HIGH COURT OF BOMBAY
Mather & Platt (I.) Ltd.
versus
Commissioner of Income-tax, Bombay City – VI
INCOME TAX REFERENCE NO. 110 OF 1995
SEPTEMBER 18, 2012
JUDGMENT
S.J. Vazifdar, J.
This is a Reference under section 256(1) of the Income Tax Act, 1961, arising from the order of the Income Tax Appellate Tribunal in ITA No.5873/Bom/86 and ITA 6060/Bom/86, relating to the assessment year 1983-84. The applicant-assessee and the respondent-Department filed two separate reference applications each. The Tribunal drew up a statement of case seeking the opinion of this Court on the following questions which were at the assessee’s request :
“(i) Whether on the facts and circumstances of the case, the Tribunal was right in holding that the expenses incurred by the employee after reaching the place of destination including stay expenses was to be treated as disallowance u/s 39 read with Rule 60 ?
(ii) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that reimbursement of medical expenses form part of salary/remuneration for computing disallowance u/s. 40(c) ?
(iii) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that for quantifying disallowance u/s 40(c) expenditure incurred by the company towards the personal use of motor cars provided to the Directors was to be considered and not the perquisite value as per rule 3 of the Income Tax Rules ?
(iv) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the rent of Rs.16,91,250/- was to be treated as capital expenditure and that the assessee acquired a capital asset thereby disallowing the entire amount claimed to be revenue expenditure ?
(v) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the depreciation allowable u/s. 32 of the Act, should not be at the rates prescribed by the income-tax Rules, as amended with effect from 2.4.1983 ?
(vi) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the depreciation was not allowable in respect of payment of Rs.16,91,250/- which was treated as capital expenditure for acquiring a capital asset ?”
The Tribunal also sought the opinion of this Court on the following question at the request of the Department :
“Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the disallowance under rule 6-D should be worked out on each employee basis rather than on trip basis ?”
2. It is agreed between the parties that Question Nos.(i) and (ii) are liable to be answered in the negative and in favour of the assessee in view of the judgment of this Court in Commissioner of Income Tax v. Gannon Dunkerly & Co. [1993] 114 CTR (Bom) 56 and Ceat Tyres of India Ltd. v. Commissioner of Income Tax [1994] 121 CRT (Bom) 80, respectively and that Question No. (iii) is liable to be answered in the affirmative in favour of the respondent in view of the judgment of this Court in Commissioner of Income Tax v. British Bank of Middle East [2001] 251 ITR 217. It is also agreed that Question No.(vii), which was referred on the Department’s request, is liable to be answered in the negative in favour of the respondent in view of the judgment of this Court in Commissioner of Income Tax v. Aorow India Ltd. [1998] 229 ITR 325. The Reference in respect of Question Nos.(i), (ii), (iii) and (vii) is answered accordingly.
3. As Question No.(vi) is in the alternative to Question No.(iv), we will first deal with Question No.(v).
Re: Question No.(v):
4. The assessee filed a return of income on 26th June, 1983, declaring a total income of Rs. 2,91,84,530/-. An assessment order was passed under section 143(3). The assessee had, inter-alia, claimed depreciation at a higher rate on the ground that the taxation laws amendment rule applicable from 2nd April, 1983, was applicable to all pending assessments, irrespective of the assessment year. The Assessing Officer held that the CBDT had clarified in a letter dated 13th June, 1983, that it was well settled that in taxing matters, the substantive law applicable is to an assessment year. He held that the Income-tax (Fourth Amendment) Rules, 1983, came into force only on 2nd April, 1983 and would, therefore, have effect for the assessment year 1984-85 and the subsequent years and not for the assessment year 1983-84 or the earlier years. The Commissioner of Income-tax (Appeals) also rejected the assessee’s claim for depreciation at the rates prescribed under the new Income-tax Rules which were effective from 2nd April, 1983, in view of the decision of the Special Bench of the Tribunal.
The Tribunal also, following the earlier decision of a Special Bench of the Tribunal in Rajapalayam Mills Ltd. v. ITO [1986] 18 ITD 114 (SD) upheld the order of the Commissioner of Income-tax (Appeals).
5. Section 32 of the Act, as it stood at the relevant time, provided for depreciation in respect of the items mentioned therein owned wholly or partly by an assessee and used for the purposes of the business or profession at such percentage on the actual cost thereof to the assessee or such percentage on the written down value thereof, as the case may be, and as may be prescribed.
6. The Income-tax (Fourth Amendment) Rules, 1983, came into force on 2nd April, 1983. Rule 2 provided the rates at which depreciation is admissible. The question that falls for consideration is whether the assessee was entitled to claim depreciation for the assessment year 1983-84, on the basis of these amended Rules which came into force on 2nd April, 1983.
7. In Andhra Cements Co. Ltd. v. Commissioner of Income-tax [1998] 232 ITR 364, a Division Bench of the Andhra Pradesh High Court considered a similar case. The relevant assessment year in that case included the assessment year 1983-84. The question that fell for consideration in that case was the same viz. whether the Tribunal was right in holding that the assessee was entitled to depreciation at the higher rates for the assessment year 1983-84 as per the Income-tax (Fourth Amendment) Rules, 1983. The Division Bench answered the question in the negative and in favour of the Department. We are entirely in agreement with the judgment of the Andhra Pradesh High Court and we find it unnecessary to do anything more than to refer to the relevant observations therein. They read as under :
“The main argument of learned counsel for the assessee is, since the rules are substituted, they are deemed to have come into force with effect from April 1, 1983, though the Fourth (Amendment) Rules were brought into force on April 2, 1983 ; therefore, the Tribunal is right in holding that the assessee is entitled for higher rate of depreciation for the assessment year 1983-84.
The contention of learned counsel for the assessee cannot be accepted as it is a well-settled principle of law, as held by the Supreme Court in Karimtharuvi Tea Estate Ltd. v. State of Kerala [1966] 60 ITR 262 that (headnote):
“It is well settled that the Income-tax Act as it stands amended on the first day of April on any financial year must apply to the assessment of that year. Any amendments in the Act which come into force after the first day of April of a financial year, would not apply to the assessment for that year, even if the assessment is actually made after the amendments come into force.”
Therefore, whatever is the rate of tax as on April 1, of the financial year 1983-84 is applicable to the assessment year 1983-84 though the assessment is made subsequent to the amendment. Since the higher rates of depreciation have been brought into force on April 2, 1983, they cannot be made applicable to the assessee for the assessment year 1983-84.
Construing the Income-tax (Fourth Amendment) Rules, 1983, the Calcutta High Court also expressed a similar view in S.P. Jaiswal Estates Pvt. Ltd. v. CIT [1994] 209 ITR 307 where it was held (headnote) :
“The Income-tax (Fourth Amendment) Rules, 1983, by which the higher rate of depreciation was laid down came into effect on April 2, 1983. Rates of depreciation are matters of substantive law. The new rates were intended to apply only from the assessment year 1984-85 since these were not in force on April 1, 1983, on which the assessment year 1983-84 began.””
Question 5 is, therefore, answered in the affirmative – in favour of the Department and against the assessee.
Re: Question Nos.4 and 6 :
8. These questions require the interpretation of the agreements relied upon by the assessee. It is necessary, therefore, to set out the facts in some detail.
A lease deed was executed between the assessee (therein called the lessees) and one Prataprai N. Kothari (therein and hereinafter called the lessor) under which the lessor leased a factory shed to the assessee on the terms and conditions mentioned therein, for a term of thirty years, commencing from 1s March, 1982, at a rent of Rs. 28,500/- payable half-yearly. The first payment of rent was to be made on 25th March, 1982 and subsequent payments were to be made on or before the 10th day of January and July each year. Clauses 4(a), 4(d), 5(b) and (c) of the deed read as under :
“4. Provided always and it is hereby agreed by and between the Lessor and the Lessees.
(a) That the Lessees shall at all times during the said term be at full liberty to transfer, assign, underlet or to give on leave and licence basis on such terms and conditions as the Lessees may in their absolute descretion deed fit and demised premises or any part thereof at such rent and/or charges, fee or compensation and subject to such terms and conditions as the Lessees may in their absolute descretion deem fit. It is however agreed that such underletting or giving on leave and licence basis will not be a period exceeding the period of the lease hereby fixed.
