Commissioner of Income Tax and Dy. Commissioner, Income Tax vs India Polyfibers Limited

Devi Prasad Singh, J.—In both these two income tax appeals, u/s 260A of the Income Tax Act, 1961 (in short the ''Act'') common question of law is involved. Hence both the appeals are decided by this common judgment.

The common question of law involved in both these appeals, relates to interpretation of Explanation-5 of Sub-section (1) of Section 32 of the Act with regard to depreciation.

Brief Facts:

The dispute relates to assessment year 1993-94 with regard to depreciation extended by the Assessing Authority to the Company Assessee. The Company Assessee filed its return of income for the Assessment Year 1995-96, showing loss of Rs. 7,28,28,563.00. The case was processed u/s 143(1)(a) of the Act. A revised return was also filed on 6.12.1996 showing the increase of loss of Rs. 8,62,34,202.00.

The case was selected for scrutiny and the assessment was completed u/s 143(3) of the Act with net loss of Rs. 2,95,38,395.00. The Assessing Officer observed that the Assessee Company has not claimed depreciation during the year 1993-94. In spite of the fact that the Assessee Company has not claimed depreciation, the Assessing Officer took a decision for the Assessment Year 1993-94 and had worked out and held depreciation to the Assessee Company for Rs. 20,75,12,350.00. However, the Assessee Company while filing the return for assessment year under consideration, had not accounted for depreciation allowed by the Assessing Officer.

The Assessing Officer took Written Down Value as on 1.4.1993 as shown in the balance sheet therefrom deducted depreciation allowed by the Assessing Officer in the year 1993-94 to the Written Down Value as on 1.4.1994 and allowed depreciation to the Assessee Company for the Assessment Year 1995-96 at Rs. 22,07,98,578.00.

The Commissioner Income Tax (Appeals)-I, Lucknow upheld the order of the Assessing Officer. However, learned Tribunal had reversed the finding of the Commissioner Income Tax (Appeals)-I, Lucknow. Learned Tribunal while allowing the appeal, directed to allow the depreciation on the original of Written Down Value (WDV) of the assets without considering the depreciation allowed by the Assessing Officer in the year 1993-94.

The present Income Tax Appeal No. 46 of 2004 relates to the year Assessment Year 1993-94 and the Income Tax Appeal No. 33 of 2005 relates to the Assessment Year 1995-96.

SUBSTANTIAL QUESTION OF LAW

In Income Tax Appeal No. 33 of 2005, following substantial questions of law, have been framed by this Court on 23.1.2008:

Whether on the facts and in the circumstances of the case the learned Income Tax Appellate Tribunal was right in coming to the conclusion and directing the Assessing Officer not to grant depreciation allowance to the assessee company under the Income Tax Act, 1961, when the same was not claimed by the assessee?

Whether on the facts and in the circumstances of the case the learned Income Tax Appellate Tribunal erred in directing the Assessing Officer not to grant depreciation allowance to the assessee company when the same was not claimed without appreciating decision of jurisdictional High Court given in the case of Ascharajlal Ram Parkash Vs. Commissioner of Income Tax, wherein it was held that if the assessee did not file the necessary particulars in the return filed by him, the Income Tax Officer had the jurisdiction to grant the allowance by way of depreciation?

In Income Tax Appeal No. 46 of 2004, following substantial questions of law have been framed by this Court on 23.1.2008:

Whether on the facts and in the circumstances of the case the Tribunal was right in coming to the conclusion that the Assessing Officer could not grant depreciation allowance to the assessee under the Income Tax Act, 1961, when the same was not claimed by the assessee?

Whether the Hon''ble Income Tax Appellate Tribunal has failed to appreciate that the expression for removal of doubt as appearing in Section 32 of the Income Tax Act, 1961 as explanatory and clarificatory in nature and consequently applicable with retrospective effect?

The substantial questions of law involved in both the appeals, seem to be the same relating to interpretation of Explanation-5 of Sub-section (1) of Section 32 of the Act.

On behalf of the appellant revenue, the following cases have been relied upon by the learned Counsel:

Commissioner of Income Tax Vs. Soft Beverages P. Ltd., Commissioner of Income Tax Vs. Achaldas Dhanraj and Sanklecha Brothers, (Raj.) ALLAHABAD GLASS WORKS Vs. COMMISSIONER OF Income Tax, U.P. and V.P., decided by this Court at Allahabad on 12.9.1995.

Whereas, on behalf of the respondent Assessee Company, the following cases have been relied upon by the learned Counsel:

Commissioner of Income Tax Vs. Mahendra Mills, ; Commissioner of Income Tax Vs. Kerala Electric Lamp Works Ltd. and Crompton Greaves Ltd., (2002) 76 TTJ 554 : 215 ITR 165 CIT v. Patel Brothers and Co. Ltd. and Ors.; Mithilesh Kumar and Another Vs. Prem Behari Khare, Mr. C. Gupta Vs. Glaxo Smith Klin Pharmaceutical Limited, State of Madhya Pradesh and others Vs. Rameshwar Rathod, Workmen of The Rajasthan Atomic Power Project Vs. Management of Rajasthan Atomic Power Project, . and The Commissioner of Income Tax, West Bengal II, Calcutta Vs. Naga Hills Tea Co. Ltd.,

DISCUSSION AND FINDING

Explanation-5 of Sub-section (1) of Section 32 of the Act was inserted by the Finance Act, 2001 with effect from 1.4.2002.

Learned Counsel for the appellant vehemently argued that the Explanation-5 is clarificatory in nature and it shall be applicable retrospectively with presumption that the Explanation-5 was in the Text Book. It has been stated that whether claim is made by the assessee or not, the allowance has to be allowed by the Income Tax Officer. According to the learned Counsel for the appellant, the effect of Explanation-5 is clarificatory in nature hence retrospective in operation. According to learned Counsel for the appellant, the Explanation-5 being declaratory in nature, the effect of it is to elucidate what was before uncertain or doubtful. When the statute is enured to put to an end or doubt or ambiguity as to what is the correct law and meaning and it declares what it is, or even has been, learned Counsel for the appellant emphasised over the word, declaratory and submits that the Explanation-5 shall be deemed to be in the Text Book right from very beginning.

Attention has been invited by the learned Counsel for the appellant to the Finance Bill, 2001 which contains the aims and object of the Bill. A reading of the Finance Bill reveals that the aims and object was to deal with the situation where full effect cannot be given to depreciation allowance in any previous year owing to there being no profit or gains chargeable less than the allowance, the depreciation allowance or part thereof, to which effect has not been given, shall be added to the amount of allowance for depreciation for the following previous year or for the succeeding previous years till such time the full effect has been given to the depreciation allowance claimed by the Assessee.

So far as the reliance placed by the appellant''s counsel to the Finance Bill with regard to retrospective effect of the Explanation-5 is concerned, seems to be of no help. The Finance Bill specifically provides that it shall take effect from 1.4.2002 to quote:

This amendment will take effect from 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-2003 and subsequent years.

Accordingly, the aims and object as revealed by the Finance Bill, shows that it was to be made applicable from the assessment year 2002-2003 and not retrospectively with regard to cases pending or adjudicated prior to 1.4.2002.

Once the Explanation-5 inserted by the Finance Act, 2001, itself provides that it shall be given effect from the first day of April, 2002, then there appears to be no reason for the Courts to enforce it with retrospective date. The contention of Revenue in case, is accepted, then it shall amount to interpret the statutes contrary to Legislative intents de hors the statutory provisions.

The reliance placed by the Revenue on the judgment in the case of Soft Beverages (supra), the controversy relates to interpretation of Explanation added through Finance Act, 1987 which came into force from 1.4.1988 where it has been provided that blended flavouring concentrates shall include and shall be deemed to have always included synthetic essences in any form. Keeping in view the deeming provision, in the case of Soft Beverages (supra), it has been given retrospective effect which is not the controversy in the case in hand.

In the case of Achaldas Dhanraj (supra), the Division Bench of Rajasthan High Court held that the Court has to find out the intention of Legislature keeping in view the speech made by the mover of the Bill to resolve the ambiguity. In the present case, the Finance Bill itself clarifies that the amendment shall be given effect from 1.4.2002.

The case of Natural Gas Commission (supra), relates to the assessment of salary paid for a period outside India. This case seems to be not applicable under the facts and circumstances of the present case.

In the case of Mahendra Mills (supra), relied upon by the learned Counsel for the respondent, Hon''ble Supreme Court, while interpreting Section 29, held that it should be read with reference to other provisions of the Act. Their lordships held that where revised return is a valid return and the assessee has withdrawn the claim of depreciation, it cannot be granted relying on the original return when the assessment is based on revised return (para-41). Their lordships have reversed the finding of Gujarat High Court and held that the language of Section 32 and 34 of the Act, does not possess any ambiguity. Section 32 allows depreciation on the deduction subject to provisions of Section 34 of the Act. Section 34 provides that deduction u/s 32 shall be allowed only if prescribed particular has been furnished. Their lordships have considered the Board Circular dated 31.8.1965 which provides that depreciation could not be allowed where required particulars have not been furnished by the assessee and no claim for depreciation, has been made in the return. The Income Tax Officer in such a case, is required to compute the income without allowing depreciation allowance. The earlier Circular dated 11.4.1955 was held to be of no help for Revenue to allow depreciation. It has been held that the Assessing Officer does not have got mandatory duty to allow the depreciation if the asessee does not want to claim that. If the assessee does not wish to avail the benefit for some reason, the benefit cannot be forced upon him. The judgment of Allahabad High Court reported in (1973) Ascharajlal Ram Parkash Vs. Commissioner of Income Tax, was held to be not laying down correct law.

The Division Bench of Kerala High Court in the case of Kerala Electric Lamp Works Ltd. (supra), has considered the Finance Bill and held that the Explanation-5 has got prospectivity and shall commence from 1.4.2002. In the case of Patel Brothers and Co. Ltd., (supra), Hon''ble Supreme Court has considered the prospectivity of an explanation and given literal meaning to the language of the statute. In the case of Prem Behari Khare (supra), Hon''ble Supreme Court has held that no statute shall be construed to have retrospective operation unless such a construction appears very clearly from the Act or arises by necessary and distinct implication. A retrospective operation is, therefore, not to be given to a statute so as to impair existing right of obligation, otherwise than as regards matter of procedure unless that effect cannot be avoided without doing violence to the language of the enactment. Before applying a statute retrospectively the court has to be satisfied that the statute is in fact retrospective. The presumption against retrospective operation prejudicially affect vested rights or the illegality of the post transactions, or impair contracts, or impose new duty or attach new disability in respect of the past transactions or the consideration already passed. The retrospectivity must be reflected by the statute itself, express or implied. The presumption against retrospectivity may in such cases be rebutted by necessary implications from the language employed in the statute.

In the case of C. Gupta (supra), Hon''ble Supreme Court has observed that unless there is a clear provision to the effect that it is retrospective or such retrospectivity can be implied by necessary implication or intendment, it must be held to be prospective.

In the case of Diwan Bros. (supra), Hon''ble Supreme Court held that where two views are possible, one which is onerous for litigant, and other more liberal, the Court would apply that provision which was beneficial to litigant. In A.V. Fernadez. v. State of Kerala A.V. Fernandez Vs. The State of Kerala, their lordships held as under:

It is no doubt true that in construing fiscal statutes and in determining the liability of a subject to tax one must have regard to the strict letter of the law and not merely to the spirit of the statute or the substance of the law. If the Revenue satisfies the court that the case falls strictly within the provisions of the law, the subject can be taxed. If, on the other hand, the case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was the substance of the matter.

In State of Maharashtra Vs. Mishri Lal Tarachand Lodha and Others, Hon''ble Supreme Court held that a taxing statute and its provisions have to be construed strictly in favour of the subject litigant.

In the case of Rameshwar Rathod (supra), their lordships held that while considering retrospectivity of a statute, the language used, should be looked into to ascertain the intent of Legislature.

In the case of Naga Hills (supra), Hon''ble Supreme Court has reiterated that where taxing statute can be reasonably interpreted in two ways, the interpretation which is faourbale to the assessee, has to be accepted.

The retrospectivity and prospectivity of the statute has been considered by Hon''ble Supreme Court in number of recent judgments, vide. Jaswant Talkies Vs. Commercial Taxes Officer, Bhilwara, High Court of Delhi and Another Vs. A.K. Mahajan and Others, Shakti Tubes Ltd. Vs. State of Bihar and Others, 2910 (2) SCC 422 (Union of India and Anr. v. Kartick Chandra Mondal and Anr.), held that in case, statute expressly itself not made it operative retrospectively, it shall operate prospectively.

Thus, it is the settled law that unless a statute expressly or impliedly, shows its intent with regard to retrospectivity, it shall be prospective in nature.

In view of the above, the Explanation-5 of Sub-section (1) of Section 32 of the Act, seems to have got prospective application. The finding recorded by the Tribunal, does not seem to suffer from any impropriety or illegality. The question is answered against the Revenue, favouring the assessee.

The Tribunal''s order is affirmed. No orders as to costs.