Dipak Kumar Sen, J.
1. The controversy in this reference arises out of calculation of depreciation of capital assets of a company transferred pursuant to an amalgamation.
2. Cheviot Jute Co. Ltd., previously known as the Delta Jute Mills Co. Ltd., is the assessee. By an order of this court dated the 26th September, 1961, another company named Belvedere Jute Mills Co. Ltd., had amalgamated with the assessee with effect from the 30th November, 1961. In the assessment year 1967-68, the previous year being the year ended on the 30th November, 1966, the assessee in its assessment to income-tax claimed that depreciation should be allowed on the assets taken over by it on amalgamation calculated at the book value at which they were taken over. The ITO, however, allowed depreciation on the said assets on their written down value in the books of Belvedere Jute Mills Co. Ltd.
3. Being aggrieved, the assessee preferred an appeal against the said order of the ITO. The AAC held that Expln. 7 to Section 43(1) of the I.T. Act, 1961, was not applicable in the facts of the case inasmuch as the same which was inserted by the Finance (No. 2) Act, 1967, was made effective from the 1st April, 1967. He held further that in the instant case the amalgamation had taken place long before and, as such, the assessee was entitled to depreciation on the written down value worked out in its books on the cost at which the asseesee acquired such assets, namely, the book value shown in the records of Belvedere Jute Mills Co. Ltd., less the depreciation allowed from year to year. The appeal of the assessee was accordingly allowed.
4.Being aggrieved, the revenue preferred a further appeal from the order of the AAC and contended before the Tribunal that the written down value of the assets in question should be calculated according to Expln. 7 of Section 43(1) of the Act. The Tribunal held that the Explanation being applicable with effect from the 1st April, 1967, depreciation had to be allowed on the cost which the assessee had to pay, i.e., the book value at which the assets were taken over from Belvedere Jute Mills Co. Ltd. The Tribunal further held that Expln. 7 to Section 43(1) of the Act did not apply in the facts before it. The appeal of the revenue was accordingly dismissed.
5. On an application of the Commissioner of Income-tax, West Bengal-II, Calcutta, under Section 256(1) of the I.T. Act, 1961, the Tribunal has drawn up a statement of the case and has referred the following question for the opinion of this court as a question of law arising from its order:
'Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the Explanation 7 to Section 43(1) of the Income-tax Act, 1961, will have no effect for the assessment year 1967-68 in the case of the assessee-company for the purpose of the determination of the actual cost of the capital assets received by the assessee-company on transfer from the amalgamating company ?'
6. Mr. A.K. Sengupta, learned counsel for the revenue, contended before us that the law as it stood on the date of the assessment had to be applied for the purpose of calculation of allowable depreciation. He submitted that Expln. 7 to Section 43(1) of the Act did apply to the facts and circumstances. He submitted further that if it was held that the said Explanation did not apply in assessments subsequent to the 1st April, 1967, then an anomalous situation might arise and on an amalgamation of companies depreciation already allowed before amalgamation added to the depreciation claimed after amalgamation might exceed the actual cost of such assets.
7. In support of his contentions, Mr. Sengupta cited the following decisions :
(a) Maharajah of Pithapuram v. CIT [1945] 13 ITR 221. In this case, the Judicial Committee held that the Indian I.T. Act, 1922, would mean the Act as amended at the date of the passing of the Finance Acts and would necessarily include all alterations made by the amending Act which might have already come into force on the 1st April of the assessment year.
(b) CIT v. Isthmian Steamship Lines : [1951]20ITR572(SC) . The Supreme Court held in this case that in income-tax matters the law to be applied is the law in force in the assessment year unless otherwise stated or implied.
(c) Riverside (Bhatpara) Electric Supply Co. Ltd. v. CIT : [1977]109ITR399(Cal) . The facts in this lease were that the assessee was carryingon business of distribution of electricity and owned service lines. A portion of the cost of such service lines had been borne by the consumers concerned. Under the Indian I.T. Act, 1922, the written down value of the assets had to be calculated on the actual cost of the assets to the assessee but under Section 43 of the I.T. Act, 1961, the actual cost of the assets to the assessee would be reduced by the portion of the cost met directly or indirectly by any other person or authority. In the assessment of income-tax of the assessee in the assessment year 1962-63, the question whether in allowing depreciation the actual cost would be as provided in the earlier Act or as denned in the later Act, came up for consideration before this court. It was held that the depreciation allowable had to be calculated according to the provisions of the I.T. Act, 1961, with reference to all assets in use in the previous year for the assessment year 1962-63 including those that had been acquired prior thereto. It was held further that the actual cost determined for a particular asset could be altered or re-determined for a subsequent assessment year and this would not amount to giving a retrospective effect to the legislation concerned nor could it affect any vested right of the assessee.
8. Dr. Debi Pal, learned counsel for the assessee, contended on the other hand that both 'actual cost' as also 'written down value' had been denned in Section 43 and it had to be seen whether, in the facts and circumstances, Expln. 7 to Section 43(1) was to be applied or whether Expln. 2A to Section 43(6), which defined written down value, was more applicable. Dr. Pal did not dispute any of the propositions laid down in the decisions cited on behalf of the revenue.
9. In our view, the question is of a very short compass. There is no doubt that the I.T. Act, 1961, as it stood in the assessment year in question, has to be applied in calculating the allowable depreciation. Depreciation is allowed under Section 32 of the I.T. Act, 1961, which, inter alia, provides as follows :
'(1) In respect of depreciation of......machinery, plant,......owned bythe assessee and used for the purposes of the business......the followingdeductions shall, subject to the provisions of Section 34, be allowed--......
(ii) in the case of......machinery, plant.......such percentage on thewritten down value thereof as may in any case or class of cases be prescribed.'
10. The material part of Section 34 of the I.T. Act, 1961, provides as follows:
'(2) For the purposes of Section 32-
(i) the aggregate of all deductions in respect of depreciation made under Sub-section (1) or Sub-section (1A) of Section 32 or under the Indian Income-tax Act, 1922 (11 of 1922),......shall, in no case, exceed the actualcost to the assessee of the......machinery, plant....... as the case may be :
Explanation.--Where a capital asset is transferred-
(i) by a holding company to its subsidiary company or by a subsidiary company to its holding company, or
(ii) by a company to another company in a scheme of amalgamation,
and the conditions specified in Clause (iv) or Clause (v), or, as the case may be, Clause (vi) of Section 47 are satisfied, then, in determining the aggregate of all deductions in respect of depreciation under this clause, account shall also be taken of the deductions in respect of depreciation allowed in the case of the company from which the asset has been transferred ;......'
11. Section 43 of the Act, inter alia, provides as follows:
' In Sections 28 to 41 and in this section, unless the context otherwise requires-
(1) 'actual cost' means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority:.....
Explanation 7.--Where, in a scheme of amalgamation, any capital asset is transferred by the amalgamating company to the amalgamated company and the amalgamated company is an Indian company, the actual cost of the transferred capital asset to the amalgamated company shall be taken to be the same as it would have been if the amalgamating company had continued to hold the capital asset for the purposes of its own business;......
(6) 'written down value' means-
(a) in the case of assets acquired in the previous year, the actual cost to the assessee ;
(b) in the case of assets acquired before the previous year the actual cost to the assessee less all depreciation actually allowed to him under this Act, or under the Indian Income-tax Act, 1922 (11 of 1922), or any Act repealed by that Act;......
Explanation 2A.--Where in a scheme of amalgamation, any capital asset is transferred by the amalgamating company to the amalgamated company, and the amalgamated company is an Indian company, the written down value of the transferred capital asset to the amalgamated company shall be taken to be the same as it would have been if the amalgamating company had continued to hold the capital asset for the purposes of its business......'
12. Under Section 32, depreciation has to be allowed at the prescribed percentage on the written down value of machinery and plant. In the relevant assessment year, the written down value had been defined in Section 43(6). In the case of assets acquired in the previous year, written down value would be equal to the actual cost, i.e., actual cost to the assessee. For assetsacquired before the previous year, the written down value would be theactual cost to the assessee less all depreciation actually allowed. Bat the Expln. 2A to Section 43(6) provides that where there has been an amalgamation,the written down value of the transferred capital assets of the amalgamatedcompany would be taken to be the same as if the amalgamating companyhad continued to hold the capital assets, that is, as if no amalgamation hadtaken place. In that view of the matter, in allowing or calculating depreciation inthe instant case, it is not necessary to determine the actual cost in the handsof the present assessee. It will be enough if the amalgamation is ignored andwritten down value in the books of the other company, i.e., the amalgamating company is taken. Such written down value clearly would be thecost of such assets to the amalgamating company less the depreciation,actually allowed to it.
13. Under Section 43(6) read with Expln. 2A, all depreciation actually allowed on the assets whether in the hands of the amalgamating or the amalgamated company in our view has to be taken into account in determining the written down value. The overall effect of Section 34 has also to be kept in view.
14. We hold, accordingly, that Expln. 2A to Section 43(6) is the more appropriatesection to be applied in the facts of this case and, to the extent as indicatedabove, we answer the question in the affirmative and in favour of theassessee.
15. There will be no order as to costs.
Bimal Chandra Basak, J.
16. I agree.