RANGANATHAN, J. - (1.) THIS reference under S. 66(1) of the Indian IT Act, 1922, raises an interesting question. The assessee, M/s Capital Bus Service (P) Ltd., is a transport operator. The assessment year is 1961 - 62. The previous year being the year which ended on 31st March, 1961.
(2.) THE assessee for purposes of its transport business maintained a fleet of twenty buses. Fifteen buses were maintained against twelve permits for running buses on regular routes. The other five buses were maintained for being run on contract basis on temporary permits such as for marriages, private tours and the like. Out of these five buses, one bus was never used and it had been taken off from the road. The other four buses bearing DLP Nos. 2208, 2288, 2720 and 2726 were not actually employed by the assessee for more than 30 days on account of the lack of demand therefor. The assessee's case, that these buses had been earmarked for contract purposes and were always ready and in a fit condition to ply on the road is no in dispute. It is common ground that the only reason why each of them was plied for less than 30 days was because the assessee did not get enough customers for those buses. In these circumstances, the question arose whether the assessee would be entitled to depreciation in respect of these four buses. The ITO declined to grant depreciation since these buses had not been "used" during the previous year for 30 days or more. The AAC took a different view and was of opinion that there was passive user of these buses which would entitle the appellant to claim depreciation. But on further appeal by the Department the Tribunal upheld the view taken by the ITO and hence this reference at the instance of the assessee. The question that has been referred to us is : "Whether, on the facts and in the circumstances of the case, the assessee -company was entitled to claim depreciation in respect of four buses which were kept ready for use throughout the previous year although the same were not actually used for more than thirty days ?" The present case is governed by the previsions of the Indian IT Act, 1922. Under S. 10(2)(vi) of the Act an assessee is entitled to an allowance "in respect of depreciation of such buildings, machinery, plant or furniture being the property of the assessee, a sum equivalent....... to such percentage on the original cost thereof to the assessee as may in case or class of cases be prescribed". It is settled law that the word "such" takes us back to cl. (iv) which requires that the buildings, machinery, plant, or furniture on which depreciation is claimed should have been "used for the purposes of the business, profession or vocation" during the previous year. The rates of allowance of depreciation were prescribed under the rules. Originally the assessee was entitled to depreciation at fixed rates on the written down value provided the asset in question was used for purposes of the business at any time during the previous year. However, in 1948, the Rules were amended. The rates of percentage were prescribed and the allowance of depreciation was to be at 1/12 of the prescribed figure per month of user of the asset in the business, provided thee was minimum use of at least two months. Rule 8 reads as follows : "8. The allowance under S. 10(2)(vi) of the Act in respect of depreciation of buildings, machinery, plant or furniture shall be at percentage of the written down value or original cost, as the case may be, equal to one -twelfth the number shown in the corresponding entry in the second column of the following statement : Provided that if the buildings, machinery, plant or furniture have been used by the assessee in his business for not less than two months during the previous year, the percentage shall be increased proportionately according to the number of complete months of user by the assessee :....." There was a further amendment to the rule in 1960. By this amendment it was provided that: "(2) In relation to assessments for the year ending on the 31st March, 1961, and subsequent years, the allowance under S. 10(2)(vi) of the Act in respect of depreciation of buildings, machinery, plant or furniture shall be at percentage of the written down value or original cost, as the case may be, equal to (i) 100 per cent; (ii) fifty per cent; or (iii) nil per cent, for the number shown in the corresponding entry in the second column of the following statement, according as the buildings, machinery, plant or furniture have been used by the assessee in his business, profession or vocation during the previous year, (i) for a period of 180 days or more, (ii) for a period of less than 180 days but more than thirty days or, (iii) for a period of thirty days or less than thirty days, respectively :......" The Tribunal has taken the view that the terms of the amended rule indicate that in order to get depreciation, the asset in question must have been actively used for the specified number of days in the business of the assessee. The Tribunal has held that since the buses in question have not been actually plied by the assessee for more than thirty days during the previous year, the assessee would not be entitled to any depreciation in respect thereof.
(3.) THE question that arises for consideration in the present case is not entirely free from authorities but has arisen for consideration in different contexts. It first came up for consideration in the case of N.D. Radha Kishen & Sons vs. CIT (1928) 3 ITC73 (Lah). In this case, the assessee who had a motor car agency at Rawalpindi bought a foreign car for the purposes of their business but never used it in their business as they found it was too costly to run at a profit. The view of the Department that the assessee would not be entitled to depreciation was confirmed by the High Court. It was argued before the High Court that, though not used, the machinery depreciated from lying idle. The Court observed : "Whether it did so or not it appears to us that the allowance is granted not for depreciation as such but for depreciation as a consequence of the earning of income or while employed in the earning of income. Once it is conceded that the machinery in question lay idle, there is no question of such earnings." ;