1. This appeal by the assessee is directed against the order of CIT(A)-XII, Mumbai.
On the facts and in the circumstances of the case, the Learned Commissioner of Income-tax (A)-XII, Mumbai/CIT(A)- 1. was not justified in confirming the order of the ACIT thrusting depreciation, even though not claimed; 2. failed to appreciate that the Appellant has an option to claim of depreciation and it can choose not to claim depreciation and amendment in Section 32 and Section 34 w. e. f. 1-4-1989 has not altered the basic principle; 3. erred in drawing a wrong conclusion that due to withdrawal of Section 34, the ratio laid down in the decision of the Bombay High Courts and Tribunals is not applicable; 4. failed to appreciate that Section 34 had no say in deciding the allowability of depreciation and in view of the matter, the omission of Section 34 from the Act shall not alter the position of not claiming of depreciation; 5. erred in holding that in order to work out the 'profits and gains of business', depreciation has to be considered, whether opted by assessee or not, without appreciating that depreciation is benefit/ incentive given and to claim or not claim is upto the assessee to decide.
3. At the time of hearing before us, it is submitted by the learned representative for the assessee that the claim of depreciation is optional and it cannot be thrusted upon the assessee. The assessee in this case has not claimed depreciation and, therefore, the Assessing Officer was not justified in allowing depreciation, though not claimed by the assessee. In support of this contention, he relied upon the following decisions:Chief CIT (Adm.) v. Machine Tool Corporation of India Ltd. [1993] 201 ITR 101(Kar.) 4. CIT v. Kolhapur Oxygen Acetylene (P.) Ltd. [1991] 190 ITR 574 (Bom.) 5. CIT v. Shri Someshwar Sahakari Karkhana Ltd. [1989] 177 ITR 4432 (Bom.) 10. C. T. R. Mfg. Industries Ltd. v. Dy. CIT [IT Appeal Nos. 809 and 1231 (Pune) of 1997 (ITAT, Pune Bench)].
4. The ld. D. R. submitted that the decision of Hon'ble Apex Court in the case of Mahendra Mills (supra) and also the other decisions relied upon by the ld. representative for the assessee are not applicable because all those decisions are prior to the amendment brought by Taxation Laws (Amendment & Misc. Provisions) Act, 1986, w. e. f.
1-4-1988. As per this amendment, depreciation is permissible on the block of assets and, therefore, the particulars of each and every asset, which were required to be furnished hitherto, were done away with. Moreover, Section 34, which made it compulsory for the assessee to furnish the prescribed particulars for claim of depreciation, has been omitted. He further submitted that in this case the assessee has claimed deduction under sections 80HHC and 80-I. These deductions are permissible on the profits of business. The profits of business are to be computed in accordance with the provisions of Income-tax Act, and while computing such profits of business, deduction under Section 32,ie., depreciation, is to be allowed. He, therefore, submitted that the order of the Assessing Officer was perfectly justified and has been rightly sustained by the CIT(A).
5. We have carefully considered the arguments of both the sides and perused the material placed before us. The facts of the case in brief are that the assessee is engaged in the business of manufacturing, trading and export of garments and clothes. For the year under consideration, the assessee filed the return of income declaring total income at "nil" after claiming deduction under Section 80HHC/ 80-I amounting to Rs. 73, 75, 416. While determining the income for claiming deduction under Section 80HHC/80-I, the assessee did not claim depreciation on its various assets. As per the working of the Assessing Officer, depreciation admissible to the assessee was Rs. 1,27, 53, 348.
He allowed the same in computing the total income of the assessee.
Total income before claim of depreciation was Rs. 73, 76, 313.
Therefore, the Assessing Officer allowed the depreciation to the above extent in the year under consideration and balance depreciation of Rs. 53, 77, 932 was allowed to be carried forward. Since the gross total income of the assessee was determined at "nil", no deduction under sections 80HHC and 80-I was allowed.
6. Aggrieved by the order of the Assessing Officer, the assessee went in appeal to the CIT(A), who sustained the order of the Assessing Officer. Aggrieved by the order of CIT(A), the assessee is now in appeal before us.
7. At the time or hearing before us, the ld. representative for the assessee heavily relied upon the decision of Hon'ble Apex Court in the case of Mahendra Mills (supra) and claimed that the claim of depreciation is optional. The Assessing Officer cannot thrust the depreciation upon the assessee when it is not claimed. In the case of Mahendra Mills (supra). Their Lordships have accepted the assessee's contention and held as under: The language of the provisions of Sections 32 and 34 of the Income-tax Act, 1961,is specific and admits of no ambiguity. Section 32 allows depreciation as deduction subject to the provisions of Section 34. Section 34 provides that deduction under Section 32 shall be allowed only if the prescribed particulars have been furnished.
The provision for claim of depreciation is certainly for the benefit of the assessee. If he does not wish to avail of that benefit for some reason, the benefit cannot be forced upon him. It is for the assessee to see if the claim of depreciation is to his advantage.
Income under the head "Profits and gains of business or profession" is chargeable to income-tax under Section 28 and income under Section 29 is to be computed in accordance with the provisions contained in Sections 30 to 43A. The argument that since Section 32 provides for depreciation it has to be allowed in computing the income of the assessee cannot in all circumstances be accepted in view of the bar contained in Section 34. If Section 34 is not satisfied and the particulars are not furnished by the assessee his claim for depreciation under Section 32 cannot be allowed. Section 29 is thus to be read with reference to other provisions of the Act.
It is not in itself a complete code.
From the above, it is evident that the above decision is based upon the provisions of law as it stood prior to the amendment by the Taxation Laws (Amendment & Misc. Provisions) Act, 1986. Prior to the above amendment, Section 34 of the Income-tax Act, read as under: (1) The deductions referred to in Sub-section (1) or Sub-section (1A) 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.
Thus, deduction under Section 32 was to be allowed only if the prescribed particulars have been furnished. Therefore, whenever the assessee did not want to claim the depreciation, they were not furnishing the information as required by Section 34. The Hon'ble Apex Court has also accepted the above position and held that if the Section 34 is not satisfied and the particulars are not furnished by the assessee, its claim of depreciation under Section 32 cannot be allowed.
However, the position is altogether different after the omission of Section 34 by the Taxation Laws (Amendment & Misc. Provisions) Act, 1986, w. e. f. 1-4-1988. After the omission of Section 34, there does not remain any condition of furnishing the information to be eligible to claim depreciation. We may also mention that the Hon'ble Apex Court, while deciding the matter in the case of Mahendra Mills (supra), was aware about the subsequent change in the Income-tax Act and had observed at page 58 ITR 243 as under: Section 32 has since been amended by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, with effect from 1-4-1988.
However, the answer to the questions remains of substantial importance as various matters are stated to be pending in the High Courts relating to the assessment years prior to 1-4-1988. Section 32 as it stood prior to 1-4-1988, in the relevant part, is as under: From the above observation, it is obvious that their Lordships are of the opinion that this decision would not be applicable to the period subsequent to the amendment by Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986. The year under appeal before us is assessment year 1995-96 i. e. the period after the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, which was effective from 1-4-1988.
8. The learned representative for the assessee has also relied upon the decision of Hon'ble Apex Court in the case of Jaipuria China Clay Mines (P.) Ltd. (supra). Though this decision is pertaining to assessment year 1952-53, i. e., under the Indian Income-tax Act, 1922,certain observations made by Their Lordships, which are relevant to the issue under appeal, read as under: - The Income-tax Act draws no distinction between the various allowances mentioned in Section 10(2). They have all to be deducted from the gross profits and gains of a business. According to commercial principles depreciation would be shown in the accounts and the profit and loss account would reflect the depreciation accounted for in its accounts. If the profits are not large enough to wipe off the depreciation the profit and loss account would show a loss.
The above observation clearly supports the case of the revenue and not the assessee. As we have already stated, the above decision is relating to Income-tax Act, 1922. However, the observations made by Their Lordships relating to commercial principles are certainly relevant.
9. The decision of Hon'ble Karnataka, Bombay, Punjab & Haryana and Allahabad High Courts relied upon by the ld. representative for the assessee are all prior to the period 1-4-1988 when Section 34 was in existence. As we have already stated, after the omission of Section 34 by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, the position is altogether different and, therefore, the above decisions relied upon by the ld. representative for the assessee would not be applicable to the present case.
The ld. representative for the assessee has relied upon the decision of ITAT (Pune Bench) in the case of C. T. R. Mfg. Industries Ltd. (supra).
In this case, the learned Members held as under: - 9. The next issue which pertains to Assessment Year 1993-94 only is whether the deduction in respect of depreciation can be thrust upon the assessee by the Assessing Officer. After hearing both the parties, we find that this issue is covered in favour of the assessee by the decision of Supreme Court in the case of Mahindra Mills Ltd. 243 ITR 56. Respectfully following the same, the issue is decided in favour of the assessee.
From the above, it is evident that perhaps the amendment made by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, and omission of Section 34 was not brought to the notice of the learned Members of ITAT (Pune Bench). Therefore, they had no occasion to consider whether the decision of Hon'ble Apex Court in the case of Mahendra Mills (supra) would be applicable after the omission of Section 34.
10. We may also mention that in this case the assessee claimed deduction under Section 80HHC/80-I. Deduction under Section 80HHC is to be allowed on the profits derived by the assessee from export of goods and merchandise. Explanation (bad) to Section 80HHC provides that the expression "profits of the business" means the profits of the business as computed under the head "Profits and gains of business or profession". Income under the head "Profits and gains of business or profession" is to be computed under Chapter IV-D. Section 28 of the Income-tax Act enumerates the various types of income which is chargeable to income-tax under the head "Profits and gains of business or profession". As per Section 29, the income referred to in Section 28 shall be computed in accordance with the provisions contained in Sections 30 to 43D. Thus, while computing the income under the head "Profits and gains of business", Section 32,which allows depreciation, has to be considered.
11. Similarly, under Section 80-1,where gross total income of an assessee includes any profits and gains derived from an industrial undertaking, a deduction from such profits and gains is allowed if the assessee fulfils various conditions provided in Section 80-1.
Definition of "gross total income" under Section 80B(5) is as under: - (5) 'gross total income' means the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter.
Deduction under Section 80-1 is under Chapter VI-A. Thus, for determining the gross total income, income is to be computed in accordance with the provisions of Income-tax Act except considering deduction under Chapter VIA. Depreciation is a permissible deduction under Section 32,ie., Chapter IV. Therefore, for determining gross total income for the purpose of Section 80-1,depreciation has to be considered.
12. While taking this view, we derive support from the decision of Hon'ble Apex Court in the case of Cambay Electric Supply Industrial Co.
Ltd. v. CIT [1978] 113 ITR 84. In this case, the dispute was whether unabsorbed development rebate and depreciation carried forward from earlier year is to be deducted to arrive at the profit for the purpose of computing deduction under Section 80E. Their Lordships held as under: Similarly, in computing the profits of the assessee for the purpose of the special deduction provided under Section 80E, items of unabsorbed depreciation and unabsorbed development rebate carried forward from earlier years will have to be deducted before arriving at the figure from which the 8 per cent contemplated by Section 80E is to be deducted.
The important words in Section 80E(1) are those that appear in parenthesis, viz., "as computed in accordance with the other provisions of the Act", and, since it is income from business, the same, in view of Section 29, has to be computed in accordance with Sections 30 to 43A, which would include Section 41(2) (providing for the balancing charge), Section 32(2) (providing for carry forward of depreciation) and Section 33(2) (providing for carry forward of development rebate).
The above decision would be squarely applicable to the case under appeal before us also because the profits and gains for the purpose of deduction under Section 80-I/80HHC are also to be computed in accordance with the other provisions of the Act, i. e., in accordance with Sections 30 to 43D which includes Section 32 also. The above decision in the case of Cambay Electric Supply Industrial Co. Ltd. (supra) is also followed by the Hon'ble Apex Court in the case of Mettur Chemical & Industrial Corporation Ltd. v. CIT [1996] 217 ITR 768 wherein Their Lordships held as under: The profits and gains of an industrial undertaking to which Section 84 of the Income-tax Act, 1961,applies have to be computed in accordance with the provisions contained in Chapter IV-D of the" Act and development rebate has first to be deducted from the total income and it is only thereafter, if any profits and gains remain from this business, that the benefit under Section 84(1) of the Income-tax Act would be applicable.
In view of the above, we have no hesitation to hold that the Assessing Officer was fully justified in allowing the depreciation before computing the income for the purpose of deduction under sections 80HHC and 80-1. We, therefore, find no merit in the assessee's appeal. The same is dismissed.