Kerala H.C : Whether, on the facts and in the circumstances of the case— (i) the assessee is entitled to depreciation at the rate of 40% ?

High Court Of Kerala

CIT vs. S.A. Wahab

Section 32

Asst. Year 1980-81

K.S. Paripoornan & Varghese Kalliath, JJ.

IT Ref. No. 548 of 1985

12th October, 1989

Counsel Appeared

P.K. Ravindranatha Menon & N.R.K. Nair, for the Revenue : P. Balachandran, for the Assessee

VARGHESE KALLIATH, J.:

At the instance of the Revenue, the Tribunal , Cochin Bench, has referred the following questions of law for the decision of this Court : “Whether, on the facts and in the circumstances of the case— (i) the assessee is entitled to depreciation at the rate of 40% ? (ii) the claim on the basis of a rule that came inot force on 24th July, 1980, for the asst. yr. 198081 is not a debatable issue ? (iii) the learned Tribunal is right in allowing the application of the assessee under s. 154 of the IT Act ?”

The assessee is a bus operator. While completing the assessment, depreciation at the rate of 30% was allowed by the ITO. The assessment was for the year 1980-81. The assessee filed an application under s. 154 of the IT Act and claimed depreciation at the rate of 40%. The ITO did not allow it. The assessee claimed 40% depreciation on the basis of the amendment made to the IT Rules by the IT (Fifth Amendment) Rules, 1980. True, the effect of the amendment was that depreciation at the rate of 40% was allowable on motor vehicles instead of at 30%. The amended rules came into effect on 24th July, 1980.

The assessee filed an appeal before the CIT(A). The CIT(A) held that the amendment can have only prospective operation and since it came into effect only on 24th July, 1980, the assessee can get the benefit of the amendment only if the amendment is given retrospective operation which, according to the CIT(A), is against law. It held that the assessment has to be made on the basis of the law as it stood on 1st April, 1980, and if the law applicable on 1st April, 1980, is applied to the question relevant to the issue, the depreciation allowable was only 30% and so no correction under s. 154 of the IT Act was required.

The assessee filed a second appeal before the Tribunal . The Tribunal , relying on the Madras Bench decision of the Tribunal in Rayalaseema Passenger and Goods Transport (P) Ltd. vs. IAC (1984) 7 ITD 111, has held that the assessee is entitled to depreciation at 40%. The Tribunal held that the principle that the law on the first day of the assessment year alone is applicable to the particular assessment year is not absolute and that is subject to the qualification that where any provision expressly states the date from which it is effective, it must be given effect to accordingly and since it has been expressly provided that the amended rules would come into force on 24th July, 1980, they will apply to all the assessments which were completed after that date. Further, the Tribunal found that the intention of the amendment can never be a matter of debate so far as the income-tax authorities were concerned and that the issue cannot, therefore, be said to be a debatable one, that relief to the assessee cannot be denied when the assessee has applied for rectification under s. 154 of the IT Act. The Tribunal held that the assessee is entitled to 40% depreciation on the stage carriages owned by the assessee. Now, at the instance of the CIT, Cochin, the Tribunal has referred the questions of law referred to in paragraph 1.

We heard counsel for both sides. The assessment year in question is 1980-81 and the law governing the assessment is the law as it stood on 1st April, 1980. The notification amending the rule came into effect only on 24th July, 1980. It has to be noted that the amendment was effected in regard to the IT Rules by the IT (Fifth Amendment) Rules, 1980. The rule-making power is admittedly a subordinate legislative power. If the parent Act does not give specifically the power to make rules retrospectively but the rule is made retrospectively by express terms or by necessary implication, being a subordinate legislation, it is not possible to hold that the rule will have retrospective operation. The question that has to be considered is, even without retrospective operation, can the assessment be rectified under s. 154 of the IT Act on the ground that the assessment made applying the law as it stood on 1st April, 1980, is incorrect.

We are of the opinion that though the subject of the charge is the income of the previous year, the law to be applied is the law that is in force in the assessment year, unless the law is changed. In fact, what has to be looked into is the law of income-tax. The provisions of the IT Act as they stand on 1st April of a financial year must apply for that year. Further, since the law that has to be applied is the law as it stands on 1st April of a financial year, any amendments in the Act, which come into force after 1st April, of a financial year, would not apply to the assessment for that year, even if the assessment is actually made after the amendments came into force. This position has been made clear by the Supreme Court in CIT vs. Scindia Steam Navigation Co. Ltd. (1961) 42 ITR 589 (SC) and Karimtharuvi Tea Estate Ltd. vs. State of Kerala (1966) 60 ITR 262 (SC). Approving CIT vs. Scindia Steam Navigation Co. Ltd. (supra) and Karimtharuvi Tea Estate Ltd. vs. State of Kerala (supra), the Supreme Court observed in Reliance Jute and Industries Ltd. vs. CIT (1979) 13 CTR (SC) 186 : (1979) 120 ITR 921 (SC), that “It is a cardinal principle of the tax law that the law to be applied is that in force in the assessment year unless otherwise provided expressly or by necessary implication”. Any deviation from this cardinal principle and a claim made deviating from this fundamental basis underlying every income-tax assessment have to be rejected as misconceived.

It has to be remembered that the Supreme Court has made it very clear in Karimtharuvi Tea Estate Ltd. vs. State of Kerala (supra) that, any amendments in the Act which come into force after the first day of April of a financial year, would not apply to the assessment for that year, even if the assessment is actually made after the amendments come into force. We may also quote the plain and clear observation on the point in question by the Supreme Court in CIT vs. Scindia Steam Navigation Co. Ltd. supra. It observed that (at page 613) “On the merits, the appellant had very little to say. He sought to contend that the proviso though it came into force on 5th May, 1946, was really intended to operate from 1st April, 1946, and he referred us to certain other enactments as supporting that inference. But we are construing the proviso. In terms, it is not retrospective, and we cannot import into its construction matters which are ad extra legis, and thereby alter its true effect”. Further, it was said in Karimtharuvi Tea Estate Ltd. vs. State of Kerala (supra), that “In the instant case, there is no escape from the conclusion that the Surcharge Act not being retrospective by express intendment, or necessary implication, it cannot be made applicable from 1st April, 1957, as the Act came into force on 1st September of that year”. What is stated in CIT vs. Best and Co. (P) Ltd. (1979) 119 ITR 830 (Mad), has no application in this case. In that case, the Madras High Court held that (headnote) “The well-settled proposition that the law as on the 1st day of April of any assessment year should govern the assessment for the year is not absolute but is subject to qualification by any express provision or necessary implication .A provision may be retrospectively brought into the statute book even subsequent to 1st April so as to affect any assessment year. Where any provision expressly states the date from which it is to be effective, it must be given effect to accordingly”. It has to be noted that what was considered in this case is an amendment in the statute itself.

In this case, it has to be noted that the amendment sought to be relied on is not an amendment of the Act, but only the rules.By no stretch of imagination, it is possible to hold that the rules can have retrospective operation. In this view, we are of opinion that the provisions of law relating to depreciation as they stood on 1st April, 1980, have to be applied in this case. The ITO and the CIT (A) have done so. But the Tribunal disagreed, according to us erroneously, with the orders of ITO and the CIT(A).

10. We are of the opinion that the questions referred to us have to be answered in the negative and against the assessee and in favour of the Revenue. The income-tax reference is disposed of as above.

[Citation :182 ITR 464]

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