High Court Of Madras
The Guindy Machine Tools (P) Ltd. vs. CIT
Sections 32(1)(iii), 37(1), 43(3), 43(6), 80V
Asst. Year 1986-87
R. Jayasimha Babu & A.K. Rajan, JJ.
T.C. Nos. 409 & 410 of 1986
6th December, 2001
Counsel Appeared
V.S. Jayakumar, for the Applicant : Mrs. Chitra Venkatraman, for the Respondent
ORDER
R. JAYASIMHA BABU, J. :
Two questions have been referred to us one at the instance of the assessee and one at the instance of the Revenue. The assessment year is 1986-87.
2. The question referred to us at the instance of the assessee who is a manufacturer of machine tools is :
“Whether, on the facts and in the circumstances of the case, the interest paid under s. 139(8) of the IT Act, 1961, is to be allowed as a deduction under s. 80V and s. 37(1) of the IT Act, 1961?” This question is required to be answered against the assessee in the light of the decision of the Supreme Court in the case of Bharat Commerce & Industries Ltd. vs. CIT (1998) 145 CTR (SC) 340 : (1998) 230 ITR 733 (SC) : TC S17.1878, wherein it was held that interest levied under s. 139 of the IT Act for delay in filing the return and interest levied under s. 215 of the Act for failure to pay the advance tax upto the statutory percentage, are not allowable deductions as “business expenditure” under s. 37 of the Act. The question referred at the instance the assessee is, therefore, answered against the assessee and in favour of the Revenue.
3. The question that is referred at the instance of the Revenue is that : “Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was entitled to the deduction of a sum of Rs. 60,226 under s. 32(1)(iii) in respect of payment made to Finmotil SA Zurich towards technical know- how?” The assessee had claimed a deduction of Rs. 60,226 being the cost at which the assessee had acquired drawings, material, specification, process sheets, assembly data, technical information and other instructions to enable the assessee to manufacture hand operated self-centering chucks of different sizes, in May, 1963, from a company in Switzerland. That amount had not been claimed as a revenue expenditure by the assessee in the year of acquisition or in subsequent years. The assessee had also not claimed any depreciation thereon. It had all along treated the same as a capital asset. In the previous years relevant to this assessment year, the assessee discarded those drawings, etc., on the ground that it had become obsolete and wrote off that amount in its books. The assessee had by then commenced manufacture of more sophisticated power operated chucks such as pneumatic chucks and hydraulic chucks. The assessee claimed the amount so written off as depreciation by relying on s.32(1)(iii) as it stood during that assessment year. That claim was disallowed by the AO as also by the appellate authority but was allowed by the Tribunal.
3A. Sec. 32(1)(iii) of the IT Act as it stood in that assessment year read thus : “Sec. 32.(1)(iii) in the case of any building, machinery, plant or furniture which is sold, discarded, demolished or destroyed in the previous year (other than the previous year in which it is first brought into use), the amount by which the moneys payable in respect of such building, machinery, plant and furniture, together with the amount of scrap value, if any, fall short of the written down value thereof :”
4. That provision is applicable to building, machinery, plant or furniture which is sold, discarded, demolished or destroyed in a previous year in which it is brought into use. That section is applicable to “plant”. “Plant” is defined in s. 43(3) of the Act, thus : “‘plant’ includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession but does not include tea bushes or livestock.”
5. The Supreme Court in the case of Scientific Engineering House (P) Ltd. vs. CIT (1985) 48 CTR (SC) 386 : (1986) 157 ITR 86 (SC) : TC 29R.512, held that drawings, designs, charts, plans, processing data and other literature fall within that definition of “plant”. The drawings and other documents which the assessee had obtained from the Swiz manufacturer for manufacturing hand operated chucks clearly constituted “plant” to which s.32(1)(iii) was applicable.
6. The assessee did not sell those drawings and other documents but discarded the same. The question of ascertaining the money payable for those items, therefore, does not arise. The extent of depreciation that can be claimed under s. 32(1)(iii) is the amount for which the monies payable for the building, machinery, plant or furniture together with the amount of scrap value if ,any fall short of the written down value. When no amount is payable for what has been discarded, the question of deducting the same from the written down value does not arise. When the drawings and other documents are discarded or destroyed and the contents thereof are not capable of being put to use by any other person, there is no scrap value either. The written down value also becomes the amount which can be claimed as the amount of depreciation. The written down value is defined under s. 43(6) of the Act which reads thus, “(6) ‘written down value’ means— (a) in the case of assets acquired in the previous year, the actual cost to the assessee ; (b) in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Act, or under the Indian IT Act, 1922 (11 of 1922), or any Act repealed by that Act, or under any executive orders issued when the Indian IT Act, 1886 (II of 1886), was in force : Provided that in determining the written down value in respect of buildings, machinery or plant for the purposes of cl. (ii) of sub-s. (1) of s. 32, ‘depreciation actually allowed’ shall not include depreciation allowed under sub-cls. (a), (b) and (c) of cl. (vi) of sub-s. (2) of s. 10 of the Indian IT Act, 1922 (11 of 1922), where such depreciation was not deductible in determining the written down value for the purposes of the said cl. (vi).” The Explanations thereunder not being relevant for the present purpose, the same need not be set out and are not set out.
7. The definition of “written down value” in the case of assets acquired before the previous year therefore, is “the actual cost of the asset less all depreciation actually allowed to him under the Act or any other Act”. In this case the assessee had not claimed any depreciation for this asset, and, therefore, no occasion for allowing the same had arisen and no depreciation had been “actually allowed”. The Supreme Court in the case of CIT vs. Mahendra Mills (2000) 159 CTR (SC) 381 : (2000) 243 ITR 56 (SC), as set out in the headnote therein, held that, “‘Actually allowed’ does not mean ‘notionally allowed’ and that if the assessee has not claimed deduction of depreciation in the past year it cannot be said that it was notionally allowed to him.”
8. Having regard to that position of law, the written down value of the assets in respect of which the assessee claims depreciation here is the cost of acquisition, as no depreciation had been claimed or actually allowed and, therefore, the deduction of any amount allowed as depreciation from the cost of acquisition was not possible. The cost of acquisition itself became, in this case, the written down value. Though the words used are “written down value” implying that the value written is something that is brought down from a higher figure, that expression is normally apposite only where the asset had depreciated and the value written down is less than the cost of acquisition. Having regard to the manner in which the term written down value has been used in s. 32(1)(iii) of the Act and having regard to the definition thereof under s. 43(6), there is no reason why the cost of acquisition itself cannot be regarded as the written down value in a case like this.
9. Learned counsel for the Revenue submitted that the law has been subsequently amended and that, though that amendment is yet to be brought into force, the amendment having been enacted in 2001, to come into effect from 2002, we should take note of it and give effect to it. We do not find it possible to accede to such an argument. A law which has to take effect from a future date cannot be regarded as having already come into effect even when it has not. It does not even purport to be retrospective in operation. The amendment assumes existence of doubts, and purports to remove the same by including a declaration as an Explanation in a newly added Expln. 5 into s. 32(1) to the effect that the provisions of the sub-section shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income. We fail to see what doubt there can be about the legal position after the Supreme Court had laid down the law, the law having been laid down in the case of Mahendra Mills already referred to. The Supreme Court therein categorically held that the words, “actually allowed” with reference to depreciation does not mean “notionally allowed” and that depreciation cannot be granted even when it is not claimed. As observed by the Court, a privilege, namely, a privilege of claiming depreciation cannot be turned into a disadvantage even when the assessee does not claim depreciation and an option given to the assessee cannot be made into an obligation.
10. The amendment relied upon by the Revenue as and when it takes effect can be considered only after it has taken effect and though prima facie we are not persuaded to hold that there is any doubt with regard to the legal position, the interpretation of that provision can be considered only after that provision comes into force.
11. Learned counsel also referred us to the decision of this Court in the case of CIT vs. Southern Petro Chemicals (1998) 147 CTR (Mad) 520 : (1998) 233 ITR 400 (Mad) : TC S28.2927 wherein it was held, inter alia, that it was not open to an assessee to withdraw the particulars regarding the grant of depreciation by filing a revised return and that depreciation being a statutory allowance it is open to the ITO to grant depreciation even if it is not claimed. Though that judgment was not referred to in the case of Mahindra Mills (supra), having regard to the law laid down by the Supreme Court in the case of Mahendra Mills, we are bound by the law so laid down. Counsel submits that the decision of this Court in the case of Southern Petro Chemicals (supra), is under appeal before the Supreme Court. That does not make any difference so far as the law laid down by the apex Court in the case of Mahindra Mills being the law which is binding on all the Courts in India under Art. 141 of the Constitution.
12. The question referred to us at the instance of the Revenue is, therefore, answered against the Revenue and in favour of the assessee.
[Citation : 254 ITR 780]
