Depreciation – WDV – Section 43(1), (6) – A. Ys. 1976-77 to 1978-79 – Depreciation “actually allowed” – No concept of allowance on notional basis: Amalgamation – WDV of fixed assets of amalgamating company to be calculated on basis of actual cost less depreciation actually allowed to amalgamating company:

The
non-resident holding company of the assessee had an industrial
undertaking in India. Under a scheme of amalgamation, the industrial
undertaking was hived off to the assessee and the assets and liabilities
of the undertaking were taken over by the assessee. For the A. Ys.
1976-77 to 1978-79 the assessee claimed that for the purpose of granting
depreciation, the cost of the assets should be taken at the original
cost, viz., Rs. 2,54,67,325/- or alternatively at Rs. 1,72,78,297/-
being the cost, less depreciation actually allowed. The Assessing
Officer took the WDV of Rs. 93,14,942/- which was arrived at after
taking into account depreciation that would have been granted to the
parent company under the provisions of the Act.This was upheld by the
Tribunal.

On appeal by the assessee, the Bombay High Court reversed the decision of the Tribunal and held as under:

“i)
There was no concept of depreciation being allowed on a notional basis
or that depreciation can be granted implicitly as held by the Tribunal.
The depreciation has to be actually allowed as can be discerned from a
conjoint reading of the provisions in the Act. The WDV of the fixed
assets of the parent company had to be calculated on the basis of the
actual cost less depreciation “actually allowed” to the parent company.
The WDV could not have been arrived at on the basis that depreciation
had been granted on a notional basis, or implicitly as held by the
Tribunal.

ii) The scheme of amalgamation approved by the
assessee itself had valued the fixed assets at Rs. 1,72,78,297/-, which
valuation had been arrived at after taking into account depreciation.
This being the case, and the assessee having accepted the WDV of the
fixed assets at Rs. 1,72,78,297/-, it could not be heard to say that the
WDV had to be calculated by taking into account the figure of Rs.
2,54,67,325/- being the original cost of the fixed assets to the parent
company.”