COMMISSIONER OF INCOME-TAX vs. DAUDAYAL HOSTELS PVT LTD

ITR/41/1994HC GujaratGJHC24020119199431 August 2005Author: HONOURABLE MR. JUSTICE D.A.MEHTA,HONOURABLE MS. JUSTICE HARSHA DEVANI15 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that initial depreciation allowed under Section 32(1)(v) of the Income Tax Act, 1961, is in the nature of an incentive and not depreciation in the conventional sense. The phrase 'all depreciation actually allowed' in Section 43(6)(b) refers to depreciation that forms part of the WDV calculation. Since initial depreciation was explicitly excluded from determining the WDV for the purpose of Clause (ii) of Section 32(1) prior to the amendment, it did not affect the WDV calculation in earlier years. The amendment by the Finance Act, 1983, which omitted this exclusionary clause, was not retrospective. Therefore, the initial depreciation allowed in AY 1982-83 could not be deducted for computing the WDV for AY 1985-86. The Tribunal was correct in its decision. The question is answered in the affirmative, in favour of the assessee.

What were the facts?

The assessee, Daudayal Hotels Pvt Ltd, commenced its hotel business on October 25, 1981. For Assessment Year (AY) 1982-83, it was allowed normal depreciation. However, initial depreciation under Section 32(1)(v) of the Income Tax Act, 1961, was not debited to the Written Down Value (WDV) as per the provisions then in force. For AY 1985-86, the Assessing Officer (AO) reduced the WDV of the hotel building by the initial depreciation of Rs. 6,74,500/- allowed in AY 1982-83. The Commissioner of Income Tax (Appeals) deleted this addition, holding that the WDV was wrongly reduced. The Income Tax Appellate Tribunal upheld the CIT(A)'s order. The Revenue has referred the matter to the High Court.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that initial depreciation allowed in AY 1982-83 on a new hotel building is not deductible for arriving at the WDV in view of the amendments effected by the Finance Act, 1983? (Question of law) Assessee's Contention (as understood from the judgment): The assessee contended that the deletion of the phrase “but any such sum shall not be deductible in determining the written down value for the purposes of Clause (ii)” with effect from April 1, 1984, could not be applied retrospectively. Therefore, the initial depreciation allowed in AY 1982-83 should not be deducted for computing the WDV for subsequent years. Revenue's Contention: The Revenue argued that under Section 43(6)(b) of the Act, WDV means actual cost less all depreciation actually allowed. Since initial depreciation was admittedly granted in AY 1982-83, the AO was required to deduct it while computing the WDV for the year under consideration. The omission of the restrictive phrase by the Finance Act, 1983, justified this reduction.

Which sections of the Income-tax Act were involved?

Section 32,Section 32(1)(v),Section 43,Section 43(6),Section 43(6)(b)

AI-generated summary — verify with the full judgment below

ITR/41/1994 1/15 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No. 41 of 1994 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTA AND HONOURABLE MS.JUSTICE H.N.DEVANI ============================================================== 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? ============================================================== COMMISSIONER OF INCOME-TAX - Applicant Versus DAUDAYAL HOTELS PVT LTD - Respondent ============================================================== Appearance : MR BB NAIK for the Applicant. NOTICE SERVED for the Respondent. ===================================================================== CORAM :  HONOURABLE MR.JUSTICE D.A.MEHTA and HONOURABLE MS.JUSTICE H.N.DEVANI Date : 31/08/2005 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE D.A.MEHTA)

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