Kerala H.C : Whether impugned notification cannot be viewed as discriminatory and violative of rights of assessee under article 14 of Constitution of India

High Court Of Kerala

R. Surendran Vs. Union Of India

Section : 32

A.K. Jayasankaran Nambiar, J.

W.P. (C) No. 23789 Of 2010(W)

October 31, 2014

JUDGMENT

1. The petitioner, who is an advocate by profession and an assessee under the Income-tax Act, 1961, challenges exhibit P10 notification dated April 21, 2009, by which the Income-tax Rules, 1962, were amended to provide for accelerated depreciation at the rate of 50 per cent. for new commercial vehicles that were acquired on or after the 1st day of January, 2009, but before the 1st day of October, 2009, and put to use before the first day of October, 2009, for the purposes of business or profession. The petitioner, having purchased a new motor car on December 11, 2009, found that he was not entitled to the accelerated depreciation envisaged under exhibit P10 notification in view of the fact that he had not purchased the car during the period envisaged for accelerated depreciation under exhibit P10 notification. In the writ petition, the notification is impugned on the ground that, in differentiating between those assessees who had acquired commercial vehicles during the period from April 1, 2009, to September 30, 2009, and those who had purchased motor vehicles between October 1, 2009, and March 31, 2010, the notification had virtually differentiated between assessees who were similarly situated, for the purposes of assessment during the assessment year 2010-11. It is the specific contention of the petitioner that by effecting a classification between assessees in a particular financial year, which classification did not have any rational basis that had any nexus to the object sought to be achieved by the legislation, the fundamental right of the petitioner, against discriminatory treatment, under article 14 of the Constitution of India had been infringed. The petitioner also impugns the notification on the ground that the amendment to the Rules, that had the effect of granting the benefit of enhanced depreciation in the middle of a financial year to only certain assessees, militated against the settled position in law that the law, as applicable on the first day of the financial year, had to apply to all those who were similarly placed, during the said year.

2. A statement has been filed on behalf of the respondents wherein it is pointed out that the amendment to the Rules, through exhibits P9 and P10 notifications, were necessitated pursuant to the announcement by the Union Government of additional measures for stimulating the economy for minimising the impact of the global financial crisis on the Indian economy. Exhibit R2(A) press release is produced, along with the statement, to show that as a measure designed to counter the recessionary trend, it was announced by the Union Government that accelerated depreciation of 50 per cent. will be provided for commercial vehicles which are purchased on or after January 1, 2009, but before March 31, 2009, which date was subsequently extended to September 30, 2009, vide exhibit P10 notification. It is clarified that the benefit of higher depreciation of 50 per cent. was extended to the acquisition of new commercial vehicles during the period specified in view of the fact that the Government of India had opined that the automobile industry still needed support during the period when the recessionary trend was noticed. The Explanatory Memoranda in respect of exhibits P9 and P10 notifications, which were laid on the table of the Lok Sabha and Rajya Sabha, are also produced as exhibit R2(B) and exhibit R2(C) along with the statement of the respondents. It is the specific contention of the respondents, therefore, that in view of the fact that the benefit of accelerated depreciation, in respect of commercial vehicles purchased and put to use during the prescribed period, was in furtherance of the policy decision of the Government taking into account the recessionary trend in the economy, there was a valid basis for the extension of the benefit of accelerated depreciation only in respect of vehicles purchased and put to use during the period fixed by the Union Government for providing the stimulus to the economy. It is contented that when there was a rational basis for the classification of vehicles for the purposes of grant of accelerated depreciation benefit, it was not open to the petitioner to impugn the notifications as offending the provisions of article 14 of the Constitution of India.

3. I have heard Sri K.P. Pradeep, the learned counsel appearing on behalf of the petitioner as also Sri P. K.R. Menon, the learned senior standing counsel appearing on behalf of the respondents.

4. On a consideration of the facts and circumstances of the case as also the submissions made across the Bar, I note that the challenge in the writ petition is against exhibit P10 notification that had the effect of amending the Income-tax Rules, 1962, to provide for an enhanced rate of depreciation of 50 per cent., as against the regular rate of depreciation of 15 per cent. applicable to commercial vehicles, for such vehicles as were purchased and put to use between April 1, 2009, and September 30, 2009, in the financial year 2009-10, relevant to assessment year 2010-11. The contention of the petitioner is that by limiting the benefit of accelerated depreciation to such vehicles as were purchased and put to use between April 1, 2009, and September 30, 2009, those assessees who had purchased similar vehicles and put them to use between October 1, 2009, and March 31, 2010, in the same financial year, were discriminated against and, hence, the petitioner, who belonged to the latter category of assessees, was aggrieved by the breach of his rights, against discriminatory treatment, envisaged under article 14 of the Constitution of India. Learned counsel for the petitioner would place reliance on the decisions reported in Kunnathat Thathunni Moopil Nair v. State of Kerala AIR 1961 SC 552, and Shashikant Laxman Kale v. Union of India [1990] 185 ITR 104/52 Taxman 352 (SC); in support of the proposition that the classification that was brought about by the Legislature had to be rational in that it had to be based on some qualities or characteristics which are to be found in all the persons grouped together and not in others who are left out and further, those qualities or characteristics had to have a reasonable relation to the object of the legislation. It is his contention that, in the instant case, there was no basis for a classification among the two categories of assessees for the purposes of grant of accelerated depreciation. He would also place reliance on the decision of the Supreme Court in Mysore Minerals Ltd. v. CIT [1999] 239 ITR 775/106 Taxman 166 to contend that the allowance for depreciation is granted to replace the value of an asset to the extent it has depreciated during the period of accounting relevant to the assessment year and as the value has, to that extent, been lost, the corresponding allowance for depreciation takes place. It is emphasised that the concept of depreciation takes into account the depreciation of the value of an asset during the period of accounting, which, under the Income-tax Act, is a whole year. It is his submission, therefore, that in the instant case, the benefit of accelerated depreciation ought to have been extended to all assessees for the whole year instead of confining it to only a specified period during the financial year. Lastly, counsel for the petitioner would also refer to the decision of the Supreme Court in Varkisons Engineers v. State of Kerala [2009] 25 VST 1; for the proposition that the imposition of a different tariff in the middle of the assessment year could not be validly sustained and the provisions of the statute as on the 1st day of the financial year had to be applicable to assessments for the said year.

5. Having considered the said contentions advanced on behalf of the petitioner, I find that the proposition, that a classification of persons effected by a legislation for the purposes of attaining specific ends has necessarily to pass the test of permissible classification under article 14 of the Constitution of India in that it cannot be arbitrary, artificial or evasive but must be based on some real and substantial distinction bearing a just and reasonable relation to the objects sought to be achieved by the Legislature, cannot be disputed. The issue involved in the instant case, however, is whether it can be said that there was any discriminatory treatment meted out to the petitioner through an amendment to the Income-tax Rules pursuant to exhibit P10 notification. As already noted, the petitioner, like any other assessee similarly placed, was entitled to claim depreciation at the rate of 15 per cent. in respect of the vehicle that he had purchased and put to use during the relevant financial year. Exhibit P10 notification as well as exhibit P9 notification that preceded it, were measures that were introduced by way of amendment to the Income-tax Rules to cater to a particular situation that existed in the country and affected its economy. Exhibit R2(A), exhibit R2(B) and exhibit R2(C) documents along with the statement filed by the respondents would clearly show that there was a policy decision taken by the Union Government, taking into account the impact of the global financial crisis on the country’s economy and providing for additional measures for stimulating the economy to minimise the recessionary trend that it was going through. It was felt necessary by the Union Government to provide for a higher depreciation of 50 per cent. in respect of new commercial vehicles that were acquired between January 1, 2009, and September 30, 2009, so as to support the automobile industry during the period when a recessionary trend was noticed in the said industry as part of the impact of the global financial crisis on the country’s economy. In other words, it is apparent that exhibits P9 and P10 notifications were necessitated to cater to a particular situation faced with regard to the country’s economy and it was in order to provide a boost to the automobile industry during the period of recession that the said measures were adopted by the Union Government. The commercial vehicles that were purchased and put to use during the period, determined by the Union Government as necessary for the purposes of providing stimulus to the economy, thus stood clearly distinct and different from the commercial vehicles that were purchased and put to use during the period in the financial year when there was no recessionary trend in the particular industry. It is settled law that when it comes to laws relating to economic activities, they have to be viewed with greater latitude than laws touching the civil rights such as freedom of speech, religion, etc., and that the court must adjudge the constitutionality of such legislative measures by the generality of its provisions and not by its crudities or inequities or by the possibilities of abuse of any of its provisions. When it comes to economic decisions, it is for the State to decide what economic and social policy it should pursue and what discriminations advance those social and economic policies. It is in view of the inherent complexity of these fiscal adjustments that courts give a larger discretion to the Legislature in the matter of its preferences of economic and social policies and effectuate the chosen system in all possible and reasonable ways (See R.K. Garg v. Union of India [1982] 133 ITR 239/[1981] 7 Taxman 53 (SC) and P.M. Ashwathanarayana Setty v. State of Karnataka AIR 1989 SC 100 Going by the principles laid down with regard to classification under fiscal statutes in the decisions noted above, I am of the view that exhibit P10 notification to the extent it confines the benefit of enhanced/accelerated depreciation for the year 2009-10 to only such commercial vehicles as have been purchased and put to use during the period from April 1, 2009, to September 30, 2009, cannot be viewed as discriminatory and, therefore, violative of the rights of the petitioner under article 14 of the Constitution of India.

6. I must now deal with the contention of the petitioner with regard to the concept of depreciation as an allowance that is granted in respect of a unit of assessment and, therefore, necessarily an allowance that must be applied for the whole year and not only for a part of the year. The petitioner is no doubt right in contending that as a concept, depreciation is meant to replace the value of an asset to the extent it has depreciated during the period of accounting relevant to the assessment year. The instant case is not one where the petitioner, as an assessee, has been denied the benefit of depreciation for any part of the year. As a matter of fact, section 32 of the Income-tax Act read with rule 5 of the Income-tax Rules, 1962, and Appendix I to the said Rules clearly provides for a depreciation at the rate of 15 per cent. for vehicles purchased during the financial year in question. Thus, it is not a case where there was no depreciation that was granted in respect of the vehicles during the accounting period. Exhibit P10 notification only had the effect of confining the benefit of enhanced depreciation to a certain category of vehicles that were purchased and put to use during the prescribed period. I am of the view that so long as the assessees under the Income-tax Act were granted the benefit of a reasonable rate of depreciation under the Income-tax Act, the mere grant of an enhanced depreciation to a category of assessees who had complied with the requirement of purchasing and putting to use vehicles during the prescribed period, would not militate against the concept of depreciation that was envisaged under the Income-tax Act for all such assessees. I am also not persuaded by the contentions of the petitioner with regard to the introduction of the benefit of enhanced depreciation in the middle of a financial year. It has to be noticed that the benefit of enhanced depreciation was introduced initially through exhibit P9 notification with effect from April 1, 2009. The said benefit was continued till September 30, 2009, through exhibit P10 notification. In so far as the benefit of enhanced/accelerated depreciation was conferred taking into account the policy decision of the Union Government to stimulate the country’s economy, it cannot be viewed as a situation similar to the introduction of a new rate of tax during the middle of an assessment year. exhibits P9 and P10 notifications were issued in response to a situation that called for incentives so as to boost the economy that was facing recessionary trends. The measures introduced in the Income-tax Rules to further the policy decision of the Union Government, cannot be seen as akin to the introduction of a new rate of tax, for the purposes of mounting a challenge against the same as arbitrary. Thus, I do not find any merit in the challenge against exhibit P10 notification on the ground that the same offends the fundamental rights of the petitioner under article 14 of the Constitution of India. Resultantly, the writ petition fails, and is accordingly dismissed.

[Citation : 369 ITR 536]