THE COMMISSIONER OF INCOME TAX vs. M/S.CROWN PRODUCTS

ITR/39/1999HC GujaratGJHC24025197199912 May 2008Author: HONOURABLE MR. JUSTICE D.A.MEHTA,HONOURABLE MR. JUSTICE Z.K.SAIYED6 pages
AI SummaryRemanded

What were the facts?

The assessee, M/s. Crown Products, a registered firm, claimed depreciation and investment allowance for the period 3.11.1986 to 31.3.1988 for Assessment Year 1988-89. The Assessing Officer proposed to allow depreciation only after revision, stating proportionate deduction was allowable only for AY 1989-90. The Commissioner (Appeals) allowed the claim for the full 17 months, relying on Rule 5 of the Income-tax Rules, 1962, and a Gujarat High Court judgment. The Income Tax Appellate Tribunal confirmed this order. The Revenue referred the question to the High Court, challenging the Tribunal's decision.

What did the High Court hold?

The High Court noted that while the Revenue's submission appeared attractive initially, a closer scrutiny of the scheme of the Act was required. The Court observed that Section 32 of the Act deals with depreciation, and from AY 1988-89, the concept of a block of assets was introduced. Rule 5 of the Rules was substituted effective 2.4.1987, deleting the existing Proviso. This Proviso allowed for an increase in depreciation allowance where the assessee varied the meaning of 'previous year' under Section 3(4) and income for thirteen months or more was included in the total income. The Court found that Section 3(4) of the Act had not been amended or substituted with effect from 1.4.1988 or 2.4.1987. Therefore, if an assessee is entitled to vary the previous year under Section 3(4), the corresponding depreciation for the extended period cannot be denied, as depreciation is a provision for wear and tear of assets used for earning income. The Court held that the substituted Rule 5 cannot override the provisions of the Act. Consequently, the matter was required to be decided afresh by the Tribunal in light of the stated legal position and after ascertaining the correct facts. The question was left unanswered.

What were the issues?

1. Whether, on facts and in law, the Appellate Tribunal was right in confirming the order allowing the assessee's claim for depreciation and investment allowance at a higher rate on a proportionate basis when the provisions of Rule 5 had been deleted with effect from 2.4.1987? (Question of law and fact, concerning Section 32 and Rule 5 of the Income-tax Rules, 1962). Assessee's contentions: Not recorded as there was no appearance. Revenue's contentions: The Proviso under Rule 5(1) of the Income Tax Rules, 1962, was deleted effective 2.4.1987. Therefore, the Assessing Officer's action was correct. Claim for depreciation for more than 12 months is allowable only for AY 1989-90. The Commissioner (Appeals) and Tribunal erred in allowing the claim for 17 months.

Which sections of the Income-tax Act were involved?

Section 32,Section 3(4),Section 256(2)

AI-generated summary — verify with the full judgment below

ITR/39/1999 1/6 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No. 39 of 1999 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTA HONOURABLE MR.JUSTICE Z.K.SAIYED ============================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ===================================================== THE COMMISSIONER OF INCOME TAX - Applicant(s) Versus M/S.CROWN PRODUCTS - Respondent(s) ===================================================== Appearance : MR BB NAIK for Applicant(s) : 1, NOTICE SERVED BY DS for Respondent(s) : 1, ===================================================== CORAM : HONOURABLE MR.JUSTICE D.A.MEHTA and HONOURABLE MR.JUSTICE Z.K.SAIYED Date : 12/05/2008 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE D.A.MEHTA)

ITR/39/1999 2/6 JUDGMENT

1.

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