Dy. Commissioner of Income-tax (Asstt.) Vs. Vardhman Fabrics P. Ltd. - Court Judgment

Excerpt:
- - the provisions of depreciation of higher rates is necessary in view of the nature of use of plant and machinery which is exposed to various chemicals and dyes of highly corrosive nature like caustic soda; for this marginally higher rate, the assessee has given a justification that in view of the nature of use of plant and machinery which is exposed to various chemicals and dyes of highly corrosive nature like caustic soda, soda ash which eat away the main body of the machinery resulting in shorter life of such machinery and that the parts of the machines and bodies are eroded by the consistent use of such dyes and chemicals which are of corrosive nature.m.s. shah, j. 1. in this appeal by the revenue, the following questions are sought to be raised :''(a) whether, the appellate tribunal is right in law and on facts in cancelling the order passed by the commissioner of income-tax under section 263 of the act ? (b) whether, the appellate tribunal is right in law and on facts in holding that depreciation worked out by the assessee on the basis of the income-tax records and debited to the profit and loss account would not be violative of the provisions of the companies act, when the same were not in accordance with parts ii and iii of schedule iv to the companies act, 1956 ?' 2. the controversy has arisen in view of the applicability of section 115j of the income-tax act, 1961 (hereinafter referred to as 'the act'). the assessee calculated the depreciation on the plant and machinery at 33.33 per cent. as permissible under the income-tax rules, 1962, as against 30 per cent. depreciation required to be calculated under schedule xiv to the companies act, 1956. the comparative rates of depreciation on the factory building, plant and machinery, furniture, fitting and office equipment and vehicle are as under : 'the rates of the depreciation under schedule xiv and as per the income-tax rules, 1962, are as under :underschedule xiv under income-tax rules, 1962 factorybuilding 10 per cent. 10 per cent. plant and machinery 30 per rent. 33.33 per cent. furniture and fitting and office equipments 10 per cent. 10 per cent. vehicles 20 per cent. 20 per cent.' 3. the board of directors passed the resolution in the following terms on june 29, 1988 :'7. the chairman advised the board to consider the provisions of higher rates of depreciation in view of the nature of use of plant and machinery. the provisions of depreciation of higher rates is necessary in view of the nature of use of plant and machinery which is exposed to various chemicals and dyes of highly corrosive nature like caustic soda; soda ash, etc., which eat away the main body of the machinery resulting into shorter life of such machinery. the parts of the machines and bodies are eroded by the consistent use of such dyes and chemicals which are of corrosive nature. these plant and machinery start depreciating moment they are put to use. hence, providing of depreciation for full year instead of pro-rata depreciation is justified as prescribed in the income-tax rules, 1962. the matter was discussed and the following resolution was passed. resolved that the rates of depreciation be provided as per the income-tax rules, 1962, being marginally higher than the rates specified under schedule xiv to the companies act, 1956. further resolved that depreciation be charged in the books of account to determine the profits/loss at the rates provided in the income-tax rules, 1962, though slightly higher and be provided for full year irrespective of use in view of the use of highly corrosive chemicals and dyes.' 4. the assessing officer allowed depreciation on the basis claimed by the company, but the commissioner of income-tax exercised powers under section 263 of the act and held that the rate of depreciation claimed under the income-tax rules was in excess of the rate under the companies act to the tune of rs. 19,63,023 and that the excess was required to be disallowed. accordingly, on the book profit as per the profit and loss account of rs. 74,39,185, the deputy commissioner of income-tax added the aforesaid amount of excess depreciation. accordingly, the book profit as per the profit and loss account was calculated at rs. 94,02,208 and the taxable income of the assessee was calculated at rs. 28,20,660 as against assessed income of rs. 23,42,600. hence, the assessee went in appeal before the tribunal. the tribunal held that the circular of the company law board lays down the minimum rate of depreciation for the purpose of distribution of dividend and the company may decide to claim higher depreciation on the basis of a bona fide technological evaluation and proper disclosure is to be made by way of a note forming part of the annual accounts. the tribunal further held that in the instant case, the proper disclosure was made by way of a note to the annual statement of accounts and the rates claimed on the basis of the income-tax records are based on the bona fide information of the board of directors as contained in the aforesaid minutes of the meeting of the board of directors held on june 29, 1988.5. mr. akil qureshi, learned counsel for the revenue, has submitted that the assessee could not claim depreciation at a higher rate on the ground that it was permissible under the income-tax rules. it is submitted that by claiming such depreciation at the higher rate, the assessee has claimed excess depreciation to the tune of rs. 19,63,023.6. mr. j.p. shah, learned counsel for the assessee, has drawn our attention to the relevant record including the resolution passed by the board of directors whereby the assessee had claimed higher rate of depreciation at 33.33 per cent. as permissible under the income-tax rules as against 30 per cent. rate prescribed under the companies act. for this marginally higher rate, the assessee has given a justification that in view of the nature of use of plant and machinery which is exposed to various chemicals and dyes of highly corrosive nature like caustic soda, soda ash which eat away the main body of the machinery resulting in shorter life of such machinery and that the parts of the machines and bodies are eroded by the consistent use of such dyes and chemicals which are of corrosive nature. further, the plant and machinery start depreciating the moment they are put to use. hence, the depreciation has been provided for the full year instead of pro-rata depreciation and that the tribunal has given the findings on the basis of the factual material on record.7. it is also submitted in the alternative that in any view of the matter even if the depreciation were claimed as per the order of the commissioner under section 263, considering that the relevant assessment years were from the assessment year 1989-90 onwards, over a period of time the assessee would have claimed the same total amount of depreciation.8. in view of the above findings of the tribunal, it is obvious that the findings given by the tribunal are based on the peculiar facts and circumstances of the case and, therefore, this appeal does not raise any substantial question of law.9. in view of the above discussion, the appeal is dismissed.