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1935 Supreme(SC) 51
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
LORD THANKERTON, SIR LANCELOT SANDERSON, AND SIR GEORGE RANKIN
COMMISSIONER OF INCOME-TAX - Appellant
Versus
BUCKINGHAM AND CARNATIC COMPANY, LIMITED, MADRAS - Respondents
On appeal from the High Court at Madras.
Decided On : October 25, 1935.
Solicitor for the appellant:Solicitor, India Office. Solicitors for the respondents: Sander sent, Lee & Co.
Depreciation allowance under Section 10(2)(vi) of the Indian Income-tax Act, 1922, must be calculated based on the original cost to the assessee (the person being taxed), meaning a successor company must use its acquisition cost, not the original cost to predecessor companies.
Headnote:(A) Indian Income-tax Act, 1922 - Section 10, sub-section 2(vi) - Depreciation allowance - Calculation of original cost - Interpretation of "original cost thereof to the assessee" - Where a company succeeds to the business of other companies, the depreciation allowance on assets taken over must be calculated based on the value at which the assets were acquired by the successor company and not on the original cost to the predecessor companies.
(B) Statutory Interpretation - Plain meaning rule - Where the words of a statute are clear and unambiguous, the ordinary and natural meaning must be adopted - No words should be inserted into the section that are not present and not necessary for an intelligible construction.
Facts of the case:
A public limited company acquired the businesses of five predecessor companies. The buildings and machinery were taken over at their written-down value rather than the original cost incurred by the predecessor companies. The company claimed depreciation based on the original cost to the predecessors. The tax authorities disallowed this, allowing depreciation only on the actual cost to the successor company.
Findings of Court:
The company is entitled to depreciation allowance on the assets taken over calculated on the value at which those assets were taken over by the company from the predecessor companies, and not upon the original cost of those assets to such predecessor companies.
Issues: Whether the depreciation allowance on assets taken over from predecessor companies should be calculated on the original cost of these assets to the predecessor companies or on the value at which these assets were taken over by the successor company.
Ratio Decidendi: The phrase "original cost thereof to the assessee" refers to the person who owns the property and is being assessed. Under the Act, the "assessee" is the person by whom income-tax is payable. Therefore, the cost to be considered is the original cost to the successor company. The court rejected the interpretation that the legislature envisaged a successor company's right to the predecessor's cost, as such a reading would require inserting words not found in the statute.
Result: Appeal allowed.
Legal Category Hierarchy
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taxation
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income tax
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business profits
- depreciation allowance
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business profits
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income tax
Judgement
Appeal (No. 15 of 1935) from a judgment and order of the High Court (May 2, 1934) upon a reference made by the Income-tax Commissioner under s. 66, sub-s. 1, of the Indian Income-tax Act, 1922.
The first and main question directed to be referred, and dealt with by the judgment, was " Whether the Buckingham and Carnatic Company, Ld., which succeeded to the business of the Buckingham Mill Company, Ld., the Carnatic Mill Company, Ld., the Jamalmadugu Press Company, Ld., the Tiruppur Press Company, Ld., and the Tadpatri Cotton Press Company, Ld., is entitled under s. 10, sub-s. 2 (vi.), of the Act, to depreciation allowance on the assets taken over from the five predecessor companies calculated on the original cost of these assets to such predecessor companies or on the value at which these assets were taken over by the Buckingham and Carnatic Company, Ld., from the predecessor companies ?"
The material facts and the contentions appear from the judgment of the Judicial Committee.
The High Court (Beasley C.J., Ramesam and Sundaram Chetti JJ.) answered the question adversely to the Income-tax Commissioner.
1935. Oct. 10. Dunne K.C. and Hubert Hull for the appellant.
Reginald Hills for the respondents.
[Reference was made to Commissioner of Income-tax v. Massey & Co., Ld. (( 1928) 56 Mad. L. J. 451 ; 3 Ind. T. C. 302.) ; Commissioner of Income-tax v. Saraspur Mills Co., Ahmedabad (( 1931) I.
L. R. 56 B. 129) ; Motiram Rosan Lal Coal Co., Ld. v. Commissioner of Income-tax (( 1932) I L. R. 12 Pat. 12.) ; In re The Commissioner of Income-tax, Burma v. E. Solomon & Sons (( 1933) I. L. R. 11 R. 514.) ; Scottish Shire Line, Ld. v. Lethem (( 1912) 6 Tax Cas. 91 ; 1912 S. C. 1108); and to
s. 26, sub-s. 3, of the Finance Act, 1907.]
Oct. 25. The judgment of their Lordships was delivered by
SIR LANCELOT SANDERSON. This is an appeal by the Commissioner of Income-tax from a judgment and order of the High Court of Judicature at Madras dated May 2, 1934, whereby the High Court, upon the hearing of a case referred to it by the appellant under the provisions of the Indian Income-tax Act, 1922 (XL of 1922), answered certain questions of law raised thereby adversely to the contentions of the appellant.
The questions of law referred to the High Court arose in the course of the assessment of the profits and gains of the business of the respondent company for the tax year beginning on April 1, 1931.
The main question arising for determination in this appeal is whether the allowance to be made to the respondent com pany in respect of depreciation of buildings and machinery used by them for the purposes of their business should be calculated by reference to the cost thereof to the respondent company, or by reference to the original cost thereof to certain companies from which such buildings and machinery were acquired by the respondent company.
Law. Rep. 63 Ind. App. 74 ( 1935- 1936) C ommissioner of I.T. v. Buckingham and Carnatic
177
The material facts, as stated in the case which the Commissioner of Income-tax referred for the opinion of the High Court under s. 66, sub-s. 1, of the said Act are as follows —
The Buckingham and Carnatic Company, Ld. (hereinafter referred to as "the company "), is a public limited company which was incorporated on November 29, 1920, under the Indian Companies Act, 1913.
The objects of the company were to acquire, take over, amalgamate with, work and carry on the businesses hitherto carried on in Madras and elsewhere by five limited companies, which were registered under the Indian Companies Act, and the goodwill of the said businesses, to enter into and carry into effect an agreement which had been prepared and was expressed to be made between the said five companies, their liquidators and the company, to carry on the business so to be acquired and generally to carry on the business of cotton spinners.
The said five companies were incorporated on various dates ranging from 1876 to 1888.
The above-mentioned agre
