1. This appeal filed by the Revenue is against the order of the CIT (Appeals) dated 10-1-1989 for the assessment year 1985-86, for which the previous year ended on 31-3-1985.
2. The assessee had sought permission to change its accounting period from year ending 31st March to year ending 30th June. It had sought to close its accounts for a fifteen months period from 1-4-1983 to 30-6-1984. The IAC (Assessment) vide his letter dated 20-10-1984 permitted the assessee to close its accounts on 30th June subject to the condition that there will not be any skipping up of any assessment year, that for the assessment year 1984-85 income earned for the period of twelve months from 1-4-1983 to 31-3-1984 would be assessed to tax and for the assessment year 1985-86 the income earned for the period of three months from 1-4-1984 to 30-6-1984 would be assessed to lax. A further condition imposed was that although depreciation for assessment year 1984-85 would be 100 per cent, depreciation for the assessment year 1985-86 i.e., for three months period would only be 3/12th of normal depreciation admissible.
According to the Income-tax Officer, who passed the assessment order in the assessment year 1985-86 on 10-2-1987, the said conditions were agreed to and accepted by the assessee at the time of passing of the order dated 20-10-1984 permitting it to change its accounting period.
Subsequently the assessee has laid a claim for depreciation at 100 percent, i.e., for twelve months. But the ITO restricted the claim of depreciation to 3/12 as against 12/12.
3. Before the CIT (Appeals) the assessee' s counsel contended that en tire depreciation should be allowed even when the machinery had worked for even one day during the period relevant to the assessment year and so there is no authority in law to restrict the depreciation to merely three months. The CIT (Appeals) directed the Assessing Officer to allow normal depreciation and not to restrict it to 3/12th by observing as under: 13. I have heard the learned submissions and I would agree. The decision of Allahabad High Court in J.K. Synthetics 105 ITR 864 which had also referred to the Supreme Court's decision in 60 ITR 411, is good authority for the proposition that the Assessing Officer cannot go beyond the ambit of the law and prescribe conditions that are contrary to law. This has also been followed by the Madras Bench of the ITAT in ITA No.626/Mds/84,dated 11-12-1984.
When the law ordains that full depreciation shall be admissible even when the machinery has worked for one day during the previous year relevant to the assessment year, the Assessing Officer cannot impose the condition that the depreciation will be admissible only at reduced rates.
14. In view of the decisions cited above, I would direct the Assessing Officer to permit the entire normal depreciation admissible for assessment year 1985-86 and not to restrict it to 3/12th.
4. The Departmental Representative contended that the CIT (Appeals) failed to note that in the instant case the equitable rule of estoppel will clearly apply since the assessee has accepted the condition imposed by the ITO and the ITO has acted on it. It cannot be open to the assessee to claim that the condition imposed by the Income-tax Officer be vacated. The Madras High Court's decision in the case of S.Manickam Chettiar v. ITO [1976] 104 ITR 283 will squarely apply. The CIT (Appeals) erred in directing to grant depreciation at full rates as against the period of three months granted by the ITO.5. On the other hand, the assessee's counsel filed copy of the AC's letter dated 20-10-1984 and copy of the Tribunal's order in the case of Premier Mills Ltd. [IT Appeal No. 620 (Mad.) of 1984 dated 11-12-1984].
The arguments of the assessee's counsel were to the following effect: In the instant case the condition laid down by the ITO that depreciation for assessment year 1985-86 would be 3/12 is an invalid condition and against the relevant provisions of law. Under Section 32 of the Income-tax Act, 1961, there is no provision for granting reduced depreciation for a previous year which is less than twelve months.
Thus, the said condition amounts to a contract between the assessee and the Income-tax Officer outside the Act. The Supreme Court in the case of ITO v. Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. [1975] 101 ITR 457 held that the parties could not be allowed to contract out of the Statute. In that case the Supreme Court held that the ITO cannot enter into an agreement or settlement and find the Revenue unless provided by Statute. It was further held that it was not within the competence of the ITO to vary the rate of interest fixed under Section 220(2) of the Income-tax Act, 1961. Similar view was expressed by the Supreme Court in the case of M.J. Kanakabai v. Union of India [1968] 68 ITR 192. The Allahabad High Court held in the case of J.K. Synthetics Ltd. v. O.S.Bajpai, ITO [1976] 105 ITR 864 at page 878 as under : It is argued on behalf of the respondents that the company had accepted the conditions voluntarily and with eyes open and it should not be allowed to challenge their validity. This is not a correct proposition. It is well settled that there is no estoppel against law. The ITO is authorised to impose only valid conditions and if the conditions imposed by him turn to be invalid, they can be challenged and struck off.
The decision of the Supreme Court in the case of CIT v. V. MR. P. Firm [1965] 56 ITR 67 is also very apt and relevant. It was held therein that, "The Doctrine of 'approbate and reprobate' is only a species of estoppel; it applies only to the conduct of parties. As in the case of estoppel, it cannot operate against the provisions of a statute. If a particular income is not taxable under the Income-tax Act, it cannot be taxed on the basis of estoppel or any other equitable doctrine. Equity is out of place in tax law; a particular income is either exigible to tax under the taxing statute or it is not. If it is not, the ITO has no power to impose tax on the said income". The Madras High Court's decision in the case of S. Manickatn Chettiar (supra) relied on by the Departmental Representative docs not apply to the facts of the present assessee's case. In that case a person had furnished security bond for payment of tax in case of another person defaulted. In such circumstances, the Madras High Court held that the surety cannot repudiate a promise to pay the tax of the defaulter. The High Court invoked the doctrine of promissory estoppel. In that case the agreement between the Income-tax Department and the surety did not violate any provisions of the Act. As such the doctrine of promissory estoppel was very well invoked. But notwithstanding the rule of promissory estoppel, where public duties cast by statute are involved, private parties cannot prevent performance by invoking estoppel (IRC v. Brooks 1915 AC 478 at page 491). Statutory provisions cannot be set at naught by invoking the doctrine of estoppel. In the present case the conditions laid down by the ITO that the assessee would be given only 3/12 depreciation and not 12/12 depreciation is against the provisions of the Act and hence not applicable. Where the provisions of a Statute are involved, it is not open to the parties to enter into any contract which will in effect circumvent the said provisions in the Statute.
6. We have considered the rival submissions. It is true that the Assessing Officer while granting permission to the assessee to change its accounting year imposed a condition that depreciation for the assessment year 1985-86, i.e., for the three months period (from 1-4-1984 to 30-6-1984) will be 3/12. The said condition was agreed to by the assessee. But at the time of assessment for the assessment year 1985-86 the assessee claimed depreciation of 12/12 instead of 3/12.
Under Section 32 of the Income-tax Act, 1961, depreciation is allowable to the assessee at the prescribed rate irrespective of the period of user of the asset. When such is the position of law, the point to be seen is whether the condition imposed by the ITO that depreciation is allowable at 3/12 only is valid or not. The Allahabad High Court in the case of J.K. Synthetics Ltd. (supra) held that the ITO is authorised to impose only valid conditions and if the conditions imposed by him turn out to be invalid, they can be challenged and struck off. Their Lordships had also held that it is not a correct proposition to say that the assessee should not be allowed to challenge the validity of the condition, when it had accepted the conditions voluntarily and with eyes open. Their Lordships also held that it is well settled that there is no estoppel against law. The Supreme Court in the case of Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. (supra) held that the parties could not be allowed to contract out of the Statute. That means, any agreement or contract which goes against the provisions of the Statute is not permissible or allowed. Even if the parties enter into an agreement which goes against the provisions of a Statute, they are at liberty to repudiate the agreement. For this proposition, authority is therein the Judgment of the Supreme Court in the case of V. MR. P. Firm (supra). It was held therein that even if a party approbates, such approbation cannot operate against the provisions of the Statute. Following the aforesaid decisions of the Supreme Court, we hold that the assessee is well within its rights to claim depreciation of 12/12 in spite of the condition imposed by the Assessing Officer the depreciation was allowable at 3/12 only at the time of granting permission for changing the accounting year and the assessee's agreeing for the same. The CIT (Appeals) is, therefore, justified in directing the ITO to grant depreciation at full rates as against the period of three months.
7. The decision of the Madras High Court in the case of S. Manic/cam Chettiar (supra) referred to above is distinguishable. In that case, the assessee Viswanathan Chettiar wanted a Tax clearance certificate for returning to Ceylon. The ITO did not permit the assessee to leave India if the taxes were not paid. Then the assessee filed petition before the ITO offering to pay taxes in monthly instalments and after furnishing security for due payment of the taxes. The assessee enclosed with his petition copy of the security bond from Manickam Chettiar.
Manickam Chettiar stood guarantee for the due payment of the instalments of tax. The Tax clearance certificate was issued to the assessee and he was allowed to leave India. When the instalments were not paid by the assessee after his departure for Ceylon, the Income-tax Department wanted to proceed against Manickam Chettiar direct. Manickam Chettiar filed a Writ Petition before the High Court and contended that the assessee could not be treated as a defaulter under the provisions of Section 220(7) and therefore, the collection of tax arrears from him has to be stayed. In those circumstances, the High Court held that the surety cannot repudiate his liability. The distinguishing feature in the case of S. Manickam Chettiar (supra) is that the offering of the surety bond by him and the issue of tax clearance certificate by the ITO accepting the said surety bond arc not against any of the provisions of the Income-tax Act, 1961. But in the present case of the assessee, the condition imposed by the ITO that depreciation is allowable only at 3/12 militated against the provisions of Section 32 of the Act. So the Revenue cannot have any comfort or solace under the decision of S. Manickam Chettiar's case (supra).