Kerala High Court
Commissioner Of Income-Tax vs Kerala Electric Lamp Works Ltd. And ... on 14 February, 2003
Equivalent citations: (2003)183CTR(KER)182, [2003]261ITR721(KER)
Author: P. R. Raman
Bench: G. Sivarajan, P.R. Raman
JUDGMENT P. R. Raman, J.
1. These two references are at the instance of the Revenue. The following question is referred for the decision of this court :
"Whether, on the facts and in the circumstances of the case and when the assessee did not make a claim or a request for allowance of depreciation, whether the Assessing Officer would be justified in allowing the deduction ?"
2. In Income-tax Reference No. 21 of 1999, for the year 1989-90, the assessee filed a return showing a loss of Rs. 9,30,59,275. In computing the loss, the Assessing Officer held that whether the assessee had claimed it or not depreciation was to be allowed as per the provisions of the Income-tax Act and accordingly, he computed the depreciation allowance at Rs. 2,02,79,334 and carried forward the same to be set off against the income of the subsequent years/This was confirmed by the Commissioner (Appeals). In further appeal, the Tribunal held that the Assessing Officer was not justified in allowing deduction by way of depreciation when the assessee had not made a claim. In para. 4 of the order of the Tribunal it was noticed that after the amendment of Section 34(1) by the Taxation laws (Amendment and Miscellaneous Provisions) Act, 1986, with effect from April 1, 1986, it was not necessary for the assessee to furnish the prescribed particulars for claiming depreciation but still there was another implicit condition to be satisfied and that condition was that the assessee should have asked for it. The Tribunal also relied on the decision of the Bombay High Court in CIT v. Shri Someshwar Sahakari Sakhar Karkhana Ltd. [1989] 177 ITR 443. A similar view was also expressed by the Central Board of Direct Taxes in Circular dated August 31, 1965. The Commissioner of Income-tax, however, sought a reference of the question relying on the decision reported in Dasaprakash Bottling Co. v. CIT [1980] 122 ITR 9 (Mad) and Ascharajlal Ram Parkash v. CIT [1973] 90 ITR 477 (All).
3. Income-tax Reference No. 216 of 1999 relates to the assessment year 1990-91. There, the assessee filed the return of income showing a loss of Rs. 3,33,77,642. The assessee did not claim any allowance of depreciation. However, the Assessing Officer held that the depreciation was to be allowed irrespective of whether the assessee claimed it or not and accordingly, computed the allowance at Rs. 1,65,95,460 and carried forward the same to be set off against the income of the subsequent years. This view of the Assessing Officer was confirmed by the Commissioner of Income-tax (Appeals). In further appeal by the assessee, the Tribunal found that a similar claim for earlier assessment years has been allowed by the Tribunal. The Tribunal took the view that when the assessee did not make a claim or a request for depreciation, there is no justification in allowing the deduction by the Assessing Officer. Reliance was placed on the decision in CIT v. Shri Someshwar Sahakari Sakhar Karkhana Ltd. [1989] 177 ITR 443 (Bom) and CIT v. Andhra Cotton Mills Ltd. [1997] 228 ITR 30 (AP).
4. Since the question raised in both these cases is one and the same and since the assessee is also the same, except that the Income-tax Reference No. 216 of 1999 the successor-in-interest of the Kerala Electrical Lamp Works Ltd., namely, Crompton Greaves, had filed the appeal before the Tribunal. We dispose of these two income-tax references by this common judgment.
5. In the case of the assessee, for the assessment year 1986-87 the same question arose for consideration before this court and by judgment dated October 15, 1999, this court answered the question referred to it in favour of the assessee and against the Revenue, The said decision is reported in CIT v. Kerala Electric Lamp Works Ltd. This court held that Section 34(1) of the Income-tax Act obliges the Income-tax Officer to allow the deductions referred to in Section 32 only if the prescribed particulars have been furnished. The use of the words "allowed" and "allowance" in the provisions would appear to contemplate a claim or application by the assessee for the deduction therein provided for. In the absence of any such claim or application by the assessee the assessing authorities would not be allowing a deduction. Thus, the provisions suggest that the assessee has the choice of seeking or not seeking allowance of deduction. This court also took notice of the fact that if the Legislature had intended that the Income-tax Officer should give a deduction for depreciation whether or not the assessee wanted it, it would not have used such language in the provisions as to enable the assessee to frustrate the intention by the simple expediency of not furnishing prescribed particulars. The provisions, therefore, prescribe two pre-conditions to the allowance of a deduction for depreciation, the first being implicit that the assessee should have asked for it; the second which is explicit is that the prescribed particulars should have been furnished. In the absence of either of these conditions fulfilled, the deduction cannot be allowed by the Income-tax Officer. Various case law on the point has been referred to and it was after referring to the rival submissions made and after referring to a number of decisions on this point that this court finally held that unless asked for or applied for by the assessee the Income-tax Officer cannot allow the depreciation allowances. Thus the question was answered in the affirmative, i.e., in favour of the assessee and against the Revenue. Subsequently, the apex court in the case of CIT v. Mahendra Mills [2000] 243 ITR 56 considered the same question and held as follows (headnote) :
"The language of the provisions of Sections 32 and 34 of the Income-tax Act, 1961, is specific and admits of no ambiguity. Section 32 allows depreciation as deduction subject to the provisions of Section 34. Section 34 provides that deduction under Section 32 shall be allowed only if the prescribed particulars have been furnished. Rule 5AA of the Income-tax Rules, 1962, since deleted, provided for the particulars required for the purpose of deduction under Section 32. Even in the absence of Rule 5AA, the return of income in the form prescribed itself requires particulars to be furnished if the assessee claims depreciation. These particulars are required to be furnished in great detail. There is a circular of the Board dated August 31, 1965, which provides that depreciation could not be allowed where the required particulars have not been furnished by the assessee and no claim for the depreciation has been made in the return. The Income-tax Officer in such a case is required to compute the income without allowing depreciation allowance.... If Section 34 is not satisfied and the particulars are not furnished by the assessee his claim for depreciation under Section 32 cannot be allowed. Section 29 is thus to be read with reference to other provisions of the Act. It is not in itself a complete code.
If the revised return is a valid return and the assessee has withdrawn the claim of depreciation, it cannot be granted relying on the original return when the assessment is based on the revised return. Allowance of depreciation is calculated on the written down value of the assets, which written down value would be the actual cost of acquisition less the aggregate of all deductions 'actually allowed' to the assessee for the past years. 'Actually allowed' does not mean 'notionally allowed'. If the assessee has not claimed deduction of depreciation in any past year it cannot be said that it was notionally allowed to him. A thing is 'allowed' when it is claimed. .... It is rightly said that a privilege cannot be to a disadvantage and an option cannot become an obligation. The Assessing Officer cannot grant depreciation allowance when the same is not claimed by the assessee."
6. The apex court referred to various decisions on the point rendered by the High Courts some of which take a contrary view. The decision of the Gujarat and Bombay High Courts were confirmed and the decision of the Calcutta High Court in CIT v. J. K. Industries Ltd. [2000] 241ITR 537, the Bombay High Court in CIT v. Shri Someshwar Sahakari Sakhar Karkhana Ltd. [1989] 177 ITR 443 and the decision of the Karnataka High Court in Chief CIT (Admn.) v. Machine Tools Corporation of India Ltd. [1993] 201 ITR 101, were approved and the decision of the Allahabad High Court in Ascharajlal Ram Parkash v. CIT [1973] 90 ITR 477 and the Madras High Court in CIT v. Southern Petro Chemical Industries Corporation Ltd. (No. 2) [1998] 233 ITR 400 were overruled. Thus, by the aforesaid decision of the apex court, the position is settled that unless the assessee asked for depreciation allowance the Income-tax Officer cannot grant such depreciation allowances. Thus, the apex court declared the law by the aforesaid decision by its judgment dated March 15, 2000. Normally, the matter would have ended there. But according to Sri P. K. R. Menon, learned standing counsel appearing for the Revenue, the Explanation inserted by the amendment to Section 32 by the Finance Act, 2001, with effect from April 1, 2002, would take us back to the position that whether or not the assessee claimed the deduction in respect of the depreciation, Section 32 would apply. For the purpose of appreciation of the said contention, it is necessary to refer to the Explanation added by the Finance Act, 2001. As per Section 21 of the Finance Act, 2001, Section 32 was amended as follows :
"21. Amendment of Section 32. --In Section 32 of the Income-tax Act, with effect from the 1st day of April, 2002,-
(a) in Sub-section (1), in Clause (ii),--
(A) in the first proviso, in Clause (a), after the figures, letters and words '28th day of February, 1975', the words, figures and letters 'but before the 1st day of April, 2001' shall be inserted ;
(B) after Explanation 4, the following Explanation shall be inserted, namely :--
'Explanation 5.--For the removal of doubts, it is hereby declared that the provisions of this sub-section shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income ;'
(b) for Sub-section (2), the following sub-section shall be substituted, namely : --
'(2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under Sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of Sub-section (2) of Section 72 and Sub-section (3) of Section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years.'."
7. According to learned counsel, the Explanation being clarificatory in nature, it would take us back to the same position as though the Explanation was there and the section read with the Explanation makes it clear that whether the claim is made by the assessee or not the allowances has to be allowed by the Income-tax Officer. According to him, the effect of an Explanation which is clarificatory in nature is retrospective in operation. According to learned counsel, the Explanation being declaratory in nature the effect of it is to elucidate what was before uncertain or doubtful. When the statute is enured to put an end to the doubt as to what is the law or meaning it declares what it is and even has been. He referred to the meaning of the word, "declaratory" and "declaratory statutes" given in Black's Law Dictionary in support thereof.
8. As we have noticed this Explanation was inserted as per the Finance Act, 2001, and the Explanation itself was given effect to only with effect from the 1st day of April, 2002, and when the Legislature has expressly given effect to the Explanation to commence from 1st day of April, 2002, only we do not see any force in the contention raised by learned counsel appearing for the Revenue that de hors the express provision the section should be given retrospective effect contrary to the legislative intention.
9. The effect of an Explanation added with effect from a particular day has come up for consideration before the High Courts. In CIT v. Rajasthan Mercantile Co. Ltd. [1995] 211 ITR 400, the Delhi High Court considered the provision by way of Explanation added to the entertainment expenditure. The Explanation added, namely, for the removal of doubts entertainment expenditure would include provision of hospitality of every kind, etc., whether by reason of contract or custom or usage of trade. This Explanation was added with effect from 1st April, 1976, the question arose as to whether the Explanation is applicable to prior assessment years. Referring to the Explanation added to Section 37(2A) the court held that (headnote) :
"A fiscal legislation cannot be interpreted without reference to the language employed by the statute which brought it into existence. When the statute enacting an amendment or introducing a new provision, states that the provision is to be read 'with effect from' a particular date, normally the court cannot travel beyond that date along with the new provision while interpreting words used prior to that date, unless the natural meaning of the relevant words was totally ignored earlier and the newly added declaratory provision embodies the ordinary and natural meaning of those words. . . .
The effect to be given to an explanatory amendment depends upon several factors including its language, when the Legislature has made the Explanation operative prospectively by words expressed therein, its operation shall have to be confined to the future date."
10. This court in CIT v. S. R. Patton [1992] 193 ITR 49, considered the effect of the Explanation to Section 9(1)(ii) of the Income-tax Act. The respondents in that case, who were assessees, were foreign technicians. A company in U. S. A. and FACT entered into an agreement for expansion of the FACT Phase II Cochin. The question arose as to whether the living allowances and salaries paid to the foreign technicians are taxable treating the same as constituting "salary earned in India", as Section 9(1)(ii) of the Income-tax Act as it stood at the relevant time included income which falls under the head "Salaries" if it is earned in India. The question arose as to whether the salaries and other allowances given to the foreign technicians can be brought to tax under the above section as "salary earned in India" ? An Explanation was added to Section 9(1)(ii) of the Income-tax Act by Finance Act, 1983, which was inserted with effect from April 1, 1979, as follows :
"For the removal of doubts, it is hereby declared that income of the nature referred to in this clause payable for service rendered in India shall be regarded as income earned in India ;"
11. The entire argument on behalf of the Revenue centred round the said Explanation. The argument of learned counsel for the Revenue relying on [1983] 140 ITR (St.) 116 was that the Explanation proposed to be added to this clause seeks to clarify that income chargeable under the head "Salaries" payable for service rendered in India shall be regarded as income earned in India. According to the Revenue, the Explanation was inserted only by way of abundant caution and that it is only declaratory. Therefore, the purpose and impact of the Explanation introduced by the Finance Act with effect from April 1, 1979, was considered by this court and in that context, it was held as follows (page 54) :
"Even assuming that, by adding the Explanation, the Legislature has clarified or made clear or removed whatever ambiguity there was in Section 9(1)(ii) of the Income-tax Act, 1961, the Finance Act, 1983, itself has proceeded to give retrospective effect to the Explanation only with effect from April 1, 1979. The clarification or declaration, if any, is only from that date. We are concerned in all these cases with the periods which are, admittedly, prior to April 1, 1979. The Legislature itself has clearly stated that the Explanation introduced by the Finance Act, 1983, will take effect only from April 1, 1979. We are of the view that in such circumstances, it is idle to contend that the Explanation can be looked into or pressed into service for the period anterior to April 1, 1979, to understand the scope of Section 9(1)(ii) of the Act, as it stood then. In this view, no useful purpose will be served by referring to the Explanation in order to understand the true meaning and scope of Section 9(1)(ii) of the Act as it stood till March 31, 1979, i.e., before the insertion of the Explanation with effect from April 1, 1979. The Explanation which came into force later, cannot be relied on for any purpose for an anterior period."
12. Thereafter, the court proceeded to consider the scope and impact of an "Explanation" and held that the mere use of the label "Explanation" is not decisive of the true meaning and scope of the provision. Ordinarily the purpose of an Explanation in a statute is to clarify or explain or settle any doubt or ambiguity or controversy. It may even widen the scope of the main provision in rare cases. The words used alone can reflect the true intent and they should be construed on their own terms. Accordingly, this court held that the Explanation added is only prospective. According to us, the present case is squarely covered by the decision referred to above. According to learned counsel, the provision has to be understood in the same manner even without the Explanation since the effect of the Explanation is merely to clarify the position. We cannot agree. The section as it stood prior to the Explanation having been understood and declared by the apex court in CIT v. Mahendra Mills [2000] 243 ITR 56 there is no scope for any argument that the provision as it stood prior to the introduction of the Explanation should be understood in the same manner as though the Explanation was there in the statute. If the Legislature actually intended to nullify the effect of the decision of the apex court rendered in the aforesaid decision, the Explanation added should have been given retrospective effect in express terms. On the other hand, the Legislature itself thought that the Explanation should work only prospectively and did not intend to render the decision rendered prior to the amendment relating to the earlier assessment years in question nullified. As against the express intention of the Legislature to give effect to the Explanation with effect from April 1, 1979, we cannot give any retrospective effect to the Explanation. To do otherwise will be contrary to the legislative intention. Even though learned counsel for the Revenue relied on the decision of this court in CWT v. Smt. B. Indira Devi [1994] 208 ITR 26, in support of his contention that the effect of an Explanation when it is taken as a declaration of what the law always was the same has to understood to be retrospective in operation, we do not find the said decision as having laid down the law as contended for. That was a case arising under the Wealth-tax Act. The question as to whether the Commissioner was justified in looking into the report of the Valuation Officer for coming to the conclusion that the order of assessment was erroneous and prejudicial to the interests of the Revenue arose for consideration. The word "record" has been given a wider interpretation as per the Finance Act, 1989, with effect from June 1, 1988, which amended Section 25(2) of the Wealth-tax Act to the effect that "record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner" has been noticed. It can be seen that the word "record" by fiction of law is to be deemed always to have included "all records". "Deemed always" is an expression intended to operate retrospectively. As has been held by this court in CIT v. S. R. Patton [1992] 193 ITR 49, the effect of the Explanation and whether the same is retrospective has to be understood from the language of the section itself.
13. In this connection, the Finance Bill, 2001, clearly spells out that this amendment will take effect from April 1, 2002, and will, accordingly, apply in relation to the assessment year 2002-03 and subsequent years. Clause 21 of the Finance Bill seeking to amend Section 32 of the Income-tax Act relating to depreciation is reproduced as hereunder (see [2001] 248 ITR (St.) 121) :
"Sub-clause (a) seeks to insert a new Explanation 5 in Clause (ii) of Sub-section (1) of the said section so as to clarify that the provisions of Sub-section (1) of Section 32 shall apply whether or not the assessee has claimed the deduction for depreciation in computing his total income.
Sub-clause (b) seeks to substitute Sub-section (2) so as to provide that where full effect cannot be given to the depreciation allowance in any previous year owing to there being no profits or gains chargeable for that previous year or owing to the profits or gains chargeable being less than the allowance, the depreciation allowance or part thereof to which effect has not been given shall be added to the amount of allowance for depreciation for the following previous year, or for the succeeding previous years till such time the full effect has been given to the depreciation allowance claimed by the assessee.
These amendments will take effect from the 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-03 and subsequent years."
14. The memorandum explaining the provisions in the Finance Bill, 2001, is to the following effect (see [2001] 248 ITR (St.) 193) :
"Modification of provisions relating to allowance of depreciation :' Under the existing provisions of Sub-section (2) of Section 32 of the Income-tax Act, carry forward and set off of unabsorbed depreciation is allowed for eight assessment years.
With a view to enable the assessees to conserve sufficient funds to replace capital assets, specially in an era where obsolescence takes place so often, the Bill proposes to dispense with the restriction of eight years for carry forward and set off of unabsorbed depreciation.
It is further proposed to clarify that in computing the profits and gains of business or profession for any previous year, deduction of depreciation under Section 32 shall be mandatory.
The proposed amendments will take effect from the 1st April, 2002, and will, accordingly, apply in relation to assessment year 2002-03 and subsequent years."
15. It is clearly provided that even with a view to enable the assessees to conserve sufficient funds to replace capital assets, the Bill proposes to dispense with the restriction of eight years for carry forward and set off of unabsorbed depreciation and also clarifies that in computing the profits and gains of business or profession for any previous year deduction of depreciation under Section 32 shall be mandatory. But as we have already noticed, the memo itself explains that the provision will take effect only with effect from April 1, 2002, and shall apply in relation to the assessment year 2002-03 and subsequent years. Further, Section 263 of the Income-tax Act wherein an Explanation was added was substituted by the Finance Act, 1988, with effect from June 1, 1988. As per Clause (b) of the Explanation the word "record" shall include and shall be deemed always to have included all records relating to the proceedings under the Act at the time of examination by the Commissioner. This amendment was also effected by the same Finance Act, 1989. Further, the language and expressions used to convey the specific meaning that the word "record" shall include and shall be deemed always to have included. Therefore, whenever, the Legislature wanted to convey its intention to give retrospective effect either by enforcing its commencement from an earlier date by specific provision as regards its commencement or by using language or expression conveying such a meaning was always been the legislative practice. Here, as we have already noted, the Legislature has intended to give effect to the provision with effect from April 1, 2002, and there is no expression conveying any other meaning. The law having been declared by the apex court in CIT v. Mahendra Mills [2000] 243 ITR 56, the Legislature thought it fit to amend the provision only from the prospective date and the Finance Bill clarifies the position that the said amendment was intended to be effected only for the subsequent years.
16. In the above facts and circumstances, and what has been stated above, we are of the opinion that the Explanation has no retrospective effect. The assessment year in question being related to the period prior to the insertion of the Explanation as aforesaid and since the question referred is covered by the decision of the apex court in CIT v. Mahendra Mills [2000] 243 ITR 56 we answer the question in the negative, i.e., in favour of the assessee and against the Revenue.