New Delhi vs R.C. Sud and Co. Pvt. Ltd., New Delhi

Hardayal Hardy, J.

(1) This reference has been heard in the absence of the assessed and its counsel. But since the decision is covered by a Division Bench judgment of this Court in The Commissioner of Income Tax, Delhi Vs. Chairanji Lal, New Delhi, we did not consider it necessary to wait for the assessed and its counsel.

(2) The case has been argued on behalf of the Revenue by Shri G. C. Sharma who has sought to distinguish the Bench decision of this court by reference to Section 43(6) of the Income Tax Act 1961 by submitting that there is some difference between the language employed in sub-section (6) of Section 43 of the new Act and Section 10(2) (vii) of the Indian Income Tax Act, 1922. He however conceded that in an appropriate case he would raise that question but so far as the present case is concerned he felt bound by the aforesaid decision of this court. Whatever may be the view of the learned counsel, so far as the present case is concerned, we are in agreement with the Tribunal and the question has to be answered against the Commissioner.

(3) The question referred to this court reads :-

"WHETHERon the facts and in the circumstances of the case, the Tribunal was right in holding that for computing the written down value for the purpose of determining under S. 41(2) of the Income Tax Act, 1961 the loss on the sale of cars of the assessed used partly for the purpose of business and partly for non-business purposes, the depreciation actually allowed and not the notional depreciation allowance should be taken into account ?"

The assessed is a private limited company engaged in the business of running a cinema house. The assessment year under reference is 1962-63 and the relevant previous year is the year ending on 31st October 1961. The assessed sold two cars during the previous year for 22,100.00. The written down value of these two cars was taken by the Income Tax Officer at Rs. 22,908.00 The difference between the sale price and the written down value was Rs. 808.00, half of which was disallowed by the Income Tax Officer as referable to the part of the asset used for private purposes of the five directors of the assessed and the remaining half was allowed u/s 32(1)(iii) of Income Tax Act, 1961. Being aggrieved by the decision of the Income Tax Officer, the assessed went up in appeal before the Appellate Assisiant Commissioner and contended that as the Income Tax Officer in the past had dis-allowed 50% of the notional depreciation calculated in respect of these two cars, the written down value of these two cars during the previous year under reference was not Rs. 22,908.00 but much more and hence the loss be computed at higher figure. The Appellate Assistant Commissioner accepted the assessed''s plea and held that the written down value should be worked out after deducting from the cost, not the notional depreciation allowance, but the depreciation actually allowed. He accordingly directed the Income Tax Officer to recompute the loss at a higher figure.

(4) The Income Tax Officer was dis-satisfied with the decision of the Appellate Assistant Commissioner and went up in appeal before the Income Tax Appellate Tribunal contesting the decision of the Appellate Assistant Commissioner. The Tribunal found that these two motor cars which were owned by the assessed were partly used for private purposes of the five directors of the assessed. In the past assessmeats, the Income Tax Officer had held that only 50% of the notional depreciation allowance on these two cars was admissible in computing the business income of the assessed and 50 was not admissible as these two cars were also used for private purposes of the five directors. In the assessment orders in the past, depreciation was calculated on these two cars at the rate admissible under the rules, but only 50% of the notional depreciation had actually been allowed in arriving at the profits of the assessed. In the previous year under reference when these two cars were sold the question that arose was what was the written down value of these two cars. The Tribunal found that the Income Tax Officer had held that the written down value was the difference between the original cost and the notional depreciation allowance i.e. cent per cent of the depreciation on these two cars admissible under the. rules, though as a matter of fact the Income Tax Officer had actually allowed 50% of the notional deoreciation allowance.

(5) On an interpretation of Section 32(1), 38(2), 41(2) and 43(6) of the Income Tax Act 1961 the Tribunal held that on the facts and in the circumstances of the case, the Appellate Assistant Commissioner was right in holding that the written down value should be computed by deducting from the cost not the notional depreciation allowance, but the depreciation actually allowed.

(6) In support of its view the VANKADAM LAKSHMINARAYANA Vs. COMMISSIONER OF Income Tax, ANDHRA PRADESH., and KARAMAT KHAN Vs. COMMISSIONER OF Income Tax, U.P., .

(7) The Commissioner asked for a reference to be made to this Court u/s 256(1) of the Income Tax Act 1961 whereupon the question mentioned above has been submitted with the statement of the case.

(8) The view taken by the High Court of Andhra Pradesh in VANKADAM LAKSHMINARAYANA Vs. COMMISSIONER OF Income Tax, ANDHRA PRADESH., has since been approved by the Supreme Court in Commissioner of Income Tax, Madhya Pradesh etc. Vs. Straw Products Ltd., Bhopal, . This view is also in consonance with the view of Allahabad High Court in the case mentioned above and of the High Court of Bombay in Allied Publishers Private Limited v. Commissioner of Income Tax 58 Itr 546.

(9) The Division Bench of Delhi High Court consisting of S. K. Kapur and Jagjit Singh JJ. also took the same view in The Commissioner of Income Tax, Delhi Vs. Chairanji Lal, New Delhi, .

(10) In Straw Products Ltd. Vs. Income Tax Officer, Bhopal and Others, which again relates to the same assessed company, the same view was taken.

(11) It is apparent that the words "depreciation actually allowed" mean depreciation of which the assessed had received effective advantage or benefit and not merely depreciation which is notionally allowed or which is allowable.

(12) In the light of the above judgments, the question is answered against the Revenue and in favor of the assessed, but there will be no order as to costs.