M.D. Narayan vs Agricultural Income Tax Officer, Chikmagalur

Govinda Bhat, C.J.—These are two writ petitions by a common assessee under the Mysore Agricultural Income Tax Act, 1957 (hereinafter called "the Act").

The petitioner is a coffee planter. For the assessment year 1967-68, he was allowed initial and ordinary depreciation allowance on a sprinkler equipment worth Rs. 64,590. The total depreciation allowance was Rs. 26,371 for the assessment year 1967-68. For the assessment year 1968-69, he has given ordinary depreciation allowance of Rs. 3,771. The Income Tax Officer purporting to act u/s 37 of the Act rectified his earlier assessment orders and disallowed the depreciation allowance granted on the sprinkler equipment during the relevant accounting years. The reason stated was that the Coffee Board was the owner of the sprinkler equipment and it was hired to the petitioner on a hire-purchase agreement. Aggrieved by the said orders of the respondent, the petitioner has approached this court for relief under article 226 of the Constitution.

Section 5 of the Act provides for deduction on account of depreciation allowance under various heads. Clause (e) of the said section provides for granting depreciation in respect of buildings, machinery, plant, etc., which are the property of the assessee and which are required for the purpose of deriving the agricultural income. The said sub-section is in pari materia with section 10(2) (vi) of the Indian Income Tax Act, 1922. Sri K. Srinivasan, learned counsel for the petitioner, submitted that the view taken by the respondent that the petitioner-assessee is not the owner of the sprinkler equipment is erroneous and that in any event the matter is not one of an error apparent on the record as the question to be decided requires a good deal of argument and material and that, in such circumstances, the order cannot be rectified in exercise of the power u/s 37.

In Shamsher Ali Abdul Hussain v. Commissioner of Income Tax, the Nagpur High Court was concerned with a question of a claim of depreciation on motor lorries which had been disposed of on hire purchase system. In that case, the hirer claimed the depreciation, but was disallowed on the ground that the hire purchase system is nothing but a sale or an agreement to sell with an extended period of instalments. In Sriranghacharyulu v. Commissioner of Income Tax, which was also a case of claim in respect of a bus bought on hire purchase agreement by the assessee, it was held that the transaction evidenced by the hire-purchase agreement was nothing more than a loan on the security of the bus. Sri H. N. Narayan, the learned High Court Government Pleader, relied on the decision in K. L. Johar & Co. v. Deputy Commissioner of Commercial Taxes, which was a case under the Madras General Sales Tax Act. In our opinion it is not necessary to express any final opinion on the question where the planter obtains a sprinkler equipment through the Coffee Board whether he becomes the owner or the ownership remains with the Coffee Board since these petitions can be disposed of on a short ground, viz., that there is no error apparent on the record empowering the respondent to make rectification of his earlier orders. We have referred to the decisions of the various High Courts. Two views are possible on this question; such a case is not a matter which can be rectified u/s 37 of the Act. It is not merely the hire purchase agreement that has to be looked into, but other documents and circumstances also. In that view the petitioner is entitled to succeed. Accordingly, we allow these writ petitions and quash the impugned orders of rectification dated July 22, 1971, for the assessment years 1967-68 and 1968-69. It is ordered accordingly. No costs.