Judgment

SHAH, J.: M/s. Modi Spinning & Weaving Mills Co. Ltd., hereinafter called the Company - was incorporated in 1946. From time to time the Company purchased and installed machinery of the value of Rs. 75 lakhs for its factory. In proceedings for assessment of income-tax, the company was allowed in computing its income from business for the assessment years 1950-51, 1951-52 & 1952-53 "initial depreciation" aggregating to Rs.15,91,511/- in respect of new machinery installed in the relevant previous years. The Company was also allowed "normal depreciation" at the appropriate rates. In assessment year 1956-57 the aggregate of all depreciation allowances including "initial depreciation" exceeded the original cost of the machinery, but the Income-tax Officer on the written down value of the machinery computed at Rs. 16,48,053/- allowed Rs. 2,59,236/as normal depreciation. In so computing the normal depreciation the Income-tax Officer apparently lost sight of clause (c) of the proviso to Section 10 (2) (vi) of the Income-tax Act, 1922. Depreciation allowance was also allowed in e assessment years 1957-58 and 1958-59 as a percentage on the appropriate written down value in those years. The Income-tax Officer on November 20, 1964, issued notices of re-assessment for the three years under Section 148 of the Indian Income-tax Act, 1961, which had replaced the Act of 1922. The Company filed under protest fresh returns and objected to the issue of the notices of reassessment.

2. The Company also moved petitions in the High Court of Allahabad or writs quashing the three notices, contending, inter alia, that the notices issued more than four years after the expiry of the years of assessment were barred. At the hearing of the petitions counsel for the Company conceded that under proviso (c) to Section 10 (2) (vi) of the Indian Income-tax Act, 1922, in the form in which it stood in the assessment year 1956-57 and thereafter, excessive depreciation was in fact allowed to the Company. It was also common found that by virtue of Clause (c) to Explanation 1 of Section 147 of the Income-tax Act, 1961, income having been made the subject-matter of excessive relief under the Indian Income-tax Act, 1922, the income chargeable to tax had escaped assessment. But it was urged that the income had not escaped assessment "by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment of that year", for - (1) the Indian Income-tax Act, 1922, and the forms of returns prescribed under the rules did not require the assessee to disclose that initial depreciation had been allowed in their earlier years; and (2) that in any event the Income-tax Officer knew that initial depreciation had been allowed to the Company in the years 1950-51, 1951-52 and 1952-53.

3. R. S. Pathak, J., who heard the petitions held that the Company committed no error in failing to take into account the initial depreciation while entering the written down value in column (2) of Part V of the return. But the learned Judge held that it was incumbent upon the Company to inform the Income-tax Officer of material facts necessary to make out its claim to depreciation and it was not open to the Company to set out only those facts which exaggerated its claim: the Company was bound to disclose all material facts which went to show what the true amount of the allowance to which it was entitled. The learned Judge accordingly rejected the petitions. The order passe by Pathak, J., was confirmed in appeal under the Letters Patent.

4. By clause (vi) of sub-sec. (2) of Sec. 10 of the Income-tax Act, 1922, as amended by Act 8 of 1946, in computing the profits or gains of business, profession or vocation carried on by him, an assessee was entitled to allowance not only of normal depreciation but also initial depreciation at the rates set out in clauses (a), (b) and (c) in respect of buildings which had been newly erected, or the mach