Case Law Details
RELEVANT PARAGRAPHS:
10. In the case of Commr. of Income-tax, Madhya Pradesh, Nagpur and Bhandara v. Nandlal Bhandari Mills Ltd. – (1966) 60 ITR 173, which judgment was in the context of composite income, the question inter alia arose whether depreciation “actually allowed” would mean depreciation deducted in arriving at the taxable income or the depreciation deducted in arriving at the world income (composite income). In that case the assessee was a company incorporated in Indore. It owned and ran a textile mill. Until 1.4.1950, when Income-tax Act, 1922 was extended to Part B States including Madhya Bharat of which Indore became a part, the assessee was assessed at Bombay under the Income-tax Act, 1922 as a non-resident and for some years as resident. The assessee was also assessed in Indore under the Indore Industrial Tax Rules, 1927. For those years in which it was assessed as a non-resident under Income-tax Act, 1922, only that part of its profits attributable to the sale proceeds of goods received in British India were brought to tax. For the assessment years in question, in ascertaining the “written down value” of the building, machinery and plant, under paragraph 2 of the Taxation Laws Order, 1950, only the greater of the two depreciations “actually allowed” in British India and in Indore could be taken into account. The ITO took into account the depreciation allowances for the years up to 1944 as computed under Income-tax Act, 1922 for the purposes of ascertaining the world income of the assessee, and for the years 1945 to 1948, he took into account the income as computed under Indore Industrial Tax Rules 1927; and on that basis the ITO arrived at the “written down value” as on January 1, 1949. The assessee contended, inter alia, that in regard to the years up to 1944 only the proportionate depreciation attributable to the taxable income came within the meaning of the words “actually allowed” in the old section corresponding to Section 43(6)(b) of the 1961 Act. This contention of the assessee was accepted by the majority judgment which held that in fixing the depreciation allowances for the years in which the assessee was assessed as a non-resident under the Income-tax Act, 1922, the ITO had “actually allowed” only a portion of the amount towards depreciation allowable in assessing its world income. It was further held that the mere fact that in the matter of calculation, the total amount of depreciation was first deducted from the world income (composite income) and thereafter a proportion was struck did not amount to an actual allowance of the entire depreciation in ascertaining the taxable income that accrued in British India. Therefore, it was held, that, the depreciation deducted in arriving at the taxable income alone could be taken into account and not the depreciation taken into account for arriving at the world income (composite income).
11. In our view the above judgment of the Supreme Court squarely applies to the present case. Assessee is engaged in the business of growing and manufacturing of tea. As per the provisions of Section 10(1) of the 1961 Act read with Rule 8, 40 per cent of the business income derived from the sale of tea grown and manufactured in India by the assessee was liable to tax. In the above judgment of the Supreme Court, the Court was concerned with the world income, in this case we are concerned with the composite income. Therefore, in our view the judgment of the Supreme Court, above referred to, is squarely applicable to the present case. Therefore, we do not see any infirmity in the impugned judgment of the High Court.
15. According to the assessee, in view of the law laid down by the judgment of this Court in the case of Madeva Upendra Sinai (supra), the “written down value” should be computed at Rs.960 and not at Rs. 900 as claimed by the Department.
16. In our view, in cases where Rule 8 applies, the income which is brought to tax as “business income” is only 40 per cent of the composite income and consequently proportionate depreciation is required to be taken into account because that is the depreciation “actually allowed”. Hence we find no merit in the civil appeals filed by the Department.
