COMMISSIONER OF INCOME TAX Vs. D B R MILLS LIMITED
LAWS(APH)-1954-2-1
HIGH COURT OF ANDHRA PRADESH
Decided on February 16,1954

COMMISSIONER OF INCOME TAX Appellant
VERSUS
D B R Mills Limited Respondents

JUDGEMENT

P.JAGANMOHAN REDDY, J. - (1.) THIS is a reference made on an application by the CIT under s. 66(1) of the Indian IT Act, 1922, for the determination of the following question by this Court, namely : "Whether in making the assessment for the year 1951 -52 under the Indian IT Act is the assessee company entitled to claim depreciation allowance on the basis of the written down value computed at the time of the assessment for the year 1359 F. or is it to be computed on the basis of the actual cost minus the depreciation allowances granted under the Hyderabad IT Act -
(2.) THE Tribunal has in its order of reference stated that the applicant who was assessed under the Hyderabad IT Act in respect of the asst. yr. 1357, 1358 F. had been given certain depreciation allowances under s. 12(5) of the said Act. Now for the year 1951 -52 assessable under the Indian IT Act, 1922, which was made applicable under s. 13 of the Indian Finance Act, 1950, r/w para 5 of the Part B States (Taxation Concessions) Order 1950, the written down value is sought to be computed by the IT authorities on the basis of the assessment for 1359 F.
(3.) THE assessee contended before the IT authorities that by reason of para 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, he was entitled to depreciation not on the written down value as computed in 1359 F. but upon the actual cost minus the depreciation allowance. In other words, he contends that the written down value should be taken to be the actual cost to the assessee minus the depreciation allowance admissible under the Hyderabad IT Act. The IT Department, on the other hand, urges that only such written down value as is computed under the Hyderabad IT Act for the 1359 F. assessment should be taken as the value of the asset for the purposes of depreciation under the Indian IT Act for the year of assessment 1951 - 52. Sec. 12(5) (c) of the Hyderabad IT Act provides that in the case of assets acquired before the previous year and before the commencement of the Act, the written down value should be worked out on the actual cost to the assessee less depreciation at the rates applicable to such assets calculated on the actual cost for the first year since acquisition and for the next year on the actual cost diminished by the depreciation allowance for one year and so on for each year up to the commencement of the Act, and the depreciation actually allowed to the assessee on such assets for each financial year. The net result of the contention of the IT Department would be to allow a much less allowance on account of depreciation, because the written down value will be considerably reduced due to the applicability of the provision in s. 12(5) (c) of the Hyderabad IT Act. This can easily be illustrated by taking an asset purchased in October, 1940, for a sum of Rs. 3,00,000. The written down value of this asset for the first asst. yr. 1947 -48, under the Hyderabad IT Act, would, by applying the principle of s. 12(5)(c) of the Act, say at 10per cent depreciation each year, amount to Rs. 2,79,622 and for the asst. yr. 1949 -50 (1359 F.) would be Rs. 2,71,318. The depreciation actually allowed to the assessee for the three years would be Rs. 8,304. If the contention of the assessee is accepted, the written down value for the year 1949 -50 (which is the previous year) would be the cost of Rs. 3,00,000 minus Rs. 8,304, the actual depreciation allowed, i.e., Rs. 2,91,696. The Tribunal after considering these rival contentions accepted the contention of the assessee by its order dt. 12th Dec., 1952, and held that the depreciation calculated under s. 12 (5) (c) (i) is not the depreciation which is actually allowed to the assessee under the Hyderabad IT Act. The words used in para 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, are "actually allowed" and in the view the Tribunal had taken of the matter, it directed the ITO to compute the written down value on the basis of the actual cost of the asset minus the depreciation allowance actually allowed to the assessee under the Hyderabad IT Act. In our view, the Tribunal in so holding was correct. Sec. 10(5) (b) of the Indian IT Act defines "written down value" as meaning "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 any Act repealed thereby or under executive orders issued when the IT Act, 1886, was in force." According to this provision the assessee would have been entitled ordinarily to claim depreciation on the actual cost of the asset where the asset was in existence before the previous year less the depreciation actually allowed to him under the Act. But, as the Indian IT Act was not in force, no depreciation was actually allowed nor could depreciation under the Hyderabad IT Act, which was repealed not by that Act but by the Finance Act 1950, could be taken into account, as would be seen presently. Consequently, depreciation for the year of assessment would have been ordinarily allowed on the cost of the asset.;


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