Income Tax Appellate Tribunal - Delhi
Miss Sushma Malik vs Income-Tax Officer on 25 August, 1993
Equivalent citations: [1993]47ITD358(DELHI)
ORDER
Vimal Gandhi, Judicial Member
1. This appeal by the assessee for the assessment year 1990-91 is directed against order of DCIT (Appeals) upholding the disallowance of 7/8th of deduction of depreciation claimed on car. Only 1/8th of depreciation was allowed after considering quantum of professional receipts shown and state of professional take off of the assessee.
2. The assessee retired on 31-12-1989 as a Legal Officer from the Ministry of External Affairs, Government of India and thereafter decided to resume legal practice after applying for revival of her licence to practise. The licence was revived on 19-2-1990 by the Bar Council of Delhi.
3. In the period ending 31-3-1990, the assessee showed professional receipts of Rs. 6,000 and claimed depreciation of Rs. 40,622 on the car purchased for professional purposes. The Assessing Officer disallowed 7/8th of the claim with the following observations :-
Since the profession of the assessee is at the initial stage as admitted by her and also the fact that out of the professional receipts of Rs. 6,000, Rs. 3,000 were on retainership basis and the balance professional income is Rs. 3,000 only. Considering the facts of the case, depreciation to the extent of 7/8th depreciation amounting to Rs. 35.544 is disallowed as not relating to the professional purposes.
4. The assessee impugned the above disallowance in appeal before DCIT (Appeals) and reiterated her claim that car was purchased and used for professional purposes and, therefore, entire amount of depreciation was to be allowed. The learned DCIT (Appeals) disagreed and confirmed the disallowance. In his view the claim of depreciation against professional receipt of Rs. 6,000 was a device adopted to avoid the tax. It was a colourable device being resorted to as part of tax planning to avoid payment of tax. These were not to be encouraged. Thus in his view claim of depreciation of Rs. 40,622 against professional receipt of Rs. 6,000 was neither warranted nor justified.
5. The assessee being aggrieved has brought the issue in appeal before the Appellate Tribunal. I have heard the parties and given careful thought to the rival submissions of the parties. I am little surprised over the strong and totally uncalled for observations made by the learned DCIT(A) in holding that the claim of depreciation was a colourable device adopted to avoid payment of tax. Having regard to the scheme of the Act and purpose of Section 32, these observations are totally misconceived. The depreciation is a statutory deduction permissible to every assessee. For a layman perhaps only receipts and expenditure actually disbursed are to be considered for the computation of income and exhaustion or diminution in the value of a capital asset has no role to play. But under every system of accounting normal depreciation is considered as legitimate deduction in determining the true profits. This has been statutorily recognised in Section 32 of the Act. Thus short question which the Assessing Officer and DCIT (Appeals) were required to consider was whether the assessee satisfied the five conditions necessary to entitle the assessee to claim the benefit of depreciation. These conditions are as follows :-
1. Depreciation allowance is confined to capital assets, i.e., building, machinery, plant and machinery;
2. The assessee should have used the capital asset (in the present case motor car) for the purpose of assessee's business in the accounting year;
3. That the capital asset must be owned by the assessee;
4. That the prescribed particulars be furnished by the assessee; and
5. That depreciation allowance should not exceed original cost of capital asset.
There is no dispute that all the aforesaid conditions are satisfied in the present case. The assessee invested more than Rs. 1,20,000 for acquiring the car and admittedly used the same for professional purposes in the period under consideration.
6. The learned authorities below did not accept high claim of depreciation of Rs. 40,622 against professional receipt of Rs. 6,000 only since professional activities of the assessee were at an initial stage. But as noted above, no such condition is stipulated under the Act or the rules, quantum of income earned being totally immaterial for claim of depreciation. The scheme of the Act on the other hand is to encourage investment in machinery and other capital assets including motor car. This is clear from provisions providing not only normal depreciation but also initial and extra depreciation. The Act further has inbuilt structure to carry forward unabsorbed depreciation for a number of years which shows that the Legislature anticipated that profit of several years may not be sufficient to observe the permissible depreciation and, therefore, allowed the same to be carried forward for a number of years. The logic behind these provisions is to encourage investment. It is, therefore, difficult to understand the reasoning of lower authorities in calling purchase of car and claim of depreciation thereon as a device only because of small professional income. The view taken by lower authorities is totally untenable under the law and cannot be sustained. As the assessee has fulfilled all the statutory conditions to claim depreciation, the same has to be allowed. The Assessing Officer is accordingly directed to allow the claim of the assessee.
In the result, assessee's appeal is allowed.