecase of the assessee for the assessment year 2003-04|question of deducting any amount towards depreciation in 6 terms of Section 43(6)(b) is not permissible and the cost on|acquiring the asset is to be taken as the written down value iscorrect and legal. 6.In so far as the second substantial question of lawis concerned, reliance is placed on explanation No.6 to|section 43(6) which was introduced by way of Finance Act|2001 which came into effect from 01.04.2004. No doubt, the)said provision is applicable to the assessment year 2003-04.But when the assessment order was passed by the assessing|authority on 24.03.2006 and when the tirst appellate|authority passed an order on 13.12.2006 and when the|tribunal passed an order on 31.01.2008, this provision was|not on the statute book. Therefore, though the said|amendment is made retrospective, as it was not on the|statute book when these authorities passed orders, they|cannot be found fault with. ToIn that view of the matter, we do not see any'justification to interiere with those orders on the basis of thisamendment which came into force during the pendency of| we this appeal. However, it is open tor the authorities, 11 law|permits, to proceed against the assessee in terms of the|amendment. 8.In fact, it was contended that this explanation isnot at all attracted to the case of the assessee. I[t will not be|proper tor us to consider the said question for the first time.If, and when any proceedings are initiated, it is open for the|assessee to raise such contention which is to be decided by|the authorities in accordance with law. No opinion on the|same either way is expressed herein. In that view of the matter, we do not see any merits in.this appeal. The substantial questions of law are answered infavour of the assessee and against the Revenue. The appeal isdismissed. Bsv_ Sd/- we this appeal. However, it is open tor the authorities, 11 law|permits, to proceed against the assessee in terms of the|amendment. 8.In fact, it was contended that this explanation isnot at all attracted to the case of the assessee. I[t will not be|proper tor us to consider the said question for the first time.If, and when any proceedings are initiated, it is open for the|assessee to raise such contention which is to be decided by|the authorities in accordance with law. No opinion on the|same either way is expressed herein. In that view of the matter, we do not see any merits in.this appeal. The substantial questions of law are answered infavour of the assessee and against the Revenue. The appeal isdismissed. Bsv_ Sd/- JUDGE. | Sd/-| JUDGE.