Income Tax Appellate Tribunal - Madras
Rajapalayam Mills Ltd. vs Income-Tax Officer on 18 April, 1986
Equivalent citations: [1986]18ITD114(MAD)
ORDER
T.R. Thiruvengadam, Accountant Member
1. These appeals have been posted before this Bench for considering the following question :
Whether depreciation as per Income-tax (Fourth Amendment) Rules, 1983 is to be allowed in all cases which were pending on 2-4-1983 irrespective of the assessment year involved or is to be allowed only in 1984-85 and subsequent assessment years [in view of the divergent views of the Tribunal Benches in the case of Rayalaseema Passenger & Goods Transports (P.) Ltd. v. I AC [1984] 7 ITD 111 and ITO v. Bharat Roadways [1985] 12 ITD 647 (Cal.)].
2. Originally the reference to the Special Bench was made in the case of Rajapalayam Mills Ltd., Rajapalayam in IT Appeal No. 547 (Mad.) of 1985 in which Shri S. Swaminathan, the learned counsel for Sri Rani Lakshmi Gng., Spg. & Wvg. Mills (P.) Ltd., Madurai entered appearance as an intervener. In the course of the hearing the appeal in IT Appeal No. 566 (Mad.) of 1985 in the case of Sri Rani Lakshmi Gng., Spg. & Wvg. Mills (P.) Ltd. was also taken up for hearing. In both appeals the only question is the same, that is the question set out in the first paragraph.
3. The question involves only the quantum of depreciation to be allowed to these two assessees for the respective assessment years under appeal. The assessment year in both cases is the same, namely 1981-82.
4. In the case of Rajapalayam Mills Ltd., the original claim for depreciation was in a sum of Rs. 29,40,062. This together with a claim for additional depreciation amounted to a total of Rs. 29,56,253. The ITO allowed as depreciation and additional depreciation of Rs. 25,05,430. In addition, he allowed Rs. 25,638 as depreciation and additional depreciation on lathe capitalised. He disallowed Rs. 4,25,185 as excess depreciation claimed.
5. Two variations were made on appeal in this computation of depreciation by the ITO. The first was in determining the written down value by reference to the subsidy from SIPCOT while the ITO took the subsidy into account for reducing the written down value of the assets, the Commissioner (Appeals) directed him to work out the written down value without reducing the cost by the subsidy. The other point was the extra shift depreciation allowance which was computed by the ITO by taking into account the actual period during which each item of machinery worked extra shift. The Commissioner (Appeals) directed him to work out the extra shift allowance on the basis of the number of days for which the concern, as a whole, worked extra shift. Both resulted in enhancement of the depreciation allowable to the assessee. We are not concerned in this appeal with these two points.
6. Before the Commissioner (Appeals), the assessee Rajapalayam Mills Ltd. raised the question referred to this Bench by way of an additional ground. It seemed to have been raised orally. The Commissioner (Appeals) admitted this ground but rejected it for the reasons stated by him in the last paragraph of his order and the Annexure. He considered four possible interpretations including the interpretation placed on a similar position resulting from the Income-tax (Fifth Amendment) Rules, 1980, by the Tribunal, Madras Bench 'C in the case of Rayalaseema Passenger & Goods Transports (P.) Ltd. v. I AC [1984] 7 ITD 111. He rejected three of them and held that this amended rule would apply only for the assessment years commencing after 2-4-1983, the date on which the amended rule was to take effect.
7. The order of the Commissioner (Appeals) does not mention the quantum of the claim of the depreciation claimed by the assessee, Rajapalayam Mills Ltd. on its interpretation of the Income-tax (Fourth Amendment) Rules, 1983. The claim was not presented in a quantified sum before him, the assessee making the claim on the basis of the table of depreciation rates as laid down by the Income-tax (Fourth Amendment) Rules and leaving the working to be made at these rates. In the course of the hearing before us, the claim has been quantified and presented to us. According to this working, as against the original claim allowed by the Commissioner (Appeals) in the sum of Rs. 29,40,062, the revised claim is in a sum of Rs. 43,98,102. The variation is due to the higher rates in the Income-tax (Fourth Amendment) Rules. The department has not verified this working.
8. In the case of Sri Rani Lakshmi Gng., Spg. & Wvg. Mills (P.) Ltd. also the original claim was not on the basis of the Income-tax (Fourth Amendment) Rules, but at the rates of depreciation prescribed earlier. The claim on the revised rates was raised by way of an additional ground before the Commissioner (Appeals) which was admitted by him. The assessee claimed depreciation on buildings at the rate of 10 per cent as against 2.5 per cent [as stated by the Commissioner (Appeals)] and at the rate of 15 per cent on general plant and machinery as against 10 percent earlier. The Commissioner (Appeals) has rejected this claim for the same reasons he gave in the case of Rajapalayam Mills Ltd.
9. Shri K.R. Ramamani appearing for Rajapalayam Mills Ltd. made these submissions. The Income-tax (Fourth Amendment) Rules was by a Notification No. SO 151(E), dated 28-2-1983. (This is published in [1983] 141 ITR (St.) 61.) The rule specifically lays down that it comes into effect from 2-4-1983. Under Section 295(4) of the Income-tax Act, 1961 a retrospective operation of a rule is possible. The rule together with the Appendix specifying the rates of depreciation gives a formula for calculating the depreciation. Depreciation itself is allowed Under Section 32 of the Income-tax Act. The rules nearly quantify the depreciation which is granted to an assessee as an allowance Under Section 32. Under this Section the assessee is entitled to depreciation. The specification of the rates at which depreciation is to be allowed can only be considered procedural. Therefore, the rule as amended should apply to all assessments made after the date on which it came into effect.
10. Shri Ramamani drew support for this proposition from the order of the Special Bench of the Tribunal in the case of Biju Patnaik v. WTO [1983] 3 ITD 693 (Delhi). That was with reference to Rule IBB of the Wealth-tax Rules, 1957, which laid down the manner in which the value of a residential property is to be computed. The Tribunal held that this rule should be applied to all assessments that come up to be made after the rule came into force. Shri Ramamani has pointed out that Rule IBB determines the value of immovable property. The determination of the value of the property had a definite bearing on the quantum of the tax payable. In spite of this substantial impingement on the charge to wealth-tax, Rule IBB has been held to be only procedural and, therefore, would have a bearing on the assessments to be made after the rule came into force, even though such assessments related to assessment years before the rule came into force. Drawing a parallel, it is submitted that, similarly, even though the quantum of the allowance of depreciation would have a substantial effect on the quantification of the total income, the rule regarding the allowance of depreciation should be considered only procedural and should, therefore, be applied to all assessments made after the amendment came into force, irrespective of the assessment years to which they relate.
11. Shri Ramamani has pointed out that the conclusion of the Tribunal in Biju Patnaik's case (supra) has been approved by the Karnataka High Court in the case of CWT v. Vidyavathi Kapur [1984] 150 ITR 319 and by the Gujarat High Court in the case of CWT v. Kasturbhai Mayabhai [1986] 24 Taxman 427.
12. Shri Ramamani drew our attention also to the decision of the Bombay High Court in the case of CIT v. Minerva Maritime Corpn. [1985] 155 ITR 258. It is pointed out that the High Court has approved the observation of the Tribunal in that case that the Income-tax Rules, 1962 cannot curtail or go counter to the main provision of the relevant Section or Section s of the Act. He further pointed out that the question involved in that case was the quantum of depreciation allowable on a ship.
13. The attention of Shri Ramamani was brought to the observations of the Calcutta High Court in the case of Burrakur Coal Co. Ltd. v. CIT [1982] 135 ITR 804 which are as follows :
... It appears to us that the following propositions are well settled and cannot be disputed :
(1) The depreciation or allowance of expenditure must be determined with reference to the law prevalent in the year of assessment.
(2) In determining the depreciation allowable, the actual cost as computed and in accordance with the provisions of the Income-tax Act, namely, Section 32 read with Section 43(7)/(6) and Section 34(2), should be computed irrespective of what was the position in the previous year. (p. 809)
14. Shri Ramamani submitted that that observation may not be of help in sorting out the question here. According to him the term 'the year of assessment' contained in this observation might well be taken to mean the year in which the assessment of any assessment year is made and not the assessment year as may be generally understood.
15. Shri S. Swaminathan, the learned counsel for Sri Rani Lakshmi Gng. Spg. & Wvg. Mills (P.) Ltd. made these submissions. There is a distinction between the charging Section s and the machinery Section s in the Income-tax Act while the former are substantive provisions and, therefore, take effect only from the day they came into force, the machinery Section s are only procedural and should be given effect to in all assessments made after they came into force. It is submitted that only Section s 3 and 4 of the Indian Income-tax Act, 1922 and Section s 4 and 5 of the Income-tax Act are the charging provisions, the rest of the enactments are merely machinery Section s and they have to be applied whenever the assessments are made after they became effective. Reliance is placed in this regard on the following decisions-Chatturam v. CIT [1947] 15 ITR 302 (FC), Kudilal Govindram Seksaria v. CIT [1964] 54 ITR 653 (Bom.), ITO v. Calcutta Discount Co. Ltd. [1953] 23 ITR 471 (CaL), CIT v. P.M. Bagchi & Co. [1951] 20 ITR 33 (Cal.), Motilal Ambaidas v. CIT [1977] 108 ITR 136 (Guj.) and Addl. CIT v. Madura South India Corpn. (P.) Ltd. [1977] 110 ITR 322 (Mad.).
16. Citing the decision in the case of CIT v. Dewan Bahadur Ramgopal Mills Ltd. [1961] 41 ITR 280 (SC), it is submitted that the rule regarding depreciation is merely procedural and should, therefore, apply to all pending assessments unless there is a clear indication that the rule as it stands is to be applied for and from a particular assessment year. Instance of such specification of assessment year were given by Shri S. Swaminathan. These are : (I) The Taxation Laws (Amendment) Act, 1970 regarding Section 32 (1 A)-[1971] 79 ITR (St.) 5. (2) The Direct Taxes (Amendment) Act, 1974 regarding Section 32-[1974] 95 ITR (St.) 153. (3) The Finance Act, 1975, regarding the proviso to Section 32(1)(ii) - [1975] 99 ITR (St.) 137. (4) The Finance (No. 2) Act, 1980, specifying a date with regard to Section 32(1)(iia)-[1980] 124 ITR (St.) 68.
17. It is submitted that such a specification is absent in respect of the impugned notification and, therefore, there is no restriction to its application to all pending assessments. It is also submitted that the change in the depreciation rates enures to the benefit of the assessee in that the rates have been increased and the changed depreciation schedule should be considered to be a benevolent provision. Since it is a benevolent provision, it would operate on all pending assessments.
18. Shri S.V. Jaganathan, the learned departmental representative, submitted as follows. Appendix I, Part I to the Income-tax Rules is part of Rule 5 which itself is a part of Section 32. What is prescribed by Rule 5 through the Appendix as to the rates of depreciation is only part of Section 32. Instead of making Section 32 cumbersome by making the various rates of depreciation as part of it, they have been given in the form of an Appendix to the Rules. It is the contention that Section 32 should be considered a substantive provision because the depreciation allowed goes into the computation of income. Since it is a part of the substantive law, it can apply to the assessment year commencing on 1-4-1984 and onwards and not for any earlier assessment year. Reliance is placed for this proposition on the order of the Tribunal in the case of ITO v. Bharat Roadways [1985] 12 ITD 647 at p. 649 (Cal.).
19. It is submitted that the order of the Tribunal in Biju Patnaik's case (supra) has not been accepted by the department and the matter is under reference to the High Court. Shri Jagannathan also distinguished Biju Patnaik's case (supra) from the case before us. Rule IBB was made Under Section 46(2)(a) of the Wealth-tax Act, 1957 (the 1957 Act'). This rule only perscribed the manner in which the market value of a particular property is to be computed. It is pointed out that Section 7 of the 1957 Act lays down that the value of an asset for the purpose of assessment to wealth-tax is the price it would fetch if sold in the open market, i.e., to say it is the market value. This Section of the 1957 Act itself lays down what is to be charged to wealth-tax, namely, the market value of the asset. Rule IBB merely prescribes how the market value is to be determined. It dots not by itself lay down that the wealth-tax is to be charged on the market value. It is submitted that only in this sense could Rule IBB has been considered a rule of evidence and, therefore, procedural. It is then submitted that the rule under consideration in this appeal is regarding the depreciation to be allowed, that Section 32 of the 1961 Act does not lay down that depreciation on the fixed assets is to be allowed on any general concept of depreciation but only at the rates prescribed and, therefore, there is a distinction between Rule 5 of the Income-tax Rules and Rule IBB of the Wealth-tax Rules. It is pointed out that Section 295(2)(d) of the Income-tax Act leaves it to the Government to prescribe the percentage of the written down value to be allowed as depreciation, in other words to quantify the depreciation in respect of the various assets in contradistinction to Section 46(2)(a) of the Wealth-tax Act where the Government can only prescribe the manner in which the market value may be determined.
20. It is submitted that it has been laid down by the Supreme Court in the case of Karimtharuvi Tea Estate Ltd. v. State of Kerala [1966] 60 ITR 262 that the law as it stood on the first day of the assessment year governed the assessment for that assessment year. It is pointed out that the Chief Court of Sind in the case of CIT v. Sind Hindu Provident Funds Society [1940] 8 ITR 467 has held that the Income-tax Rules framed under the Act arc to be considered on par with the provisions of the Act. It is contended that the rules of substantive nature as Rule 5 read with the Appendix will have to be applied only in accordance with the decision of the Supreme Court in the case of Karimtharuvi Tea Estate Ltd. (supra). It is submitted that the decision of the Calcutta High Court in the case of Barrakur Coal Co. Ltd. (supra) is only to the effect that the rule regarding depreciation rates is substantive in nature. Reliance is also placed in this regard on the decision of the Supreme Court in the case of CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589. Shri S.V. Jaganathan also cited the decision of the Madras High Court in CIT v. India Cements Ltd. [1975] 98 ITR 69 in support of his proposition that unless the depreciation rates are amended specifically with retrospective effect, they can only be considered to be prospective in operation. The departmental representative also relied on the decision of the Supreme Court in CIT v. Southern Roadways (P.) Ltd. [1975] 98 ITR 205.
21. Shri Ramamani in reply submitted that Section 32 allowed depreciation to an assessee having income under the head 'Profits and gains of business or profession' leaving it to the Government to prescribe the rates at which depreciation is to be allowed. The rule can, therefore, be considered only procedural on the analogy that Rule IBB was held procedural in Biju Patnnaik's case (supra). It is submitted that no valid distinction can be drawn between the allowance of depreciation under the Income-tax Act and the determination of market value under Rule IBB of the Wealth-tax Rules. The former affects the computation of income while the latter affects the quantum of wealth. Both essentially affect the assessee in a substantive manner. In these cricumstances if Rule IBB of the Wealth-tax Rules is considered procedural in Biju Patnaik's case (supra), the same ratio should be applied to the interpretation of the changes in Rule 5 read with Appendix I of the Income-tax Rules. It is also submitted that the classification of the different types of rules contained in Section 295(2) and the words used may not really determine the question here.
22. We have carefully considered these submissions. The provision which is the subject-matter of controversy was introduced by the Income-tax (Fourth Amendment) Rules. This is reproduced in [1983] 141 ITR (St.) 61. It is provided in paragraph 1(2) that 'they shall come into force on the 2nd day of April 1983'. This amends Part I of Appendix I of the Income-tax Rules. This part of the Appendix carries the title 'Table of rates at which depreciation is admissible'. In this notification as well as in earlier notifications amending, adding or altering the rates of depreciation, this part is referred to and described as the 'Table of rates at which depreciation is admissible'.
23. The Income-tax (Fourth Amendment) Rules made substantial increase in the rates of depreciation. It also made certain qualitative changes. Thus, in place of the previously existing differential rates of depreciation for buildings ranging from 2.5 to 7.5 per cent the general rate has been laid at 5 per cent and the special rate for factory buildings at 10 per cent. The term 'buildings' has been defined to include roads, bridges, culverts, wells and tube-wells, thus, setting at rest certain earlier controversies. The general rate for machinery has been raised to 15 per cent and, consequently, the items previously having special rates of 4 per cent and 15 per cent have been omitted. The special rates in the table start with 20 per cent and goes up to 100 per cent.
24. Before we proceed further, it would be necessary to refer to one earlier amendment to the depreciation table. This is in fact the immediately preceding notification called the Income-tax (Third Amendment) Rules, 1983 published in [1983] 141 ITR (St.) 60. This was a notification dated 26-2-1983 published in SO 94 in the Gazette of India, Extraordinary, Part II, Section 3(ii) dated 26-2-1983 and was to come into effect on the date of publication. [The Income-tax (Fourth Amendment) Rules, 1983 was notified on 28-2-1983 but with effect from 2-4-1983.] The Income-tax (Third Amendment) Rules provided for inclusion of a group of items of machinery under the general heading 'Energy saving devices' in Group D under the special rates as item (10C). They were to be allowed depreciation at 30 per cent by this classification.
25. The same group of machineries have been reclassified as item (2A) in Group F by the Income-tax (Fourth Amendment) Rules. This classification allows 100 per cent depreciation in this group. As already mentioned, the Income-tax (Third Amendment) Rules was notified on 26-2-1983 while the Income-tax (Fourth Amendment) Rules was notified on 28-2-1983. We would advert to this position later in this order.
26. The controversy in these appeals is whether the depreciation rates as modified by the Income-tax (Fourth Amendment) Rules are to be applied to any assessment year prior to 1984-85. According to the assessee they are to be applied to all assessments made after the impugned date, viz., 2-4-1983. According to the department they are to be applied only to assessments for the assessment years following 2-4-1983 that is to say from the assessment year 1984-85. The assessee's view finds support in the order of the Tribunal in the case of Rayalaseema Passenger & Goods Transports (P.) Ltd. (supra) while the department's stand is supported by the order of the Tribunal in the case of Bharat Roadways (supra).
27. The Supreme Court has held in Karimtharuvi Tea Estate Ltd.'s case (supra) that the law as it stood on the 1st day of April of any year will apply to the assessment for that assessment year, that unless made specifically retrospective any changes effected after the 1st day of April will not apply to that assessment year. This has been reiterated in Third ITO v. M. Damodar Bhat [1969] 71 ITR 806 (SC). Certain exceptions are recognised for this rule. One such exception is that changes in law relating to procedure apply to pending actions. The point in these appeals is, therefore, reduced to the question whether the changes in the depreciation rates introduced by the Income-tax (Fourth Amendment) Rules relate to a matter of procedure or substantive law.
28. Shri Swaminathan has argued that Section s 4 and 5 are the only charging provisions and that all other Section s are only machinery Section s. The matters dealt with in these other Section s are, therefore, only procedural. Depreciation as an allowance is granted under one of these other Section s, namely, Section 32. Therefore, any changes effected in this Section or in the relevant rules made to give effect to this provision is only a change in procedure. He has relied on the decision of the Federal Court in the case of Chatturam (supra). Shri Jaganathan, the departmental representative, has submitted that the distinction drawn in this decision is not between substantive provisions and procedural provisions.
29. We would agree with the departmental representative. The two Section s referred to as charging Section s create a charge to income-tax on the total income of an assessee. The other provisions determine essentially two matters. The first is to define, for the purpose of determination, what the total income is, the second is to delineate the steps by which the income-tax levied at the rates laid down by the annual Finance Act is to be collected by the exchequer. Both sets of provisions provide the machinery for realising the charge contemplated in the charging Section s and in that sense form the machinery for carrying out the purpose of the Income-tax Act but the two sets of provisions are qualitatively different. The set of provisions for quantification of the income cannot be considered to be of the same nature as the other set which lays down the method of collecting the tax. The former determines the extent of the liability to tax, while the latter merely sets out the manner of collecting the tax. The former belongs to the realm of substantive law while the latter to the realm of procedural law.
30. It is not necessary to labour this point. The decision of the Supreme Court in Scindia Steam Navigation Co. Ltd.'s case (supra) is clearly on this point. There it was a question of the applicability of Clause (vii) of Sub- section (2) of Section 10 of the Indian Income-tax Act (which came into force on 5-5-1946) to the assessment year 1946-47. It was held that it did not apply to that assessment year as it was not in force on 1-4-1946. This was clearly on the basis that this Clause in Section 10 was a substantive provision even though it would be classified as a machinery provision according to the earlier decision of the Federal Court in the case of Chatturam (supra). It is, therefore, difficult to accept the proposition made by Shri Swaminathan that because Section 32 is to be classified as a machinery provision in accordance with the above decision of the Federal Court, it deals with a procedural matter only.
31. Shri Swaminathan has cited the decision of the Supreme Court in the case of Dewan Bahadur Ramgopal Mills Ltd. (supra) in support of his proposition that the table of rates of depreciation prescribed in the rule is only a procedural provision. He has pointed out that the notification laying down the manner in which the written down value is to be adopted for the purpose of assessment under the Indian Income-tax Act has been held to be retrospective in this decision and contended that it follows that the rule prescribing the rates of depreciation should be considered procedural and should be applied to all pending assessments. This contention cannot be accepted. In that case the notification itself was specifically made retrospective, to be applied to all assessments made under the Indian Income-tax Act after this Act was extended to the Part B States of which Hyderabad was one. The dispute was not whether the notification was retrospective in intent. There was in fact no dispute on this. The dispute was only whether the Government was competent to issue that notification with retrospective effect. It was this dispute that was resolved in that case.
32. Shri Swaminathan has pointed out that the Part B States Concessions Order had left the details of working to the executive, that the details would and did include the rates of depreciation and the computation of the written down value. He has contended that this would lead to the conclusion that the specification of the depreciation rates is a mere matter of form. In our opinion, this decision does not support such a conclusion. In the first place, if such a conclusion were correct, there was no need to provide for a specific retrospective operation of the notification. It would have been enough if the notification had been issued without any specification as to its retrospective operation. Far from supporting the contention of Shri Swaminathan, it supports the contention of the department that matters connected with the allowance of depreciation are substantive and not procedural.
33. Shri Swaminathan has referred to changes in the depreciation allowance introduced on three occasions. The first was the insertion of Sub- section (1A) in Section 32 by Section 5 of the Taxation Laws (Amendment) Act, 1970. This provision authorises depreciation allowance on construction made after a particular date, viz., 31-3-1970. The second was the insertion of Clause (vi) in Sub- section (1) of Section 32 by Section 3 of the Direct Taxes (Amendment) Act, 1974 giving additional depreciation on plant and machinery acquired after 31-5-1974. The third is the insertion of Clause (iia) in Sub- section (1) of Section 32 by the Finance (No. 2) Act, 1980. Here the plant and machinery should have been installed within a specified period. It is the contention of Shri Swaminathan that in all these amendments specific dates are mentioned making them prospective. The specified dates are also with reference to the installation of the machinery. It is submitted that these changes have become prospective because specific dates are mentioned about the erection or installation. If such specification is absent, the change could have been retrospective.
34. We are unable to accept this proposition. It is clear that these amendments specified the dates of erection or installation not with the intention mainly of making the amendments prospective but with the intention of confining the different treatments to particular classes of assets. It does not follow that the specification of the dates or periods as the case may be made them prospective that otherwise they would have been retrospective. It could equally well be argued that apart from the specification of the periods, the Taxation Laws (Amendment) Act, 1970 and the Finance (No. 2) Act, 1980 also specified the dates on which they came into force, namely, 1-4-1971 and 1-4-1981 (by the Finance Act, 1980) and, therefore, they became prospective changes.
35. It may be pointed out at this juncture that the Income-tax (Fourth Amendment) Rules also lays down a date as the date on which the changed depreciation rates come into force. This is 2-4-1983. It cannot be said that no date has been specified in the Income-tax (Fourth Amendment) Rules for the changed rates to come into force.
36. Shri Swaminathan has also pointed out that the impugned notification, namely, the Income-tax (Fourth Amendment) Rules substitutes certain existing items and entries by new entries. According to him the effect of this substitution is that the old rule is effaced and the new rule takes its place. He has referred to Bindra on Statutes, Seventh edn., page 1117 in this regard. We agree that the old rule is effaced by this substitution and the new rule takes its place. Still the question remains as to when this substitution has taken place. No answer to this question seems to arise from this proposition.
37. Shri Swaminathan has referred to three other decisions. The first is the Madras High Court decision in the case of Madura South India Corpn. (P.) Ltd. (supra). This relates to the liability of the Government to pay interest Under Section 214 of the Income-tax Act on the excess advance tax paid by an assessee. There was an increase in the rate of interest from 6 per cent to 9 per cent made by the Taxation Laws (Amendment) Act, 1967. The amending provision was to the effect that interest at 9 per cent shall be payable from 1-10-1967. The question in that case was the rate applicable to the period prior to 1-10-1967. The High Court held that since the assessment has been completed after 1-10-1967, interest at 9 per cent should be paid by the Government even in respect of the period before 1-10-1967. It was on the ground that the liability to pay interest arose to the Government only after 1-10-1967 and, therefore, interest should be paid at the enhanced rate. It does not support the contention of Shri Swaminathan that Section 214, not being either Section 4 or Section 5, is a procedural Section.
38. The second case cited by Shri Swaminathan is the decision of the Calcutta High Court in the case of CIT v. P.M. Bagchi & Co. [1951] 20 ITR 33. The provision considered here was Section 23(5)0) of the Indian Income-tax Act. This was held to be retrospective in operation. It is clear from the ratio of this decision that this was clearly a procedural provision evolving a more convenient mode of collection of tax.
39. The third case cited by Shri Swaminathan is the decision of the Gujarat High Court in the case of Motilal Ambaidas (supra). He has drawn our attention to the observation at page 150. The question considered by the Gujarat High Court was whether Section 41(1) of the Income-tax Act is a charging Section. The High Court referred to the case of Chatturam (supra) to point out that the charging Section s (in the Indian Income-tax Act) were Section s 3 and 4 and held that Section 41(1) is not a charging Section. His contention is that the other provisions of the Act are only machinery Section s and, therefore, only procedural in nature. We have already considered this submission. The Gujarat High Court has observed as follows :
...Indeed, by now the position has been well recognised that it is only Section 3 read with Section 4 of the Act of 1922 and Section 4 read with Section 5 of the Act of 1961 which are the charging Section s in the relevant Acts. The rest of the Section s in the respective Acts constitute the machinery for computation and levying of tax and the machinery for the assessment of tax but the charge of tax is Under Section 4 of the Act of 1961. (p. 150) It would be seen that the Gujarat High Court has drawn a distinction in respect of the provisions other than the charging Section s, between the machinery for computation and levying of tax and the machinery for assessment to tax. The distinction we had earlier drawn between the substantive and procedural provisions is in fact supported by this decision.
40. In the light of the above discussion, the conclusion that emerges is that the Section s other than the charging Section s, even though they constitute the machinery for realising the charge, contain both substantive and procedural provisions. The decision of the Supreme Court in the case of Scindia Steam Navigation Co. Ltd. (supra) also indicates that the provisions of the Act regarding depreciation allowance are substantive provisions.
41. The question then arises whether Rule 5 and the Appendix containing the table of rates at which depreciation is to be allowed are also substantive in nature. Shri Jaganathan has submitted that table of depreciation rates is part of Rule 5 which itself is part of Section 32 and, therefore, they are substantive in nature to the same extent as Section 32. We agree with this view. Section 32 allows depreciation on the different assets at the rates prescribed. The Section itself does not lay down the rates except in respect of certain categories of assets. This because, as pointed out by Shri Jaganathan, departmental representative, enumerating the various assets and the different rates for the different assets in Section 32 itself would have made it cumbersome. It is only with a view to avoiding such cumbersome insertion in the main provision that the rates of depreciation are separately enumerated in the Appendix to the Income-tax Rules. Where the specification of the rates in the Section itself would not make it cumbersome, the rates have been specified in the Section itself. See Clauses (iv), (v) and (vi) of Sub- section (1) of Section 32. We consider that the Appendix containing the table of depreciation rates should be construed in the same manner as Section 32.
42. Rule 5 lays down that the depreciation allowance under Clause (i) or Clause (ii) of Sub- section (1) of Section 32 in respect of buildings, machinery, plant or furniture shall be calculated at the percentage specified in the second column of the table in Part I of Appendix I. The actual rates of depreciation on the various assets are specified in Part I, Appendix I. This part is referred to in the rule itself as a table and the heading for this part reads 'Table of rates at which depreciation is admissible'. It is clear from a description of Part I of Appendix I, that the different rates of depreciation for the various kinds of plant and machinery are as specified in the form of table in order to remove the otherwise cumbersome specification of the depreciation rates in the Section, namely, Section 32 authorising depreciation allowance. The table of depreciation should, therefore, be considered to be only part of Section 32. We have already held that Section 32 contains a substantive provision though it might be part of the machinery Section s for effectuating the charge laid Under Section s 4 and 5. It would follow that Part I of Appendix I is also a substantive provision which should be interpreted in the same way as the substantive provisions in the Act. We, therefore, consider that the Income-tax (Fourth Amendment) Rules which has been made and brought into force with, effect from 2-4-1983 would not apply to the assessment year 1983-84, as it was not part of the law that was in force on 1-4-1983. It would follow that the changes introduced by this amendment rule would not apply to the assessment years earlier to 1984-85.
43. We have earlier pointed out that the Income-tax (Fourth Amendment) Roles was preceded by the Income-tax (Third Amendment) Rules. The Income-tax (Third Amendment) Rules was notified on 26-2-1983 with effect from that day, while the Income-tax (Fourth Amendment) Rules was notified on 26-2-1983 with effect from 2-4-1983. If the arguments of the two assessees in these appeals are accepted, the assessments for any assessment year made after 26-2-1983, but before 2-4-1983 would be governed by the table of depreciation as amended by the Income-tax (Third Amendment) Rules and any assessments made after 2-4-1983 would be governed by the rates of depreciation as modified by the Income-tax (Fourth Amendment) Rules. We have also pointed out earlier that the same group of machinery, namely, energy saving devices were allowed depreciation at 30 per cent under the Income-tax (Third Amendment) Rules, but were allowed depreciation at 100 per cent by the Income-tax (Fourth Amendment) Rules. For the same assessment year preceding even the assessment for the assessment year 1984-85, the depreciation on this group of machinery would have been given at 30 per cent if made before 2-4-1983 and at 100 per cent if made after 2-4-1983, if the interpretation by the two assessees before us represents the correct legal position. The notifications containing these two amendments, the third and the fourth were made within a gap of 2 days. If this were the correct legal position, then the act of the Government prescribing these two different rates of depreciation for the same group of machinery, within a short period of two days, would appear to be a purposeless exercise. There would have been no need for the Government to have notified the Income-tax (Third Amendment) Rules, which it would appear provided for the first time depreciation on these items of machinery by grouping them together under the head 'Energy saving devices'. We do not think that one can or should invest the Government with such purposeless intention in the discharge of its statutory functions. We must, on the other hand, consider that it was the intention of the Government in prescribing these notifications, to allow depreciation on such items of machinery only at 30 per cent for the assessment year 1983-84 following the date of the notification, namely, 26-2-1983 regarding Income-tax (Third Amendment) Rules and that higher rate of depreciation is to be allowed on these items of machinery for the assessments following the Income-tax (Fourth Amendment) Rules, namely, the assessment years coming up after 2-4-1983, i.e., 1984-85 assessment year and later years.
44. Shri Ramamani has relied upon an order of the Special Bench of the Tribunal in the case of Biju Patnaik (supra). We have earlier detailed his arguments. In that case, the Tribunal held that Rule IBB was only a rule of evidence for determining the market value and, therefore, procedural. Shri Ramamani has pointed out that the Karnataka High Court in the case of CWT v. Vidyavathi Kapur [1984] 150 ITR 319 and the Gujarat High Court in the case of CWT v. Kasturbhai Mayabhai [1986] 24 Taxman 427 has upheld this conclusion of the Tribunal in the case of Biju Patnaik (supra). His argument has been that the valuation of the property would have substantive impact on the quantification of the net wealth of the assessee and also on the wealth-tax payable by an assessee. In spite of this, it is pointed out, that the Tribunal has held that Rule IBB of the Wealth-tax Rules is only procedural. He has drawn an analogy on this and submitted that Rule 5 and Part I of Appendix I of the Income-tax Rules should be considered as the same.
45. We have carefully considered these submissions. We have pointed out that the Tribunal has designated Rule IBB as only a rule of evidence. The charge to wealth-tax is on the value of the property. Rule IBB prescribes only the method by which the value of property to be included in net wealth is to be arrived at. This view of the Tribunal has been approved by the Gujarat High Court in Kasturbhai Mayabhai's case (supra). The Gujarat High Court has observed that when a rule sets out the method or formula for determining the market value of any particular asset, it can only be considered to be procedural and not substantive. The position in respect of the allowance of depreciation under the Income-tax Act, in our opinion, is different. Section 32 of the Income-tax Act lays down that depreciation to be allowed as a deduction at such percentage on the written down value, as may in any case or class of cases be prescribed be allowed. Contrasted to this, Section 7(1) of the Wealth-tax Act provides that the value of any asset other than cash shall be estimated for the purpose of the Wealth-tax Act to be the price which in the opinion of the WTO it would fetch, if sold in the open market on the valuation date. This difference, in our opinion, is qualitative and the allowance Under Section 32, commonly described as depreciation, is a specific allowance that is to be regulated with reference to the table of depreciation. The table of depreciation cannot be considered to be just a method or formula for determining a quantity, which has been specified in the Section itself. The rates of depreciation, which quantify the allowance to be given Under Section 32 are not just a formula but the rates of allowance itself referred to in Section 32. On the other hand, Section 7(1) lays down that the value of any asset to be included in the net wealth of the assessee is to be taken as its market value. The manner in which the market value can be determined has been the subject of discussion and consideration in various forums even before Rule IBB was introduced. The concept of market value is a well recognised one and different methods for arriving at the market value of the property were already known even before Rule IBB was introduced. The same cannot be said of the allowance contemplated Under Section 32. The allowance cannot be granted without reference to the table of depreciation, while the market value contemplated Under Section 7(i) can be determined even in the absence of Rule IBB. We, therefore, do not consider that ratio of the decision of the Special Bench of the Tribunal in the case of Biju Patnaik (supra) and the Gujarat High Court in Kasturbhai Mayabhai's case (supra) can really be applied in the case of depreciation allowance under the Income-tax Act.
46. Shri Ramamani has submitted that Under Section 295(4), it is possible for the Government to give retrospective effect to the rule that is made under the authority of this provision. There can be no quarrel about this proposition ; but it cannot be said that the Income-tax (Fourth Amendment) Rules has been brought into force by the Government with retrospective effect. The Government, on the other hand, has specifically notified its coming into force from 2-4-1983. Retrospectivity is possible only if the rule detailing allowance of depreciation is considered as procedural provision. Since, in our opinion, it is not so, there can be no retrospectivity to this change in the table of depreciation. It is needless to say that retrospective operation cannot be implied in a substantive provision of law but should be expressly stated.
47. Shri Ramamani has also referred to the decision of the Bombay High Court in Minerva Maritime Corpn.'s case (supra). In that case the question related to the depreciation to be granted on a ship belonging to a non-resident shipping company. The company was assessed to tax on voyage basis in respect of its earning at Indian ports. The ship was built in 1944 but was purchased by the assessee in 1962. At the time of the purchase, according to the Income-tax Rules, the anticipated life of the ship was seven years. The assessee claimed proportionate depreciation allowance under Rule 5(2). According to that rule, in the case of secondhand ships, the depreciation allowance shall first be computed in the same manner as in the case of a new ship, i.e., on the actual cost. It shall then be multiplied by the fraction 20 L, L being the expectancy of life of the ship as at the date of its purchase as given in the appropriate table. The ITO did not allow the depreciation claimed by the assessee on the ground that at the time of purchase the anticipated life of the ship has already expired. It was held that the assessee was entitled to depreciation, on the said ship so long as depreciation actually allowed did not exceed the actual cost. It was held by the High Court that rules cannot be construed in such a way as to curtail or run counter to the main provisions of the relevant Section s of the Act and that Rule 5(2) contains only a formula for computing depreciation allowance. Shri Ramamani has relied upon this observation that Rule 5(2) contains only a formula for computing depreciation for his contention that rule specifying depreciation is only procedural. We do not think that this decision supports the contention of the learned counsel for the assessee. The dispute in that case before the Bombay High Court was really as to whether the interpretation placed on the rule by the ITO was a valid interpretation. In determining this question, the High Court has only held that the Rules cannot be so interpreted as to run counter to the provisions of the Income-tax Act. Now Under Section 32(1)(i), wherein the depreciation allowance is authorised for ships, it is laid down that a percentage on the actual cost shall be allowed as the allowance under this provision. There is no further constraint that in the case of second-hand ship anticipated life expectancy period should not have expired at the time the asset falls to be used. On this question the Bombay High Court has held that Rule 5(2) contains a formula for the determination of the depreciation in the case of ships. It cannot be said that because the Rules specified a formula for allowance of depreciation in the case of ship, it was not substantive. The question that was really decided in that case was whether the rule itself exceeded the authority contained in that substantive provision, namely, Section 32(1)(i). It was only held that the rule cannot be interpreted in such a way as to restrict the depreciation allowance to any extent greater than what is contained in Section 32(1)(i) and Section 34(2) of the Income-tax Act.
48. We have earlier referred to the decision of the Calcutta High Court in Burrakur Coal Co. Ltd.'s case (supra) and observations at p. 809. The departmental representative submitted that the High Court in that case must be considered to have held that depreciation is to be calculated at the rates in force during the assessment year. We feel that the effect of this observation of the Calcutta High Court in that case is that the rates of depreciation that is in force on the first day of any assessment year should be given effect to for that assessment year and subsequent assessment years. We would, therefore, conclude that the rates of depreciation provided in the table of depreciation contained in Part I of Appendix I contain substantive provisions and, therefore, any changes made in the table of depreciation should be given effect to only in the assessment year, which follows the date on which such changes are made. As far as the Income-tax (Fourth Amendment) Rules are concerned, since the new table of depreciation has been brought into force only on 2-4-1983, this table will not and cannot apply to any of the assessment years before the assessment year 1984-85. The orders of the Commissioner (Appeals) in these two cases are, therefore, confirmed.
49. These appeals are dismissed.