S. 32(1) — exercising of option under Rule 5(1A) for higher depreciation — Claim made in return of income is sufficient — No separate procedure to exercise the option of higher depreciation is required.

For the A.Y. 2003-04, the
return of income was filed on due date but the return of income for A.Y. 2005-06
was filed after the due date. The assessee had a windmill which was entitled to
higher rate of depreciation as per Appendix IA to Rule 5(1A).

The Assessing Officer
disallowed the claim of higher depreciation on the ground that the option of
higher depreciation was not ‘exercised’ by the assessee ‘before’ the due date of
filing return of income.

The contention of the
Revenue was that the assessee should have exercised the option by writing a
simple letter and submitting the same before the due date. Merely claiming
higher depreciation in the return along with audit report filed on due date
would not suffice.

Before the Tribunal, two
questions arose for consideration :

(i) Whether filing of
return of income along with audit report showing the claim of higher
depreciation amounts to exercising option required under second proviso to
Rule 5(1A) ?

(ii) Whether return filed
on due date would be considered as exercising option before the due date ?

(i) Explanation 5 to
Ss.(1) of S. 32 clarifies that provisions of S. 32(1) shall apply whether or
not assessee has claimed depreciation.

(ii) The above shows that
the Assessing Officer is duty-bound to allow deduction of depreciation as per
S. 32(1).

(iii) Though the proviso
stipulates that the option has to be exercised by the assessee before the due
date of filing return, the same is only to facilitate the AO in discharging
its obligation. The AO is otherwise under an obligation to allow the
depreciation.

(iv) The option to be
exercised is mentioned in the Rules and Rules cannot override the provision in
the statute. The requirement of Proviso 2 of Rule 5(1A) cannot be held of the
nature that the failure of the same would prove fatal and the very object of
provision of higher depreciation is defeated.

(v) When there is no
prescribed procedure or mode of exercising option, then the option exercised
by claiming deduction in return is sufficient.

(vi) The meaning of
‘before’, includes the return filed on the last date also. It simply means not
after the due date.

(vii) As far as A.Y.
2003-04 is concerned, the return was filed on due date claiming higher
depreciation. Hence, the required conditions of claiming on or before the due
date are fulfilled. As far as A.Y. 2005-06 is concerned, the third proviso to
Rule 5(1A) states than once the option is exercised, the same shall be final
and apply to all the subsequent years. Hence, late filing of return for A.Y.
2005-06 would have no consequence since the option was already exercised in
return filed on due date for A.Y. 2003-04.