ASOKA MILLS COMPANY LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE question referred to us on this reference is : 'Whether the assessee is entitled to claim for the assessment year depreciation allowance under section 10(2)(vi) and 19(2)(via) which when added to the depreciation allowance, including initial depreciation allowance already made till then, would exceed the original cost to the assessee of the depreciable asset ?'

(2.) ONE would have thought that as a mere matter of common sense and accountancy, no depreciation can exceed the original cost to the assessee of the depreciable asset, and the question, therefore, would be capable of an easy answer; but Mr. Mehta, appearing for the assessee in this case, has put forward before us a rather ingenious argument to induce us to hold that under the provisions of the Income -tax Act depreciation allowances are admissible even if the result of such allowances is that the total depreciation allowance in respect of an asset exceeds its original cost. Now, the relevant proviso with which we are primarily concerned is proviso (c) to section 10(2)(vi) and the proviso is in these terms : 'the aggregate of all allowance in respect of depreciation made under this clause and clause (via) or under any Act repealed hereby, or under the Income -tax Act, 1886 (II of 1886), shall, in no case, exceed the original cost to the assessee of the buildings, machinery, plant or furniture as the case may be;'.

(3.) IN order to appreciate these arguments, one must look at the sub -section and the history of that sub -section. Section 10, sub -section (2)(vi) deals with normal depreciation and it provides that the normal depreciation shall be allowed on the basis of a percentage on the written down value of the asset. This position was brought about by an amendment of the Income -tax Act in 1939; but before that date depreciation was allowed on the actual cost to the assessee, that is, his original cost and not on the written down value. But in enacting that from 1939 the depreciation will be allowed on the written down value, the Legislature constituted one exception and that exception is where the assets are ships which do not ordinarily ply on inland waters, that is, ocean -going ships. In respect of these ships, normal depreciation is to be calculated on the basis of the original cost; and the first branch of the argument of Mr. Mehta is that proviso (c) has reference only to ocean -going ships, in the case of which depreciation is to be calculated on the original cost and not on the written down value. Now, so far as this argument is concerned, one has to keep in mind the fact that although the Act was amended in respect of the basis on which normal depreciation was allowed by providing that the percentage allowable shall be on the written down value and not on the original cost, the third proviso which fixes a ceiling on the aggregate of all depreciation allowances has been in the Act from the very beginning, and, therefore, it was at all times intended that whatever depreciation was allowed should be subject to the proviso, that is, subject to the ceiling. But that is not all. It appears to us to be contrary to any known cannon of construction that a proviso to a section should be interpreted not as an exception to what the section enacts, but as applying to only an exception to the section. The substantive part of section 10(2)(vi) enacts that the depreciation shall be calculated at a percentage on the written down value and ordinarily a proviso should be an exception to this substantive enactment. There is an exception to this substantive enactment in section 10(2)(vi) itself, and that is ocean -going ships, where the depreciation is to be calculated on the basis of the original cost. We cannot accede to the argument that the proviso should be read as only applying to this exception and not to the substantive sub -section.