Madras High Court
Peirce Leslie & Co. vs Commissioner Of Income Tax on 14 February, 1995
Equivalent citations: [1995]216ITR176(MAD)
JUDGMENT Mishra, J.
1. Although in the statement of the case three questions of law are indicated, it appears and it is conceded at the Bar that the third question, "Whether, on the facts and in the circumstances of the case, the Tribunal ought not to have held that the deduction under s. 80G was allowable in respect of donation in kind amounting to Rs. 9,366" does not arise and it is a mistake that the same has been included in the statement of the case as a question for a decision by this Court.
2. The first question, "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the reopening of the assessment under s. 147(b) of the IT Act was valid", has to be answered strictly in the light of the judgment of the Supreme Court in the case of Indian & Eastern Newspaper Society vs. CIT . We have in Tax Case No. 79 of 1982, order dt. 31st Jan., [reported as M. A. Chidambaram vs. CIT ] note :
".... it is conceded at the Bar that the audit report which only will point out a mistake in law, since the auditors are not interpreters of law, their interpretation will not be furnishing the necessary information. In case, however, any omission in respect of any income is pointed out, whether it comes through the audit report or otherwise, it is obvious, the same shall furnish necessary information to satisfy the requirements of the reopening of assessment under s. 147(b) of the IT Act."
We do not have necessary materials on the record to know whether the audit report which has furnished the basis for the reopening of the assessment mentions any omission in respect of any income in the return of the assessee or otherwise discloses some factual information that fulfilled the requirement of s. 147(b) of the IT Act, 1961 (hereinafter referred to as "the Act"). It is obvious, the Tribunal, in the light of the above judgments, is required to rehear the matter and decide afresh in accordance with law, whether reassessment proceedings have been validly initiated.
3. Before we deal with the second question, "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was not entitled to substitute the fair market value as on 1st Jan., 1954, in respect of the assets on which depreciation has been allowed under the provisions of the IT Act in the computation of the capital gains on the sale of those assets ?" we may notice that the assessee is a company incorporated in the United Kingdom. The assessment for the year ended 30th Nov., 1970, relevant to the asst. yr. 1971-72, was completed by the ITO by his order dt. 24th Feb., 1972. The assessee filed an appeal to the AAC, mainly in respect of the computation, made by the ITO under capital gains. The AAC, however, did not accept the case of the assessee. The assessee filed an appeal to the Tribunal which was disposed of on 30th Oct., 1975. The ITO, however, reopened the assessment under s. 147(b) of the Act r/w s. 143(3) thereof vide his order dt. 23rd Nov., 1976. In his revised assessment order, the ITO among other things recomputed the capital gains holding that the assessee was not entitled to substitution of the market value as on 1st Jan., 1954. The AAC confirmed the order of the ITO. The Tribunal on the question of computation and substitution of the market value as on 1st Jan., 1954, in respect of the depreciable assets has found against the assessee in these words :
"The further question in the two years is whether in the computation of capital gains in respect of depreciable assets the assessee was entitled to take the fair market value of such asset as on 1st Jan., 1954. Sec. 50(1) provides for special provision for computing the cost of acquisition in the case of depreciable assets wherein only the written down value as defined should be taken as cost of acquisition of the assets. When there is a specific provision in the case of sale of depreciable assets the written down value alone can be taken. This view of the ITO and the AAC are supported by the decisions of the Gujarat High Court in the case of Rajnagar Vaktapur Ginning, Pressing & Manufacturing Co. Ltd. vs. CIT (1975) 99 ITR 264 (Guj) and in the Allahabad High Court the case of CIT vs. Upper Doab Sugar Mills . In the face of such decisions and the clear provisions of s. 50(1) of the IT Act, the ITO has properly computed the capital gains and hence such computation will have to be confirmed."
Besides the two judgments, that is, in the case of Rajnagar Vaktapur Ginning, Pressing and Manufacturing Co. Ltd. vs. CIT (1975) 99 ITR 264 (Guj) and in the case of CIT vs. Upper Daob Sugar Mills of the Gujarat High Court and the Allahabad High Court respectively, we have the advantage of perusing the judgments of the other High Courts including two Full Bench judgments, of the Kerala High Court in CIT vs. Commonwealth Trust Ltd. (FB) and the Bombay High Court in Goculdas Dossa & Co. vs. J. P. Shah (1995) 211 ITR 706 (Bom), and the opportunity to hear learned counsel for the assessee as well as learned counsel for the Revenue at length. We have been sufficiently induced by very learned arguments at the Bar to deliver ourselves information on the question which has received considerable attention and the Bombay High Court has chosen to call the decisions rendered by the Allahabad, Gujarat, Kerala and Calcutta High Courts, "wrong".
4. Income-tax on any profits or gains arising from the transfer of a capital asset is chargeable as the income of the previous year in which the transfer took place under the head of capital gains as envisaged under s. 45 of the Act. Exception to this is carved out by the provision under s. 47. Sec. 48 of the Act provides the mode of computation and deductions by deducting from the full value of the consideration received or occurring as a result of the transfer of the capital asset (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of the capital asset and the cost of any improvement thereto. Sec. 49 of the Act says that the cost of acquisition of the asset shall be taken to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner of the assessee, as the case may be,
(i) on any distribution of assets on the total or partial partition of an HUF;
(ii) under a gift or will;
(iii)(a) by succession, inheritance or devolution, or
(b) on any distribution of assets on the dissolution of a firm, BOI, or other AOP, or
(c) on any distribution of assets on the liquidation of a company, or
(d) under a transfer to a revocable or an irrevocable trust, or
(e) under any such transfer as is referred to in cl. (iv) or cl. (v) or cl. (vi) of s. 47;
(iv) such assessee being an HUF, by the mode referred to in sub-s.
(2) of s. 64 at any time after the 31st day of December, 1969.
A special provision for computing the cost of acquisition in the case of depreciable assets besides what is contemplated under s. 49 is introduced under s. 50 of the Act in these words :
"Where the capital asset is an asset in respect of which a deduction on account of depreciation has been obtained by the assessee in any previous year either under this Act or under the Indian IT Act, 1922 (11 of 1922), or any Act repealed by that Act or under executive orders issued when the Indian IT Act, 1886 (2 of 1886), was in force, the provisions of ss. 48 and 49 shall be subject to the following modifications :
(1) The written down value, as defined in cl. (6) of s. 43, of the asset, as adjusted, shall be taken as the cost of acquisition of the asset.
(2) Where under any provision of s. 49 r/w sub-s. (2) of s. 55, the fair market value of the asset on the 1st day of January, 1954, is to be taken into account at the option of the assessee, then, the cost of acquisition of the asset shall, at the option of the assessee, be the fair market value of the asset on the said date, as reduced by the amount of depreciation, if any, allowed to the assessee after the said date, and as adjusted."
This special provision is made for computing the cost of acquisition in the case of depreciable assets where the capital asset is an asset in respect of which a deduction on account of depreciation has been obtained by the assessee in the previous year. The mode of computation and deductions as under s. 48 and the cost of acquisition as contemplated under s. 49 are varied in such a case by accepting the written down value as defined in cl. (6) of s. 43 of the asset, as adjusted."Written down value" as defined in cl. (6) of s. 43 means, -
"(a) in the case of assets acquired in the previous year, the actual cost to the assessee;
(b) in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Act, or under the Indian IT Act, 1922 (11 of 1922), or any Act repealed by that Act, or under any executive orders issued when the Indian IT Act, 1886 (2 of 1886), was in force :
Provided that in determining the written down value in respect of buildings, machinery or plant for the purposes of cl. (ii) of sub-s. (1) of s. 32, 'depreciation actually allowed' shall not include depreciation allowed under sub-cls. (a), (b) and (c) of cl. (vi) of sub-s. (2) of s. 10 of the Indian IT Act, 1922 (11 of 1922), where such depreciation was not deductible in determining the written down value for the purposes of the said cl. (vi).
Explanation 1. - When in a case of succession in business or profession, an assessment is made on the successor under sub-s. (2) of s. 170 the written down value of any asset shall be the amount which would have been taken as its written down value if the assessment had been made directly on the person succeeded to.
Explanation 2. - When any capital asset is transferred by a holding company to its subsidiary company or by a subsidiary company to its holding company, then, if the conditions of cl. (iv), or, as the case may be, of cl. (v) of s. 47, are satisfied, the written down value of the transferred capital asset to the transferee company shall be taken to be the same as it would have been if the transferor company had continued to hold the capital asset for the purposes of its business.
Explanation 2A. - Where, in a scheme of amalgamation, any capital asset is transferred by the amalgamating company to the amalgamated company, and the amalgamated company is an Indian company, the written down value of the transferred capital asset to the amalgamated company shall be taken to be the same as it would have been if the amalgamating company had continued to hold the capital asset for the purposes of its business.
Explanation 3. - Any allowance in respect of any deprecation carried forward under sub-s. (2) of s. 32 shall be deemed to be depreciation 'actually allowed'."
Sec. 55 of the Act provides for the purposes of ss. 48 , 49 and 50, the meaning of the words "adjusted", "cost of improvement" and "cost of acquisition". The word "adjusted" is defined, (a) in relation to written down value or fair market value to mean diminished by any loss deducted or increased by any profits assessed, under the provisions of cl. (iii) of sub-s. (1), or cl. (ii) of sub-s. (1A) of s. 32 or sub-s. (2) or sub-s. (2A) of s. 41, as the case may be, the computation for this purpose being made with reference to the period commencing from the 1st day of January, 1954, in cases to which cl. (2) of s. 50 applies; "Cost of acquisition" is defined, for the purposes of ss. 48 and 49, in relation to a capital asset, -
(i) where the capital asset became the property of the assessee before the 1st day of January, 1954, means the cost of acquisition of the asset to the assessee or the fair market value of the asset on the 1st day of January, 1954, at the option of the assessee;
(ii) where the capital asset became the property of the assessee by any of the modes specified in sub-s. (1) of s. 49, and the capital asset became the property of the previous owner before the 1st day of January, 1954, means the cost of the capital asset to the previous owner of the fair market value of the asset on the 1st Jan., 1954, at the option of the assessee;
(iii) where the capital asset became the property of the assessee on the distribution of the capital assets of a company on its liquidation and the assessee has been assessed to income-tax under the head 'Capital gains' in respect of that asset under s. 46, means the fair market value of the asset on the date of distribution;
(iv) omitted;
(v) where the capital asset, being a share or a stock of a company, became the property of the assessee on, -
(a) the consolidation and division of all or any of the share capital of the company into shares of larger amount than its existing shares,
(b) the conversion of any shares of the company into stock.,
(c) the re-conversion of any stock of the company into shares,
(d) the sub-division of any of the shares of the company into shares of smaller amount, or
(e) the conversion of one kind of shares of the company into another kind, means the cost of acquisition of the asset calculated with reference to the cost of acquisition of the shares or stock from which such asset is derived.
5. Sec. 50 of the Act modified the provisions of ss. 48 and 49 of the Act and says that the written down value, as above [as defined in cl. (6) of s. 43] of the asset, as adjusted, shall be taken as the cost of acquisition of the asset where the capital asset is an asset in respect of which a deduction on account of depreciation has been obtained by the assessee in any previous year. Thus, while computing the capital gains when occasion to deduct from the value of the consideration received or accruing as a result of the transfer of the capital asset arises, the cost of the acquisition of the depreciable asset is the written down value as defined in cl. (6) of s. 43 as adjusted, that is diminished by any loss deducted or increased by any profits assessed under the provisions of cl. (iii) of sub-s. (1) or cl. (ii) of sub-s. (1A) of s. 32 or sub-s. (2) or sub-s. (2A) of s. 41,. of the Act. In the case of cl. (2) of s. 50, that is, where under any provision of s. 49, the fair market value of the asset on the 1st day of January, 1954, is to be taken into account at the option of the assessee, then, the computation for the purpose is required to be made with reference to the period commencing from the 1st day of January, 1954. The definition given to the word "adjusted" read with the definition given to the word "cost of acquisition" makes it clear that where the fair market value of the asset is to be taken into account at the option of the assessee, then, the cost of acquisition of the asset shall, at the option of the assessee, be the fair market value of the asset on the 1st day of January, 1954. In the case, however, of the written down value being taken as the cost of acquisition of the asset, the adjustment is permissible as contemplated under the provisions of cl. (iii) of sub-s. (1) or cl. (ii) of sub-s. (1A) of s. 32 or sub-s. (2) or sub-s. (2A) of s. 41, as the case may be.
It is also relevant to note that instead of the written down value, the fair market value of the asset can be taken into account at the option of the assessee under any provision of s. 49 of the Act r/w sub-s. (2) of s. 55, i.e., as the cost of acquisition as defined under s. 55(2) [50(2) ?] of the Act.
6. From amongst the judgments of the Courts which have taken the view that in the case of computation of the cost of acquisition in the case of depreciable assets, the written down value alone can be taken for assessment as under s. 50(1) of the Act, we propose to take up the Full Bench judgment of the Kerala High Court in Commonwealth Trust Ltd.'s case (supra). After quoting s. 50 of the Act, the Kerala High Court has observed :
"It may be seen from a reading of this provision that this section is of application to a case where a capital asset is an asset in respect of which deduction on account of depreciation has been obtained by the assessee in any previous year. In the case before us, the assessee had obtained a deduction on account of depreciation in the previous years. In that event s. 50 provides that the provisions of ss. 48 and 49 shall be subject to the modifications indicated in cls. (1) and (2). Sec. 49 having no application here and only s. 48 having application, that alone has to be read subject to cl. (1). Clause (2) applies to a case to which s. 49 applies.... Hence, though s. 55(2) gives an option to an assessee to choose one of the two values as the cost of acquisition for the purpose of s. 48 in a case to which s. 50 applies, s. 48 had to be read subject to the modification and, consequently, the option would not be available. The cost of acquisition would have to be taken in such a case as the written down value as defined in cl. (6) of s. 43."
The Kerala High Court has further observed :
"We are not impressed with the contention of the learned counsel for the assessee that since the definition of 'cost of acquisition' in s. 55(2) will apply for the purpose of s. 48 and this is a case to which s. 48 would so apply, s. 55(2) must govern despite s. 50 of the Act. That would be to render s. 50 inoperative. We do not see why we should resort to such a construction. While the option contemplated under s. 55(2) of the Act will be available in every case where capital gains is determined in accordance with s. 48, that would not be the case where what is applicable is not s. 48 as such but s. 48 as modified by s. 50. The special provision must necessarily operate in such a case so as to render the option under s. 55(2) unavailable and also to equate the cost of acquisition in such a case with the written down value as defined in cl. (6) of s. 43."
The Bombay High Court, has, however, in Goculdas Dossa & Co. (supra) quoted in full s. 50 and s. 55 of the Act and stated :
"Sec. 50 contains special provision for computing the cost of acquisition in the case of depreciable assets. It stipulates that where depreciation has been obtained in the case of a capital asset, the provisions of ss. 48 and 49 stand modified. Clause (1) of s. 50 states that the written down value defined in s. 43(6) and 'as adjusted' [defined in s. 55(1)(a)], will have to be taken into account as the cost of acquisition of the transferred asset. The above modification applies to both ss. 48 and 49. Hence, the written down value of a depreciable capital asset shall be taken as the cost of acquisition under s. 48 and also under s. 48 r/w s. 49, as the case may be. This sub-section applies to (i) s. 48 in respect of a depreciable asset acquired before 1st Jan, 1964, and where the option of substituting the market price as on the date is not in fact exercised though available, and (ii) s. 49 where the asset became the property of the previous owner before that date and the option is not exercised. In the latter case, the written down value as adjusted will be the cost of acquisition and not the cost of acquisition of the previous owner. Clause (2) of s. 50 provides that where under any provision of s. 49 r/w sub-s. (2) of s. 55, the fair market value as on that date is taken into account at the option of the assessee, the cost of acquisition shall be the said value, as reduced by the depreciation allowed to the assessee after the said date and as adjusted. Words to be noted in cl. (2) are 'the fair market value as on the said date is to be taken into account at the option of the assessee'. It is obvious that cl. (2) will apply only after the option is already exercised and that the said sub-section is not the source of option. Examination of the scheme of capital gains as a whole will indicate that the only source of such option is s. 55 and this is indicated unmistakably in the very first part of s. 50(2). Thus, it will be seen that s. 50 though a special provision is not a complete code unto itself for computing capital gains and in no way affects an assessee's option given under s. 55(2).
Sub-s. (1) of s. 55 is a definition provision and does not contain any substantive provision. However, sub-s. (2) of s. 55 is a substantive provision of granting option. Sub-s. (2) sets out the meaning of cost of acquisition in relation to all varieties of capital assets depreciable or non-depreciable. This provision is for the purposes of ss. 48 and 49 because ultimately the computation of capital gains has to be as per s. 48. For example, deductibility of the cost of transfer is only under s. 48. Sec. 50 does not contain exhaustive provisions for the computation of capital gains. Sub-s. (2) only deals with capital assets which became the property of the assessee or the previous owner before 1st Jan., 1964, and grants the option to the assessee either to have the actual cost of acquisition of the asset or the fair market value of the asset on the said date as the cost of acquisition. Thus, it contains a general right in the matter of option irrespective of the type of asset which is transferred. We notice nothing in s. 50(1) r/w s. 48(ii) which would confine the wide scope of s. 55(2)(i) to the case of a non-depreciable asset where the assessee has acquired it by purchase. Therefore, in our view, the provisions of s. 55(1) being applicable to ss. 48, 49, 50 and 55(2) being the only source of the option, it is clear that where the depreciable asset became the property of the assessee either by purchase or under the modes specified in s. 49, the assessee has the option".' Proceeding further, the Bombay High Court has commented on s. 50(1) thus :
"It, on one hand, provides that where an assessee has been allowed depreciation he does not claim as its cost the actual amount spent on acquiring the asset even though he has obtained depreciation in respect thereof; and, on the other hand, it enjoins that not only the written down value as computed under s. 43(6) but as adjusted in the manner provided in s. 55(1)(a) is to be taken as the cost as against the actual cost. Thus, the actual written down value is increased by the depreciation which is brought to charge under s. 41(2). This is so because as such excess allowance of depreciation has been subjected to tax, the cost of the asset cannot be pegged at the original written down value as defined under s. 43(6), but must be increased to the extent that the assessee has paid tax on the depreciation which is withdrawn under s. 41(2). It will not be out of place to mention that s. 55(1)(a) also provides for reducing the written down value by balancing allowance under s. 32(1)(iii) where the sale price realised is less than the written down value as defined by s. 43(6) an aspect which does not call for attention and detailed analysis in this case. It has to be borne in mind that the function of s. 41(2) is to take back depreciation which is shown by subsequent events to have been wrongly allowed...."
Commenting upon s. 55(2) of the Act, the Bombay High Court has said :
"The object of the option given in s. 55(2) is to afford some protection to the assessee against assessment of illusory capital gain which is not in economical sense but is a result of inflation and decline in the rupee value. This is apparent from the fact that the initial date 1st Jan., 1954, which was taken from the old Indian IT Act, 1922, has been forwarded periodically. As inflation had been on the rise the date was changed to 1st Jan., 1964, with effect from the asst. yr. 1978-79 by the Finance (No. 2) Act, 1977, and 1st April, 1974, with effect from the asst. yr. 1987-88 by the Finance Act, 1986. At present the said date has not only been advanced to April, 1981, but even indexation is provided with a view to safeguarding against the illusory assessment of capital gains."
The Bombay High Court has said further :
"Keeping in mind the purpose behind conferment of option, we are unable to locate any justifiable reason for not making available the option to an assessee who has purchased a depreciable asset and after using the same, sold it. There is nothing in s. 50(2) which leads to a contrary conclusion though there is no escape from the conclusion that language employed is somewhat clumsy."
Treating s. 50(2) separately, the Bombay High Court has said :
"Sec. 50(2) deals with the case of an assessee who has acquired an asset otherwise than by purchase and in one of the modes specified in s. 49 such as gift.... The fact that specific reference is made in s. 50(2) to taking the cost of acquisition of the asset as the fair market value on 1st Jan., 1964, cannot possibly lead to the conclusion that in the case of an assessee who has acquired the asset by purchase, the option conferred by s. 55(2)(ii) of taking the fair market value on 1st Jan., 1964, as the cost of acquisition is taken away. It is significant to notice that s. 50 enacts that only the provisions of ss. 48 and 49 are subjected to the modifications contained in s. 50. The option substitution, as discussed earlier, is conferred by s. 55(2) which is not made subject to s. 50 and, thus, where the option is exercised, the capital gains have to be computed as per provisions of s. 48."
The Bombay High Court has also said :
"As discussed earlier, the object of s. 50(2) seems to be to provide for deduction of the fair market value on 1st Jan., 1964, by the amount of depreciation allowed to the donee-assessee after 1st Jan., 1964, because as per s. 55(1)(a), the fair market value has to be adjusted by the amount assessed under s. 41(2) with reference to the period commencing from 1st Jan., 1964. Thus, a reduction is made under s. 50(2) and nullified subsequently by the adjustment prescribed under s. 55(1)(a)."
7. We have no manner of doubt that both the Kerala High Court and the Bombay High Court have the same perception and have read s. 50(1) as well as s. 50(2) of the Act in almost the same manner. Both the Courts have clearly pronounced that s. 50(2) is attracted only when the capital asset is acquired by one of the modes as indicated in s. 49 of the Act. They are clear thus that special provision for computing the cost of acquisition in the case of depreciable assets in case the assessee has the option and he has exercised the option and the acquisition is under one or the other provisions of s. 49 of the Act, the fair market value of the asset on the prescribed date as reduced by the amount of depreciation, if any, allowed to the assessee after the said date, and as adjusted in accordance with s. 55(1)(a) shall be taken to be the cost of acquisition.
The Kerala High Court, however, in Commonwealth Trust Ltd.'s case (supra) has also said :
"We have particularly to notice that the 'cost of acquisition' as defined in s. 55(2) is 'for the purposes of ss. 48 and 49' only. As the IT Act stood during the relevant assessment year in place of the date 1st Jan., 1964, the date was 1st Jan., 1954, and for the purposes of the case here that is the date which is relevant. It is evident that in a case falling within ss. 48 and 49, the assessee had an option to adopt either the fair market value of the asset as on 1st Jan., 1954, or the cost of acquisition of the asset to the assessee. If it was more advantageous to him to adopt the value as on 1st Jan., 1954, he was free to do so. It is this option that is sought to be exercised by the assessee in this case. We have already indicated that the definition of 'cost of acquisition' in s. 55(2) which enables an assessee to exercise the option is for the purpose of ss. 48 and 49 only. To these sections we have adverted and we have pointed out that s. 49 has no application here. Now, we may have to advert to s. 50 of the Act which is a special provision concerning the determination of capital gains in regard to depreciable assets....."
The difference, it seems expanded on account of the Kerala High Court's view :
"Hence, though s. 55(2) gives an option to an assessee to choose one of the two values as the cost of acquisition for the purpose of s. 48, in a case to which s. 50 applies, s. 48 had to be read subject to the modification and, consequently, the option would not be available."
The Bombay High Court's observation in Goculdas Dossa & Co.'s case (supra) :
"..... sub-s. (2) of s. 55 is a substantive provision of granting option. Sub-s. (2) sets out the meaning of cost of acquisition in relation to all varieties of capital assets - depreciable or non-depreciable. This provision is for the purposes of ss. 48 and 49 because ultimately the computation of capital gains has to be as per s. 48. For example, deductibility of the cost of transfer is only under s. 48. Sec. 50 does not contain exhaustive provisions for the computation of capital gains. Sub-s. (2) only deals with capital assets which became the property of the assessee or the previous owner before 1st Jan., 1964, and grants the option to the assessee either to have the actual cost of acquisition of the asset or the fair market value of the asset on the said date as the cost of acquisition. Thus, it contains a general right in the matter of option irrespective of the type of asset which is transferred. We notice nothing in s.50(1) r/w s. 48(ii) which would confine the wide scope of s. 55(2)(ii) to the case of a non-depreciable asset where the assessee has acquired it by purchase. Therefore, in our view, the provisions of s. 55(1) being applicable to ss. 48 and 49, 50 and 55(2) being the only source of the option, it is clear that where the depreciable asset became the property of the assessee either by purchase or under the modes specified in s. 49, the assessee has the option."
do not in any manner suggest that in cases which are covered by s. 50 of the Act and not s. 50(2), s. 50(1) is attracted and the mode of acquisition is not one as specified under s. 49 of the Act. The assessee shall have the option to ask for the deduction of the cost of acquisition of the capital asset by claiming the fair market value and not the written down value as defined in cl. (6) of s. 43 of the Act when the capital asset is an asset in respect of which a deduction on account of depreciation has been obtained by him in any previous year.
8. The Bombay High Court is categoric in holding that s. 50(1) only aims at preventing the grant of double deduction. Sec. 50 makes ss. 48 and 49 subject to the modifications in s. 50, but does not make the option under s. 55(2) subject to s. 50. In a case where the assessee has already availed of a deduction on account of depreciation in any previous year, s. 48 is modified and he cannot ask for the deduction of the cost of acquisition of the capital asset in any manner other than the one envisaged under s. 50 of the Act. Such adjustments as are permissible upon the written down value as defined in cl. (6) of s. 43 in terms of s. 55(1) shall be granted to him and in no other manner except in cases falling under s. 49 where his option is not affected by the special provision. We do not feel there is any reason to accept a generalisation of the rule under which in the name of exercising the option under s. 55(2) of the Act, the assessee, who has already claimed the benefit of depreciation and whose case thus falls under s. 50 of the Act, should have the liberty to claim deduction under s. 48 on the basis of the fair market value of the asset on the prescribed date.
This is not, as the Bombay High Court has felt, reading the option given in s. 55(2) subject to s. 50 but is reading s. 50 as a provision modifying s. 48 and thus, bringing the case of such an assessee in the group of exceptions to which s. 50(1) is applied and not s. 50(2) unless the acquisition is covered by s. 49 of the Act.
9. We have felt that there is some sort of excess by the Bombay High Court in calling the judgments of the Gujarat, Allahabad, Kerala and Calcutta High Courts grossly erroneous. In CIT vs. Balkrishna Malhotra , the Supreme Court has pointed out that : "interpretation of a provision in a taxing statute rendered years back and accepted and acted upon by the Department should not be easily departed from. It may be that another view of the law is possible but law is not a mere mental exercise. The Courts while reconsidering decisions rendered a long time back particularly under taxing statutes cannot ignore the harm that is likely to happen by unsettling law that had been once settled."
10. The doctrine stare decisis is one of policy grounded on theory that security and certainty require that accepted and established legal principle, under which rights may accrue, be recognised and followed, though later found to be not legally sound, but whether a previous holding of the Court shall be adhered to, modified, or overruled is within the Court's discretion under the circumstances of case before it. We have for the said reason cause to consider whether to adhere to the long line of decisions of the Courts and follow a stare decisis et non quieta movere. We have accepted gracefully the solemn pronouncement of a Division Bench of this Court in this behalf in the case of Sundaram Industries Ltd. vs. CIT (1986) 159 ITR 646 (Mad) that : "It is now an accepted principle in the matter of construction of an Indian statute that as far as possible, there must be uniformity of construction and if the provisions of law which fall for consideration before the Court have already been construed by another High Court or High Courts, unless there are compelling reasons to depart from that view, normally that construction should be accepted."
11. We have, however, found that material facts are not available and it is not possible thus to see how in the case of the assessee, the provision under s. 50 of the Act is attracted and that he cannot be granted the option as claimed by him. For the reasons of the principle of law that we have noticed, we have indicated the law to be applied to the facts of the case, but since the facts are not available, we have no option but to remit the case to the Tribunal for a fresh hearing and decision in accordance with law. The case is accordingly remitted to the Tribunal for a fresh hearing and disposal in accordance with law. No costs.