Suhas Chandra Sen, J.
1. The Tribunal has stated the following questions of law to this court :
'1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that if the assessee had been allowed to vary the meaning of the expression 'previous' year in respect of the business or profession and such previous year was of thirteen months or more, the depreciation allowance calculated as per Rule 5(1) of the Income-tax Rules, 1962, had to be increased by multiplying it by a fraction of which the numerator would be the number of complete months in such previous year and the denominator would be twelve
2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in cancelling the order of the Commissioner of Income-tax passed under Section 263 of the Income-tax Act, 1961 '
2. The facts found by the Tribunal are as under :
The assessee is Rexor India Ltd. and the assessment year involved is 1984-85. The assessee had been carrying on the business of manufacturing metallised polyester films and other products. The Assessing Officer completed the assessment under Section 143(3) of the Income-tax Act, 1961. In the said assessment, the assessee was allowed to change its previous year from the financial year ending on March 31, 1983, to the year ending on September 30, 1983, and thus the previous year, for the assessment year under consideration, i.e., 1984-85 covered a period of 18 months beginning from April 1, 1982, and ending on September 30, 1983.
3. On an examination of the assessment record of the assessee, the Commissioner of Income-tax noticed that the assessment was completedunder Section 143(3) of the Act, 1961, on a net loss of Rs. 24,86,967. It was also noticed that the assessee-company had been allowed by the Income-tax Officer to change its previous year relevant to the assessment year as a result of which the previous year was 18 months. While allowing depreciation, the Assessing Officer allowed normal depreciation for 18 months and additional depreciation at 50 per cent. of the normal depreciation. The Commissioner of Income-tax took the view that additional depreciation under Section 32(1)(iia) of the Act was admissible in respect of the previous year comprising 12 months only. Since the Assessing Officer had allowed additional depreciation at 50 per cent. of the normal depreciation allowed for 18 months on account of change of the previous year, there was excess depreciation allowed at Rs. 4,11,370. In response to the show-cause notice issued by the Commissioner of Income-tax, it was submitted on behalf of the assessee that the Assessing Officer was justified in allowing additional depreciation at 50 per cent. of the normal depreciation. The Commissioner of Income-tax did not accept the assessee's submissions. The order of the Assessing Officer was considered to be erroneous and prejudicial to the interests of the Revenue. He accordingly directed the Assessing Officer to recompute the additional depreciation allowed at 50 per cent. of normal depreciation for 12 months.
4. The assessee came up in appeal before the Tribunal. The Tribunal after hearing the parties at length considered the facts of the case. It was found by the Tribunal that the Assessing Officer had allowed the assessee to change its previous year relevant to the assessment year 1984-85 as a result of which the assessee's previous year comprised 18 months. The Assessing Officer also had allowed normal depreciation admissible to the assessee for 18 months and additional depreciation at 50 per cent. of the normal depreciation. On a careful consideration of the facts of the case and the arguments advanced on behalf of the assessee-company and also the provisions of Section 32(1)(iia) of the Act read with the proviso to Rule 5(1) of the Income-tax Rules, 1962, the Tribunal allowed the appeal of the assessee and cancelled the order of the Commissioner of Income-tax.
5. The case of the Revenue is that the accounting period for the assessment year 1984-85 should have been the financial year 1982-83. This was allowed to be extended by the Income-tax Officer by an order dated March 8, 1983, to September 30, 1983. In other words, the accounting period for the assessment year 1984-85 was a period of 18 months beginning from April 1, 1982, and ending on September 30, 1983.
6. On behalf of the assessee, it has been contended that the language of the statute is quite clear. The assessee is entitled to get a deduction ofthe prescribed rate of depreciation allowance under the provisions of Section 32 of the Income-tax Act. An extra allowance was given to the assessee by virtue of the provisions of Clause (iia) of Section 32(1) of the Income-tax Act. The extra allowance will be a sum equal to one half of the depreciation allowance otherwise admissible because of the fact that the assessee's accounting period was April 1, 1982, to September 30, 1983. The assessee got depreciation allowance for a span of 18 months. Under these circumstances, the extra shift allowance had to be 50 per cent. of the depreciation allowance as calculated by the Income-tax Officer. It has been contended that whether the accounting period comprised of 12 months or any extended period is of no consequence in a case like this. Rule 5 of the Income-tax Rules, 1962, clearly recognised that the depreciation may be allowed for a period of 12 months or more and if the previous year of the assessee extended beyond the period of 12 months, then the calculation of depreciation had to be made in terms of the proviso to Rule 5 of the Income-tax Rules.
7. We are of the view that the contention made on behalf of the Revenue must be upheld in the facts and circumstances of this case. The relevant provisions of Section 32 as it stood at the relevant periods laid down as follows :
'32. Depreciation.--(1) In respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, the following deductions shall, subject to the provisions of Section 34, be allowed-
(i) in the case of ships other than ships ordinarily plying on inland waters, such percentage, on the actual cost thereof to the assessee as may, in any case or class of cases or in respect of any period or periods, be prescribed :
Provided that different percentages may be prescribed for different periods having regard to the date of acquisition of the ship ; (ii) in the case of buildings, machinery, plant or furniture, other than ships covered by Clause (i), such percentage on the written down value thereof as may in any case or class of cases be prescribed :
Provided that where the actual cost of any machinery or plant does not exceed five thousand rupees, the actual cost thereof shall be allowed as a deduction in respect of the previous year in which such machinery or plant is first put to use by the assessee for the purposes of his business or profession :
Provided further that no deduction shall be allowed under this clause or Clause (iii) in respect of any motor car manufactured outside India, where such motor car is acquired by the assessee after the 28th day of February, 1975, and is used otherwise than in a business of running it on hire for tourists ;
(iia) in the case of any new machinery or plant (other than ships and aircraft) which has been installed after the 31st day of March, 1980, but before the 1st day of April, 1985, a further sum equal to one-half of the amount admissible under Clause (ii) (exclusive of extra allowance for double or multiple shift working of the machinery or plant and the extra allowance in respect of machinery or plant installed in any premises used as a hotel) in respect of the previous year in which such machinery or plant is installed or, if the machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year.'
'5. Depreciation.--(1) Subject to the provisions of Sub-rules (2) and (3), the allowance under Clause (i) or Clause (ii) of Sub-section (1) of Section 32 in respect of depreciation of buildings, machinery, plant or furniture (or the allowance under Clause (i) of Sub-section (1A) of Section 32 in respect of depreciation of any structure or work referred to in that sub-section) shall be calculated at the percentages specified in the second column of the Table in Part I of Appendix I to these rules on the actual cost or, as the case may be, the written down value of such of the assets aforesaid as are used for the purposes of the business or profession of the assessee at any time during the previous year : Provided that in a case where the assessee has been allowed to vary the meaning of the expression 'previous year' in respect of any business or profession under Sub-section (4) of Section 3 and, thereby, his income from such business or profession for a period of thirteen months or more is included in his total income of any previous year, the allowance referred to in this sub-rule, calculated in the manner stated hereinabove, shall be increased by multiplying it by a fraction of which the numerator is the number of complete months in such previous year and the denominator is twelve.'
8. Clause (iia) of Section 32(1) was introduced by the Finance (No. 2) Act, 1980, with effect from April 1, 1981, and was operative for any new machinery or plant installed after March 31, 1980, but before April 1, 1985. The section made it clear that 'a further sum equal to one-half of the amount admissible under Clause (ii) .... in respect of the previousyear in which such machinery or plant is installed or, if the machinery or plant is first put to use in the immediately preceding previous year, then, in respect of that previous year'. Therefore, the Income-tax Officer has to find out the amount which is admissible under Clause (ii) of Section 32(1). What is admissible under Clause (ii) of Section 32(1) is the prescribed percentage on the written down value of the plant or machinery. Appendix I, Part I of the Income-tax Rules contains a table of rates at which depreciation is admissible. In that table, it has been provided-
'(iv) Extra shift depreciation allowance : An extra allowance up to a maximum of an amount equal to one-half of the normal allowance shall be allowed where a concern claims such allowance on account of double shift working and establishes that it has worked double shift. An extra allowance up to a maximum of an amount equal to the normal allowance, instead of one-half of the normal allowance shall be allowed where a concern claims such allowance on account of triple shift working and establishes that it has worked triple shift. '
9. All these provisions make it clear that the additional depreciation is admissible under Clause (iia) cannot be in excess of 50 per cent. of the normally admissible depreciation allowance. The calculation of additional depreciation is not to be made on what is actually allowed under Clause (ii) of Section 32, but what is normally admissible under Clause (ii) of Section 32(1). Usually, the accounting period for any income-tax assessment is a period of 12 months preceding the assessment order. Section 4 imposes a charge 'in respect of the total income of the previous year of every person'. 'Previous year' has been defined to be-
'3. 'Previous year' defined. - (1) For the purposes of this Act, 'previous year' means-
(a) the financial year immediately preceding the assessment year ; or
(b) if the accounts of the assessee have been made up to a date within the said financial year, then, at the option of the assessee, the twelve months ending on such date ; or
(c) in the case of any person or business or class of persons or business not falling within Clause (a) or Clause (b), such period as may be determined by the Board or by any authority authorised by the Board in this behalf ; or
(d) in the case of a business or profession newly set up in the said financial year, the period beginning with the date of the setting up of the business or profession and-
(i) ending with the said financial year, or
(ii) if the accounts of the assessee have been made up to a date within the said financial year, then, at the option of the assessee, ending on that date, or
(iii) ending with the period, if any, determined under Clause (c), as the case may be ; or
(e) in the case of a business or profession newly set up in the twelve months immediately preceding the said financial year-
(i) if the accounts of the assessee have been made up to a date within the said financial year and the period from the date of the setting up of the business or profession to such date does not exceed twelve months, then, at the option of the assessee, such period, or
(ii) if any period has been determined under Clause (c), then the period beginning with the date of the setting up of the business or profession and ending with that period, as the case may be ; or
(f) where the assessee is a partner in a firm and the firm has been assessed as such, then, in respect of the assessee's share in the income of the firm, the period determined as the previous year for the assessment of the income of the firm ; or
(g) in respect of profits and gains from life insurance business, the year immediately preceding the assessment year for which annual accounts are required to be prepared under the Insurance Act, 1938 (4 of 1938), or under that Act read with Section 43 of the Life Insurance Corporation Act, 1956 (31'of 1956).
(2) Where an assessee has newly set up a business or profession in the said financial year and his accounts are made up to a date in the assessment year in respect of a period not exceeding twelve months from the date of such setting up, then, notwithstanding anything contained in Sub-clause (iii) or Clause (d) of Sub-section (1), the assessee shall, in respect of that business or profession at his option, be deemed to have no previous year for the said assessment year under that clause and such option shall, in relation to the immediately succeeding assessment year, have effect as an option exercised under Sub-clause (i) of Clause (e) of Sub-section (1).
(3) Subject to the other provisions of this Section, an assessee may have different previous years in respect of separate sources of his income.
(4) Where in respect of a particular source of income or in respect of a business or profession newly set up, an assessee has once exercised the option under Clause (b) or Sub-clause (ii) of Clause (d) or Sub-clause (i) of Clause (e) of Sub-section (1) or has once been assessed, then, he shall not, in respect of that source, or, as the case may be, business or profession, be entitled to vary the meaning of the expression 'previous year' as then applicable to him, except with the consent of the Income-tax Officer and upon such conditions as the Income-tax Officer may think fit to impose.'
10. The normal accounting period of an assessee has to be a period of twelve months. The assessee may be permitted to vary the accounting period with the consent of the Income-tax Officer and upon such conditions that he may impose.
11. In the instant case, there is no dispute that the assessee has been permitted to extend the accounting period to a period of eighteen months. But the additional depreciation allowance is a one-time allowance given for one year only by the statute. The extension of the accounting period cannot have the effect of changing the quantum of the additional depreciation. The depreciation allowance under Section 32(1)(ii) may be enhanced as a result of the extension of the accounting period because in the long run this will not make any difference to the total amount of depreciation that the assessee will get. But the additional depreciation allowance is given only for one year and has to be calculated on the basis of what is admissible in a normal case. Any other construction will lead to absurdity and should be avoided. The assessee whose accounting period consists of twelve months will get additional depreciation allowance for plant or machinery of a smaller amount than an assessee who is allowed to have an extended accounting period of eighteen months. In this connection reference may be made to the Budget Speech of the Finance Minister explaining the provisions of additional depreciation allowance (see [1980] 123 ITR 20) :
'It is necessary to encourage new investment particularly in view of shortages in several key sectors of the economy. As a special stimulus for new investment, I propose to allow, in the year of installation, an additional depreciation in an amount equal to 50 per cent. of the normal depreciation of new machinery or plant installed during the new plan period. The proposed additional depreciation will not be admissible in respect of ships, aircraft, road transport vehicles, office appliances ormachinery or plant installed in office premises or residential accommodation.'
12. In the Memo explaining the provisions in the Finance (No. 2) Bill, 1980, the scope and purpose of the additional depreciation allowance was explained in the following manner (see [1980] 123 ITR 155) :
'35. With a view to stimulating investment during the new Five-Year Plan period, it is proposed to allow an additional depreciation, in the year of installation, in an amount equal to 50 per cent. of the normal depreciation allowance (excluding extra shift allowance and the extra allowance in respect of machinery or plant installed in any premises used as a hotel) in respect of new machinery or plant installed after March 31, 1980, but before April 1, 1985. The additional depreciation allowance will be taken into account in determining the written down value of the machinery or plant for subsequent years. No additional depreciation will be admissible in respect of ships, aircraft, road transport vehicles, office appliances or machinery or plant installed in any office premises or in any residential accommodation, including any accommodation in the nature of a guest house. Additional depreciation will also not be admissible in respect of any machinery or plant the whole of the actual cost of which is allowed as deduction, whether by way of depreciation or otherwise, in any one previous year.'
13. All these provisions make it clear that the additional depreciation was allowable only for one year. The allowance could be made in respect of any new machinery or plant installed after March 31, 1980, but before April 1, 1985.
14. Therefore, having regard to the purpose of the statute and also the clear wording of Section 32(1)(iia), the additional depreciation allowance is to be calculated on the basis of what is admissible normally under Section 32(1)(ii) and not what is actually allowed in a special case over a span of eighteen months.
15. Both the questions, therefore, are answered in the negative and in favour of the Revenue.
16. There will be no order as to costs.
K.C. Agrawal, C.J.
17. I agree.