Madras High Court
Commissioner Of Income Tax vs D.P.F. Textiles Ltd. on 27 November, 1997
Equivalent citations: [2000]241ITR548(MAD)
JUDGMENT N.V. Balasubramanian, J.
1. The following questions have been referred by the Tribunal, at the instance of the Revenue for the asst. yr. 1980-81, for our consideration :
"1. Whether, the Tribunal's further finding that the assessee is entitled to extra shift allowance in respect of the plant and machinery newly added during the year on the basis of double and triple shifts worked by the concern as a whole ?
2. Whether, on the facts and in the circumstances and having regard to the provisions of s. 3(4) of IT Act, the Tribunal is correct in law in holding that the depreciation for 15 months should be allowed notwithstanding the fact that the assessee consented for allowance of depreciation for 12 months at the assessment stage ?"
2. In so far as the first question of law that is referred to us for our consideration is concerned, the issue raised is covered against the Revenue by a decision of the Supreme Court in South India Viscose Ltd. vs. CIT wherein the apex Court has held that the assessee would be entitled to extra shift allowance in respect of plant and machinery on the basis of the double shift or triple shift worked by the concern as a whole, and not with reference to the working of each item of machinery or plant. Following the said decision of the Supreme Court, we answer the first question of law in the affirmative and against the Revenue.
3. The second question of law relates to the claim of depreciation by the assessee for 15 months due to change of the previous year. The assessee is a private limited company carrying on business in the manufacture and sale of cotton yarn. The assessee was previously closing its accounts on 31st December, every year. But, it desired to change its accounting year ending on 31st March and accordingly, the assessee, by a letter dt. 20th November, 1979, requested the permission of the ITO for change of the previous year. If the assessee's request for change of the previous year is accepted, it would result in the previous year for the asst. yr. 1980-81 extending from 1st January, 1979 to 31st March, 1981. That means, the assessee would have a previous year of the duration of 15 months. The ITO to guard himself from granting certain additional depreciation, issued a letter dt. 9th November, 1979, stating that he would consider the request of the assessee for the change of the previous year subject to four conditions and one of the conditions was that even though the entire income for 15 months would be considered for the assessment of tax for the asst. yr. 1980-81, in so far as the claim of depreciation is concerned, it would be confined only for a period of one year - 12 months. The assessee, by a letter dt. 30th November, 1979, accepted all the conditions imposed by the ITO and in this regard it stated as follows :
"We were also advised that the depreciation for one year only is admissible against the income of fifteen months and we have already stated that we would agree for this condition in our letter dt. 20th November, 1979."
The ITO, accordingly, granted the permission to vary the previous year as prayed for by the assessee since the assessee accepted all the conditions which the ITO had imposed. The ITO completed the assessment on that basis and allowed depreciation only for the period of one year - 12 months.
4. The assessee filed an appeal against the order of the ITO contending that under the proviso to r. 5(1) of the IT Rules, 1962, the assessee would be entitled to higher amount of depreciation and the condition restricting the quantum of depreciation imposed by the ITO for the change of previous year is not in consonance with the proviso to r. 5(1) of the IT Rules and since the ITO has no power to impose such a condition, the condition is invalid in the eye of law and, therefore, mere acceptance by the assessee of the condition would not prevent the assessee from challenging the same and claiming that it is entitled to depreciation at the rate provided and prescribed for under the proviso to r. 5(1) at the IT Rules.
5. The CIT(A) held that the condition imposed by the ITO was in violation of the proviso to r. 5(1) of the IT Rules and the ITO can only impose conditions for the change of the previous year which are in consonance with the provisions of the Act. Therefore, he held that the assessee would be entitled to depreciation for the period of 15 months as provided under the proviso to r. 5(1) of the IT Rules and directed the ITO to allow depreciation in accordance with the said Rules.
6. The Revenue carried the matter by way of appeal before the Tribunal. The Tribunal also confirmed the view of the CIT(A) on the ground that the ITO cannot impose conditions which are not in consonance with the provisions of the Act and the ITO could not have denied the change of previous year, even if the assessee has not accepted the conditions. In this view of the matter, the Tribunal confirmed the order of the CIT(A) and dismissed the appeal preferred by the Revenue.
7. Mr. C. V. Rajan, learned counsel for the Revenue submitted that the assessee has accepted the condition for the change of the previous year that the depreciation would be granted to the assessee for the period of 12 months only and if the depreciation for the entire 15 months is granted, it would create an anomalous situation resulting in the claim for depreciation for a period of 15 months, though the assessee may put to use a machinery on the last date of the previous year. In his fairness, learned counsel for the Revenue brought to our notice the decision of the Allahabad High Court in the case of J.K. Synthetics Ltd. vs. ITO and also the relevant provisions of the Act.
8. Mr. P. P. S. Janarthana Raja, learned counsel for the assessee supported the order of the Tribunal.
9. We have carefully considered the submissions of the learned counsel for the respective parties.
Under sub-s. (4) of s. 3 of the IT Act, an assessee is entitled to change his previous year only with the consent of the ITO and upon such condition the ITO may think to impose. The fact remains that when the ITO gave his permission for the change of the previous year, he stipulated that the assessee should claim depreciation only for a period of 12 months and the assessee also accepted the same. But, the question that remains is whether the condition imposed by the ITO is valid in the eye of law and to test the validity of the condition imposed, it is necessary to refer to r. 5(1) of the IT Rules with the proviso. In so far as it is relevant for the purpose of this case, r. 5(1) reads as under :
"Subject to the provisions of sub-rr. (2) and (3) the allowance under cl. (i) or cl. (ii) of sub-s. (1) of s. 32 in respect of depreciation of buildings, machinery, plant or furniture or the allowance under cl. (i) of sub-s. (1A) of s. 32 in respect of depreciation of any structure or work referred to in that sub-section shall be calculated at the percentages specified in the second column of the Table in Part-I of Appendix-I to these rules on the actual cost or, as the case may be, the written down value of such of the assets aforesaid as are used for the purposes of the business or profession of the assessee at any time during the previous year.
Provided that in a case where the assessee has been allowed to vary the meaning of the expression, 'previous year' in respect of any business or profession under sub-s. (4) of s. 3 and thereby, his income from such business or profession for a period of thirteen months or more is included in his total income of any previous year, the allowance referred to in this sub-rule, calculated in the manner stated hereinabove, shall be increased by multiplying it by a fraction of which the numerator is the number of complete months in such previous year and the denominator is twelve."
10. Under the proviso to r. 5(1) of the IT Rules, where the assessee was allowed to vary the meaning of the expression, 'previous year' in respect of any business or profession, the depreciation to be allowed shall be increased by multiplying the fraction of which the numerator is the number of complete months of the previous year and the denominator is 12. Applying the said proviso to r. 5(1) of the IT Rules, the assessee would be entitled to depreciation at the rate of 15/12, i.e., the depreciation for the entire 15 months. The condition imposed by the ITO that the claim of the assessee will be restricted to only for a period of 12 months is clearly in contravention and violation of the specific r. 5(1) of the IT Rules and such a condition being in violation of the provisions of the IT Act, cannot be said to be valid in the eye of law. Though the assessee had accepted such a condition at the time of change of the previous year, since the condition is against the provisions of the IT Act, we are of the view that it is still open to the assessee to challenge the same on the ground that the condition imposed was in contravention of law as there can be no estoppel against the provisions of the statute. The said position is well settled by the decision of the Allahabad High Court in J.K. Synthetics Ltd. case, cited supra, wherein the Allahabad High Court held that the condition for the change of the previous year must be valid, legal and reasonable and the ITO cannot impose such conditions which are contrary to the provisions of the Act. Since the condition imposed by the ITO is against the provisions of the Act, the ITO has no jurisdiction to impose such a condition and as observed by the Allahabad High Court, there is no estoppel against the provisions of the Act and the condition is invalid in the eye of law and it is open to the assessee to challenge the same. Therefore, we hold that though the assessee had accepted the condition initially at the time of change of the previous year, it is still open to the assessee to challenge the same when it finds that the condition imposed by the ITO is against the provisions of the Act.
11. Further, the anomaly pointed out by the learned counsel for the Revenue with regard to the grant of depreciation for entire fifteen months even though the assessee may put to use the machinery on the last date of the previous year exists in the grant of the normal depreciation, and it is inherent in the grant of depreciation. Therefore, when the legislature consciously provided that the assessee is entitled to an increased amount of depreciation when there is the change of previous year by elongation of the length of the previous year, it is not open to the ITO to deny the same and overlook the provision of the Act. Furthermore, when the intention of the legislature is clear in granting the increased amount of depreciation, the anomaly pointed out by the counsel for the Revenue is not much of help to the Revenue. Accordingly, we hold that there is no infirmity in the order of the Tribunal in holding that the assessee is entitled to the depreciation calculated for the entire period of fifteen months. Accordingly, we answer the second question of law also in the affirmative and against the Revenue. However, there will be no order as to costs.