[CIT v. Doom Dooma India Ltd., (2009) 310 ITR 392
(SC)]
The respondent-assessee was in the business of growing and
manufacturing of tea. The assessee filed its return of income for the
assessment years 1988-89 to 1991-92. The Assessing Officer completed the
assessments determining total income at a figure higher than what was
reflected in the returns. The assessee filed an appeal before the Commissioner
of Income-tax (Appeals). The assessee raised additional grounds before the
Commissioner of Income-tax (Appeals) at the time of hearing of the appeal,
inter alia, stating that the Assessing Officer had erred in determining the
opening ‘written down value’ of the block of assets without following the
provisions of S. 43(6)(b) of the 1961 Act. According to the assessee, for
arriving at the opening ‘written down value’ of the block of assets, the
Assessing Officer erred in deducting 100% of the depreciation for the
preceding year calculated at the prescribed rate from the opening ‘written
down value’. However, the assessee claimed that only 40% of the depreciation
allowed at the prescribed rate ought to have been deducted and not 100% as
done by the Assessing Officer. The assessee sought a direction from the
Commissioner of Income-tax (Appeals) to the Assessing Officer to determine the
‘written down value’ in accordance with the provisions of S. 43(6)(b) by
deducting only 40% of the depreciation computed at the prescribed rate, being
the depreciation actually allowed. Though the additional ground was allowed to
be raised, the argument of the assessee came to be rejected by the
Commissioner of Income-tax (Appeals).
Aggrieved by the decision, the assessee carried the matter
in appeal to the Tribunal. By its decision the Tribunal, following the
decision of Calcutta High Court in the case of CIT v. Suman Tea and
Plywood Industries P. Ltd. [1993] 204 ITR 719, held that since 40% of the
assessee’s composite income is chargeable u/s.28 of the 1961 Act, for the
purposes of com-puting the “written down value” of depreciable assets used in
the tea business, only 40%, instead of 100% of depreciation allowable at the
prescribed rate shall be deducted in the case of the assessee. This view of
the Tribunal was affirmed by the impugned judgment of the High Court.
On an appeal, the Supreme Court observed that the key word
in S. 43(6)(b) of the 1961 Act is ‘actually’ and in this context referred to
its decision in Madeva Upendra Sinai v. Union of India, [1975] 98 ITR
209 (SC) in which the meaning of the words ‘actually allowed’ in S. 43(6)(b)
was clearly laid down to mean — “limited to depreciation actually taken into
account or granted and given effect to, i.e., debited by Income-tax
officer against the incomings of the business in computing taxable income of
the assessee”.
The Supreme Court also referred to its decision in the case
of CIT v. Nandlal Bhandari Mills Ltd., [1966] 60 ITR 173 (SC), which
judgment was in the context of composite income and, the question, inter
alia, which arose was whether depreciation ‘actually allowed’ would mean
depreciation deducted in arriving at the taxable income or the depreciation
deducted in arriving at the world income (composite income). In that case, it
was held that the depreciation deducted in arriving at the taxable income
alone could be taken into account and not the depreciation taken into account
for arriving at the world income (composite income).
According to the Supreme Court, the above referred
judgments were squarely applicable to the present case and therefore, there
was no infirmity in the impugned judgment of the High Court. The Supreme Court
held that, in cases where Rule 8 applied, the income which is brought tax as
‘business income’ is only 40% of the composite income and consequently
proportionate depreciation is required to be taken into account because that
is the depreciation ‘actually allowed’.
