Madras High Court
Sree Karpagambal Mills Ltd. vs Commissioner Of Income-Tax on 20 March, 1998
Equivalent citations: [1999]238ITR842(MAD)
JUDGMENT Janarthanam, J.
1. The assessee, Sree Karpagambal Mills Limited, Raja-palayam, is a public limited company, owning a spinning mill. In the return for the assessment year 1981-82, the assessee claimed depreciation at the rate of 10 per cent. on general plant and machinery. This was on the basis of the deprecation schedule in Appendix I in the Income-tax Rules, as it stood before the Income-lax (Fourth Amendment) Rules, 1983, which took effect from April 2, 1983.
2. The Income-tax Officer allowed the claim of the assessee on the same basis,
3. The assessee, however, filed an additional ground before the Commissioner of Income-tax (Appeals) and claimed that the amended rates contained in Appendix I to the Income-tax Rules should be applied even for the assessments pending after the date on which the amendment came into force.
4. The Commissioner of Income-tax (Appeals) had not accepted this claim. He held that the benefit of the Fourth Amendment Rules should be granted to the assessment year 1984-85 and subsequent assessments.
5. The assessee appealed to the Tribunal and the Tribunal, in turn, held that the modified depreciation rates introduced by the Income-tax (Fourth Amendment) Rules, 1983, should-apply only to assessments, commencing from the assessment year 1984-85 onwards and so holding, dismissed the appeal.
6. On the facts as above, the Tribunal under Section 256(1) of the Income-tax Act, 1961, referred the question as below for the opinion of this court :
"Whether the depreciation as per the Income-tax (Fourth Amendment) Rules, 1983, is to be allowed in all cases which are pending on April 2, 1983, irrespective of the assessment year involved or is it to be allowed only in 1984-85 and subsequent years ?"
7. Arguments of Mr. K. Vaitheeswaran, learned counsel, representing Mr. Subbaraya Aiyar, learned counsel appearing for the assessee, and of Thiru S. V. Subramaniam, learned senior counsel appearing for the Revenue, were heard.
Rule 5 of the Income-tax Rules, 1962, provides for depreciation. Sub-rule (1) of rule 5, which is relevant for our present purpose, reads as under :
"5. (1) Subject to the provisions of sub-rule (2), the allowance under Clause (ii) of Sub-section (1) of Section 32 in respect of depreciation of any block of assets shall be calculated at the percentages specified in the second column of the Table in Appendix I to these rules on the written down value of such block of assets as are used for the purposes of the business or profession of the assessee at any time during the previous year."
8. Appendix I, Part I(III), is captioned as "machinery and plant (not being a ship)". III(i) provides the general rate applicable to machinery and plant (not being a ship), for which no special rate has been prescribed under item (ii) therein below and the rate so prescribed is 10 per cent. This was the position prior to the Income-tax (Fourth Amendment) Rules, 1983.
9. Subsequent to the Income-tax (Fourth Amendment) Rules, 1983, coming into existence, which event happened on April 2, 1983, Appendix I, Part I (III)(i) had been amended in so far as it is relatable to rate changing it from 10 per cent, to 15 per cent.
10. The Income-tax (Fourth Amendment) Rules, 1983, do not at all provide for retrospective operation of the rules and this aspect of the matter is of signal importance in deciding the tangle posed in the instant case. The Rules under the Income-tax Act are framed by the Board, of course, subject to the control of the Central Government, pursuant to the salient provisions adumbrated under Section 295 of the Income-tax Act, 1961. Sub Section (1) of Section 295 of the Act provides that the Board may, subject to the control of the Central Government, by notification in the Gazette of India, make rules for the whole or any part of India for carrying out the purposes of this Act. Sub-section (4) of Section 295 prescribes that the power to make rules conferred by this section shall include the power to give retrospective effect, from a date not earlier than the date of commencement of this Act, to the rules or any of them and, unless the contrary is permitted (whether expressly or by necessary implication), no retrospective effect shall be given to any rule so as to prejudicially affect the interests of assessees.
11. The power to make rules with retrospective effect for the Board is there within the parameters prescribed in the said sub-section. But, the power while enacting the Income-tax (Fourth Amendment) Rules, 1983, did not specifically provide for the increased rate of depreciation at 15 per cent, operable retrospectively on and from a particular date. That being so, to contend that the Income-tax (Fourth Amendment) Rules, 1983, is to operate retrospectively to cover the case of the assessee relatable to the assessment year 1981-82, in the sense of the assessee getting the enhanced rate of depreciation at 15 per cent. cannot at all, be countenanced, inasmuch as the amended rules came into force from April 2, 1983. The Income-tax (Fourth Amendment) Rules, 1983, if at all could be applicable to the assessment year 1984-85 relatable to the previous year, commencing from April 1, 1983, to March 31, 1984. The fact that the assessment of the assessee relatable to the assessment year 1981-82 came up for orders on June 30, 1984, is of no consequence.
12. Worthwhile it is to refer to certain decisions of superior courts of jurisdiction to highlight this aspect of the matter : (i) In S. P. Jaiswal Estates Pvt. Ltd. v. CIT (No. 2) [1994] 209 ITR 307, what their Lordships of the Calcutta High Court said in the relevant paragraph at pages 313 and 314 is relevant for our purpose and the same reads as under :
"In this case, we find that the Income-tax (Fourth Amendment) Rules, 1983, by which the higher rate of depreciation was laid down came into effect on April 2, 1983. The assessment year 1983-84 began on April 1, 1983. In other words, this new rule was not intended to be made appli cable to the assessment year 1983-84. The rates of depreciation laid down in the Rules, in our view, are matters of substantive law. The new rates were intended to apply only from the assessment year 1984-85 since these were not in force on the first day of April, 1983, on which the assessment year 1983-84 began. In this view of the matter and agreeing with the view expressed by the Kerala High Court in CIT v. S. A. Wahab [1990] 182 ITR 464, we hold that the assessee is not entitled to the higher rate of depreciation as laid down in the Income-tax (Fourth Amendment) Rules, 1983, in the assessment year 1983-84. Such higher rates will be applicable only from the assessment year 1984-85 ..."
(ii) In CIT v. S. Palaniswamy [1996] 219 ITR 380, their Lordships of a Division Bench of this court respectfully agreed with the view taken by their Lordships of the Calcutta High Court in the case of S. P. Jaiswal Estates Pvt. Ltd. [1994] 209 ITR 307.
13. For the reasons as above, we are of the view that the depreciation as per the Income-tax (Fourth Amendment) Rules, 1983, is not to be allowed in all cases, which were pending on April 2, 1983, irrespective of the assessment year involved and depreciation under the said Rules, can, if at all, be allowed only in 1984-85 and subsequent years. We thus answer the point against the assessee and in favour of the Revenue.
14. The tax case is thus disposed of. There shall, however, be no order as to costs, on the facts and in the circumstances of the case.