1. This appeal by the assessee is against the order of the Commissioner (Appeals) in his appeal No. CIT-(A)-358 of 1982-83, dated 24-6-1983 relating to the assessment year 1982-83 wherein he has held that the ITO was justified in effecting disallowance of the depreciation on the car and jeep to the extent of one-third of the claim in this behalf for personal user of the vehicles by the family members.
2. The facts leading to the disallowance of one-third of the claim for depreciation on jeep and car are as under : The assessee, a family trust, is assessed in the status of an AOP. For the year under consideration, the ITO disallowed one-third of the claim on account of car and jeep expenses, inclusive of the driver's salary, on estimate for personal use of the car and jeep by the trust members. Following the same, he invoked the provisions of Section 38(2) of the Income-tax Act, 1961 ('the Act') and made a similar disallowance from out of the claim for depreciation on car and jeep.
3. On appeal, it was contended before the Commissioner (Appeals) that no portion of the depreciation was disallowable, in view of the provisions of Section 32 of the Act read with Rule 5 of the Income-tax Rules, 1962, which provide that the claim on account of depreciation should be allowed in full if the assets are used for the purposes of the business at any time during the previous year. In other words, the argument in this behalf was that even if the assets had been used only for a single day for the purposes of the business during the previous year, the full claim on account of depreciation was an admissible deduction without diminishing the same on any other account. A reference was also made before him to the decision of the Madras High Court in Waterfall Estates Ltd. v. CIT [1981] 131 ITR 223, in support of the proposition that no part disallowance of the depreciation under Section 38(2) was permissible in the light of the rationale of that decision.
4. The Commissioner (Appeals) did not agree with this view. He held that the provisions of Section 32 and Rule 5 would be subject to the restriction imposed by Section 38(2) as the latter provision authorises the ITO to restrict the allowance in this behalf under Section 32 to such fair proportion or part thereof, as the ITO might determine having regard to the user of the assets in question for the purposes of the business or profession. He also considered the decision of the Madras High Court referred to earlier and came to the conclusion that the same view was to be drawn from that decision. Accordingly, he upheld the disallowance of one-third of the claim for depreciation on motor car and jeep as the same was in consequence of the disallowance of a similar proportion of the other expenses incurred on the maintenance of the vehicles.
5. The assessee has filed this appeal before us, being aggrieved with the decision of the Commissioner (Appeals). Shri Dewani, the learned counsel for the assessee, invited our attention to Rule 5, which provides for allowance of depreciation on assets used for the purposes of the business at any time during the previous year. He submitted, that even if the asset was used for a single day during the previous year for the purposes of the business, the full claim on account of depreciation was admissible by virtue of this rule and, therefore, no part of it could be disallowed by invoicing any other section. He also invited our attention to the decision of the Madras High Court in Waterfall Estates Ltd.'s case (supra) wherein their Lordships had occasion to consider the provisions of Section 38(2) in the context of disallowance of a proportionate part of the depreciation effected in that case and came to the conclusion that Section 38(2) could be made applicable only to those cases where the expenditure or allowance related to a business only in part. The learned departmental representative relied on the order of the Commissioner (Appeals).
6. After a careful consideration of the submissions as also the legal position with reference to Section 38(2) as expounded in the decision of the Madras High Court, we are of the opinion that the decision in question was rendered on the facts peculiar to that case and, therefore, the rationale of the same is not applicable to the present case.
7. A brief reference to the facts of that case would be necessary to understand the significance of that decision. The question that was referred to the High Court in that case was 'whether the Appellate Tribunal was right in holding that the entire depreciation in respect of assets in the head office should be deducted from the taxable income and that there was no justification as far as depreciation was concerned for making a bifurcation and disallowing any portion thereto'. In that case, the assessee carried on the business of running tea and coffee estates and also coffee curing works. There was a common head office. The profits from the business in tea are liable to tax to the extent of 40 per cent under the Income-tax Act, the income from coffee being wholly exempt, whereas, the income from coffee curing works being wholly taxable. The ITO apportioned the expenditure in the head office as well as the depreciation. The ITO allowed only a proportionate part of the depreciation as part of the income was not taxable to income-tax. On appeal, the Tribunal held that no bifurcation could be made between the user of the assets towards taxable sources of income and non-taxable sources of income and, in any event, as the assets were utilised for earning the taxable income, there was no justification for making a bifurcation and disallowing a portion of the depreciation allowance in the manner done by the ITO. When the matter came before the High Court, it was argued on behalf of the assessee that the fact that the assessee's head office looked after certain other activities did not mean that the assets were not exclusively used for the purposes of the business, the income of which was brought to tax. In this context, the High Court considered the provisions of Section 38(2), under which a proportionate disallowance was effected.
They summarised the section as to mean that the deduction, inter alia, under Section 32(1) was to be restricted to a fair proportionate part of the depreciation which the ITO might determine having regard to the user of the depreciable assets for the purposes of the business. In other words, they found on a prima fade basis that the assessee had been using the assets, for the purposes of the business. They made the further observation that even though the assets were used for other businesses, the income from which was not taxable to income-tax, that would not, in any way, affect the conclusion that the assets had been used for the purposes of the business, the income from which was brought to tax (para 1, p. 227). Applying certain principles laid down in CIT v. Chandulal Keshavlal & Co. [1960] 38 ITR 601(SC), they held that in that case the assessee would be entitled to depreciation, as the relevant assets were used for the purposes of the business. In this context, they observed that "if some other activity of the assessee which does not bring in taxable income has also had the benefit of the assets, it does not mean that the assessee cannot get the deduction under this provision". Elaborating this concept, the Madras High Court, after making a reference to the provisions of Section 38(2), finally held as follows : ...In a case, where the claim would have been allowed on the ground that the expenditure was laid out for purposes of the business, then the circumstance that it is beneficial to a non-business activity is beside the point, and Section 38(2) does not apply to such a case.
In other words Section 38 is applicable only to those cases where the expenditure or allowance relates to a business only in part. It does not apply where the asset is wholly, and not partially, used for the purpose of the business.
8. The rationale of the above decision has to be understood with particular reference to and in the light of the facts of the case before the Madras High Court. In the above case, there was a common head office and there were certain common assets which were fully utilised in the business activities of the assessee, part of which produced taxable income, the other part being not taxable to income-tax. The ITO had disallowed a part of the claim on account of depreciation under Section 38(2) on the ground, that the same was partly used in one of the businesses which did not produce taxable income. This view of the department was not upheld by the Tribunal and finally by the High Court because they came to the conclusion that it was an undisputed fact that the assets were fully used for the purposes of the business, though, however, part of the business did not produce taxable income. It was not the case of the department in that case that the assets were not utilised in the business at all. The case of the department was that as a part of the business did not produce taxable income, it held that a part of the depreciation on depreciable assets should also be disallowed applying the provisions of Section 38(2). It is to be understood that in this particular view of the matter, the Hon'ble Madras High Court came to the conclusion that 'if some other activity of the assessee which, did not produce taxable income had also had the benefit of the assets, it did not mean that the assessee could not get the deduction under this provision'. In the decided case, it was not the case of the department that the assets were partly used for non-business purposes. That is why the Hon'ble Madras High Court held as follows : ...In other words, Section 38 is applicable only to those cases where the expenditure or allowance relates to a business only in part. It does not apply where the asset is wholly, and not partially, used for the purpose of business.
9. Here lies the crux of the problem and the answer to the question at issue in the present case. In the present case, it is the case of the department and it has not been controverted by the assessee that the assets were partly used for non-business purposes and they were not wholly used for the business. Therefore, the rationale of the decision, namely, that Section 38(2) does not apply, where the asset is wholly and not partially used for the purposes of the business, will not be applicable to this case for the simple reason that the jeep and car were not wholly used for business purposes. It is an admitted fact that these assets were also partly put to personal use by the members of the trust and on this basis only, one-third of the expenditure incurred on their maintenance has been disallowed by the department and also not agitated in appeal. The difference in facts between the decided case and the present case is, namely, this : In the decided case, it was not in dispute that the asset was wholly used for the business. The only question there was that a part of the business did not produce taxable income and in such a circumstance, whether a part disallowance of the claim for depreciation under Section 38(2) would be justified. The High Court held that such a disallowance was not justified as Section 38(2) would not apply to a case where the asset was wholly used for the business. In the present case, it cannot be held, on a careful consideration of the facts of the case, that the jeep and car were wholly used for the purposes of the business, as admittedly, there was user of the same by the members of the trust for their personal purposes and on that basis only, a part disallowance of the expenditure had been made by the ITO and acquiesced in by the assessee. The facts in the present case being totally different in this material respect, from those of the decided case, we are of the opinion that the rationale of the Madras High Court decision would not be applicable to the facts of this case.
10. Every decision is only an authority with reference to the facts, on the basis of which, it has been decided. Even if there is a slight factual difference, the decision would not be applicable. In this context, it is very germane to refer to certain observations made by Justice Bhagwati of the Supreme Court in the case of Addl. Distt.
Magistrate v. Shivakant Shukla AIR 1976 SC 1207 : While considering the observations of a high judicial authority like the Supreme Court, the greatest possible care must be taken to relate the observations of a Judge to the precise issues before him and to confine such observations, even though expressed in broad terms, in the general compass of the question before him, unless he makes it clear that he intended his remarks to have a wider ambit.
It is not possible for Judges always to express their judgments so as to exclude entirely the risk that in some subsequent case their language may be misapplied and any attempt at such perfection of expression can only lead to the opposite result of uncertainty and even obscurity as regards the case in hand. (p. 1215) From the above it is, therefore, clear, that unless the observations made in the judgment are of a general nature and application, the decision can not be made applicable unless the facts are identical. The facts in the present case being materially different from those of the decided case, we are in agreement with the view of the learned Commissioner (Appeals) in this behalf.
10. Another submission made on behalf of the appellant was, that, the user by the trustees cannot be said to be user for non-business purposes as the trustees were holding property in their fiduciary capacity. As rightly held by the Commissioner (Appeals) in the allied case of Khemchandani Family Trust, the only issue to be considered in this context is whether the asset was used for non-business purposes and if so, the disallowance would be justified. There is no dispute, that, the asset in question was not exclusively used for the purposes of the business. In this view of the matter, this submission does not carry any weight.
11. We, therefore, uphold the order of the Commissioner (Appeals) in this behalf and confirm the disallowance of part depreciation applying the provisions of Section 38(2). We, accordingly, dismiss the appeal filed by the assessee and confirm the order of the Commissioner (Appeals) in this behalf.