DIPAK KUMAR SEN, J. - (1.) NORTH West Coal Co. Ltd., the assessee, owned and ran a colliery known as Ena Colliery. The assessee appointed M/s B. P. Agarwalla & Sons (P) Ltd. as its contractors to raise coal and manufacture coke at the said colliery. At the material time, the contractors were working under the assessee under an agreement dt. 1st March, 1968, under which machinery, plant, tramways, coal tubs, etc., of the assessee at the colliery were placed at the disposal of the contractors for use during the period of the contract. The said agreement further provided that the contractors would pay the assessee for wear and tear of machinery, plant etc. The relevant clause read as follows: "To cover wear and tear you will pay us annually an amount equal to the amount allowed as ordinary depreciation on such recorded machinery, plant, buildings, tramways etc., on their respective written down values as shall be allowed to us by the IT authorities under s. 10(2)(vi) subject to such realisation as may be mutually agreed upon between us in future."
(2.) ON 31st Dec., 1970, the contractors wrote a letter to the assessee stating, inter alia, that the coal industry had been passing through an unprecedented depression on account of meagre allotment of wagons for coal loading. It was stated further that this has resulted in a fall in production, with consequential increase in the cost of production and that prices of various commodities required for production of coal have been increasing, which again affected the cost of production. It was also stated that the raisings of and despatches from Ena Colliery had gone down during the year 1970 and the current price of coal was insufficient to meet the bare cost of production. The contractors stated that they could not afford to pay the full amount of depreciation in the year 1970 in terms of the contract, but agreed to pay up to 2/3rds of the ordinary depreciation on machinery, plant and buildings etc., of the colliery on their respective written down values. The board of directors of the assessee considered the said letter of the contractors dt. 31st Dec., 1970, at a meeting held on 1st April, 1971. The board resolved after due consideration that the request of the contractors should be accepted in respect of the year 1970.
(3.) THE assessee was assessed to income-tax in the asst. yr. 1971-72, the accounting year ending on 31st Dec., 1970. In making the assessment, the ITO found that in its profit and loss account, the assessee had forgone 1/3rd of the amount payable by the contractors on account of depreciation of the assets of the colliery on the strength of the resolution passed in the board meeting of the assessee on 1st April, 1971. He held that such forgoing of 1/3rd of the depreciation charges which fell due on 31st Dec., 1971, was made after the income had become receivable in the accounting year. The ITO called upon the assessee to adduce evidence to show that the said charges were forgone purely for business considerations or on grounds of commercial expediency. The assessee relied on the relevant clause of the agreement between itself and its contractors, noted above, and contended that the said clause allowed for variation of charges on the basis of mutual agreement. The ITO held that no such agreement was reached on or before 31st Dec., 1970. The ITO held further that forgoing a part of the depreciation charges after the same became due was not shown to have furthered the business interest of the assessee and was not for purely business considerations nor on grounds of commercial expediency. He added the amount of depreciation charges forgone to the total income of the assessee.;