Uestions Of Law v. The Substantial Questions Of Law Framed For Considerationhave To Be Answered In Favour Of The Assessee In The Light Ofthe Decision Of The Hon'ble Division Bench

In the High Court of Judicature at Madras The Honourable Mr.Justice T.S.SIVAGNANAM and The Honourable Mrs.Justice PUSHPA SATHYANARAYANA The Commissioner of Income Tax, Coimbatore ...Appellant/RespondentVs M/s.Indo Shell Mould Ltd.,A9, SIDCO Industrial Estate, Kurichi,Coimbatore-18. ...Respondent/Appellant APPEAL under Section 260A of the Income Tax Act, 1961 againstthe order dated 13.9.2011 made in ITA.No.981/Mds/2011 on thefile of the Income Tax Appellate Tribunal, Chennai 'C' Bench forthe assessment year 2006-07. ITA.No.981/mds/2011 against theCommissioner of Income Tax-I, Coimbatore, in C.No.120(11)/CIT-I/CBE/2010-11 order dt 25/03/2011 for the Assessment year 2006-2007 against the Assistant Commissioner of Income Tax, CompanyCircle I(1), Coimbatore, order dated 31/10/2008 in PANNO/GIR.NO-AAACI4300C for the assessment year 2006-2007. For Appellant:Mr.T.R.Senthilkumar, SSC &Ms.K.G.Usharani, SCFor Respondent:Mr.A.S.Sriraman We have heard Mr.T.R.Senthilkumar, learned Senior StandingCounsel and Ms.K.G.Usharani, learned Standing Counsel appearingfor the appellant – Revenue and Mr.A.S.Sriraman, learned counselappearing for the respondent. 2. This appeal, filed by the Revenue under Section 260A ofthe Income Tax Act, 1961 (for short, the Act) is directedagainst the order dated 13.9.2011 made in ITA.No.981/Mds/2011 onthe file of the Income Tax Appellate Tribunal, Chennai 'C' Bench(for brevity, the Tribunal) for the assessment year 2006-07. https://hcservices.ecourts.gov.in/hcservices/ 3. The appeal has been admitted on 20.12.2013 on thefollowing substantial questions of law : “i. Whether, under the facts andcircumstances of the case, the Income TaxAppellate Tribunal was right in notupholding the order of the Commissioner ofIncome Tax setting aside the assessment madeby the Assessing Officer and directing theAssessing Officer to examine the aspect thatthe assessee did not exercise option toclaim depreciation at the rate of 80% underAppendix I before the due date for filing ofthe return while making fresh assessment ? ii. Whether, under the facts andcircumstances of the case, the Income TaxAppellate Tribunal was right in holding thatthe assessee has satisfied the requirementof Second Proviso to Rule 5(1A) of theIncome Tax Rules and they are entitled fordepreciation on windmills as per Appendix Iis valid ?iii. Whether, under the facts andcircumstances of the case, the Income TaxAppellate Tribunal was right in law ingranting depreciation at 80% on windmillseven though the Proviso to Section 32(1)(i)and Rule 5(1A) clearly stipulate that onlyrate of depreciation on the method asprovided for in Appendix IA will be relevantfor power generating machinery ?iv. Whether, under the facts andcircumstances of the case, the Income TaxAppellate Tribunal was right in law ingranting depreciation at 80% on windmillseven though the assessee is entitled at therate of 7.69% of the cost and this rate hascorrectly been allowed by the AssessingOfficer ? And v. Whether, under the facts andcircumstances of the case, the Income TaxAppellate Tribunal was right in law inholding that the assessee is entitled forhigher rate of depreciation even though theassessee had filed return of income withinthe due date and has also not exercised itsoption separately?” 4. The substantial questions of law framed for considerationhave to be answered in favour of the assessee in the light ofthe decision of the Hon'ble Division Bench of this Court in the case of CIT Vs. Kikani Exports (P) Ltd. [reported in (2015) 369ITR 500] wherein an identical question was considered and theappeal filed by the Revenue was dismissed. The relevant portionsof the said judgment read thus : v. Whether, under the facts andcircumstances of the case, the Income TaxAppellate Tribunal was right in law inholding that the assessee is entitled forhigher rate of depreciation even though theassessee had filed return of income withinthe due date and has also not exercised itsoption separately?” 4. The substantial questions of law framed for considerationhave to be answered in favour of the assessee in the light ofthe decision of the Hon'ble Division Bench of this Court in the case of CIT Vs. Kikani Exports (P) Ltd. [reported in (2015) 369ITR 500] wherein an identical question was considered and theappeal filed by the Revenue was dismissed. The relevant portionsof the said judgment read thus : “16. Short of repetition, the issuethat arise for consideration is for thepurpose of claiming depreciation, whetherthe assessee should exercise an optionbefore the due date in the manner other thanby filing return of income in terms of sub-section (1) of Section 139 of the Income TaxAct. According to the Revenue, each one ofthe assessee should file a separateapplication or a letter indicating theirintention to avail depreciation in terms ofSection 32 read with Rule 5(1) of the IncomeTax Rules and since the assessee in eachcase has not exercised such an option beforethe due date for furnishing the return ofincome, they will not be entitled to thebenefit of Rule 5(1) Appendix I, butdepreciation only under Rule 5(1A) Appendix1A.17. It is relevant to note that whilefiling the return of income, a procedure hasbeen prescribed for claiming depreciation aspointed out above. The assessee has to setout the manner in which depreciation isclaimed for the assessment years inquestion. All the details required forclaiming depreciation under various headsare set out thereunder. Rule 5 of the IncomeTax Rules is in relation to determination ofprofits and gains of business or professionand depreciation forms part of suchdetermination. Therefore, there cannot be anoption exercised in isolation (i.e.,)depreciation with regard to determination ofprofits and gains of business or professionin the manner other than the procedureprescribed under Section 139(1) of theIncome Tax Act. The assessee is liable tofile the return of income and claimdepreciation in accordance with the variousprovisions and state in exactitude what heclaimsunderdifferentheadsofdepreciation. Schedules DOA and DEP in FormITR - 6 contain the break up of variousheads under which depreciation can beclaimed. All that the second proviso to Rule 5(1A) of the Income Tax Rules states is thatthe assessee has to exercise the optionbefore the due date for furnishing thereturn of income. In otherwords, if theoption is exercised after furnishing of thereturn of income under sub-section (1) ofSection 139, it is of no avail. This assumesimportance, as no procedure is prescribedfor exercising the option. Form ITR- 6 givesthe methodology on which depreciation can beclaimed and therefore, the statue did notprovide for any other method to exercise theoption except through filing of return.Therefore, to read something more into thesecond proviso to Rule 5(1A), that an optionshould be exercised separately would makethe returns filed meaningless.18. Our view as above is fortified bythe reasoning in the decision (CIT v. VijayaHirasa Kalamkar (HUF) [1998] 229 ITR 772 theBombay High Court while dealing with theword "before", held as follows: 'Having regard to the object of theOrdinance and the words used in section 3(1), it seems to us that the declarationreceived on January 1,1976, was well withintime. In the whole context, the word"before" will have to be construed as "upto" or as "not after". There are variouspro-visions in the Income-tax Act, whereinthe expression "before" has been used(sections 139(1)(a)(i), section 139(1)(b) ;section 184 ; section 212). The expressionhas always been taken to mean "up to".Section 3 specified the period before whicha declaration in respect of income has to bemade for the purposes of getting a benefitunder the Ordinance. It provides a period oflimitation within which certain benefits areavailable. In case of ambiguity theconstruction which preserves the right tothe one which defeats it, has to bepreferred. After all, this is a taxingstatute which in case of doubt should beinterpreted in favour of a taxpayer. Had thelegis-lative intention been to make December31, 1975, the last day for making thedeclaration, it could have clearly said soin the proviso. The very fact that the date January 1, 1976, is in terms mentionedindicates that the time limit was up to thatdate. That in a given case the word"before"in the context of the time can beconstrued as "not after" is well settled.(Rv. Arkwright, [1848] 12 QB 960). This courtin the case of PremchandNathmal Kothari v.Kisanlal Bachharaj Vyas, AIR 1976 Bom 82,had read the word "before" in section 3 ofthe Maharashtra (Vidarbha Region) Agricul-tural Debtors' Relief Act, 1969, as "up to'. 19. The Tribunal in the case ofK.K.S.K. Leather Processors (P.) Ltd.(supra) following the decision of the BombayHigh Court reported in Vijaya HirasaKalamkar (HUF) (Supra) held as follows: "From the above mentioned decisions, itis clear that the word 'before' would haveto be construed as upto or not after. TheHon'ble Bombay High Court has specificallyreferred to provisions of Section 139 of theAct while explaining the expression of theword 'before'. Therefore, we hold that theoption exercised by the assessee on due dateby way of making claims of depreciation inthe return of income along with audit reportand books of account wherein the assesseehas adopted the rate as claimed is withintime limit prescribed under second provisoto Rule 5(1A) of Income-tax Rules. Evenotherwise as held by the Bombay High Courtin the case of CIT vs. Shivanand Electronics(supra) the provision can be understood withreference to the intent of legislature andnot upon the language in which the intent isclothed. If the object of enactment will bedefeated by holding it as directory itshould be construed as mandatory. Whereas ifby holding it mandatory, serious generalinconvenience will be created to innocentpersons without very much furthering theobject of the enactment, it should beconstrued as directory. The limit providedunder the second proviso to Rule 5(1A) isonly to facilitate the Assessing Officer indischarging its obligations and duties asper the provisions of sub-section (1) ofsection 32 of the Income-tax Act. Thereforethe said requirement cannot be considered as mandatory. Moreover the Assessing Officercannot act on the option exercised beforethe return is filed and therefore nofruitful purpose or object can be achievedby mandating exercise of option prior tofiling of return on due date." mandatory. Moreover the Assessing Officercannot act on the option exercised beforethe return is filed and therefore nofruitful purpose or object can be achievedby mandating exercise of option prior tofiling of return on due date." 20. A reading of the above-saiddecision of the Bombay High Court makes itclear that if the assessee exercised theoption in terms of second proviso to Rule 5(1A) of the Income Tax Rules at the time offurnishing of return of income, it willsuffice and no separate letter or request orintimation with regard to of exercise ofoption is required. Since the returns arefiled in accordance with Section 139(1) ofthe Income Tax Act and the form prescribedtherein make a provision for exercising anoption in respect of the claim ofdepreciation, no separate procedure isrequired, as contended by the Department. Weare in agreement with the reasoning of theTribunal.21. Accordingly, the question of law isanswered in favour of the assessee andagainst the Revenue. 22. In so far as T.C.(A)No.509 of 2013is concerned, as contended by the learnedcounsel appearing for the assessee, on thequantum appeal, the Commissioner of IncomeTax (Appeals) as well as the Tribunal heldin favour of the assessee and there is noappeal on that issue before this Court.Therefore, the question of law raised inthis appeal becomes academic, in any event,not required to be answered. 23. In T.C.(A)Nos.1012, 1014 of 2010and 272 of 2014, the assessee therein filedthe return of income belatedly for thesubsequent years and claimed the benefit ofdepreciation. The assessee in these casesfiled return of income for the previousassessment year claiming depreciation withinthe time in accordance with Section 32(1) ofthe Income Tax Act and the Rules and thatwill enure to the benefit of the assesseefor the subsequent years in view of thethird proviso to Rule 5(1A) of the Income Tax Rules, which reads as follows: "5. Depreciation(1) Subject to theprovisions of sub-rule (2), the allowanceunder clause (ii) of subsection (I) ofsection 32 in respect of depreciation of anyblock of assets shall be calculated at thepercentages specified in the second columnof the Table in Appendix I to these rules onthe written down value of such block ofassets as are used for the purposes of thebusiness or profession of the assessee atany time during the previous year. Provided also that any such option onceexercised shall be final and shall apply toall the subsequent assessment years." 24. As the third proviso clearly statesthat the option once exercised will continueto all the subsequent years, the assessee isnot required to exercise such option eachand every year separately. 25. In view of the foregoingdiscussions, we pass the following order: We answer the substantial question oflaw in favour of the assessee and againstthe Revenue. Consequently, the order of theTribunal stands confirmed. In the result, all the above Tax Case(Appeals) are dismissed.” 5. Following the said decision, the above tax case appealfiled by the Revenue is dismissed and the substantial questionsof law framed are answered in favour of the assessee. No costs. Sd/- //True Copy// Assistant Registrar To 1.The Income Tax Appellate Tribunal, Chennai 'C' Bench. 2.The Commissioner of Income Tax-I, Coimbatore. Coimbatore. https://hcservices.ecourts.gov.in/hcservices/ 3. The Assistant Commissioner Of Income Tax, Company Circle I(1), Coimbatore. Company Circle I(1), Coimbatore. RJI (CO)RV (08/09/2020) TCA.No.528 of 2013