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In the High Court of Andhra Pradesh at Hyderabad
CHANDRA REDDY AND KUMAR AYYA, JJ.
Vankadam Lakshminarayana - Applicant
Versus
The Commissioner of Income-Tax, Andhra Pradesh, Hyderabad - Respondent
C.R. No. 15 of 1959
Decided on : 07-09-1960
The written down value of a vehicle for the purpose of calculating depreciation under section 10(2)(vii) of the Income Tax Act, 1961, is the actual cost to the assessee less all depreciation actually allowed to him under the Act.
Headnote:
INCOME TAX - Depreciation - Written down value - Whether the written down value of the vehicle should be arrived at after taking into account the normal depreciation and additional depreciation to which an assessee is entitled under section 10(2), clauses (vi) and (vi-a) or the depreciation allowance that is actually allowed to him by reason of section 10(3) of the Act.
Fact of the Case:
The assessee, a family business dealing in tobacco, purchased a new Vauxhall motor car for Rs. 13,144 on 12th December 1952, for partial use in the family business and partial use for non-business purposes. The car was sold for Rs. 4,025 on 22nd August, 1955, resulting in a loss. The Income-Tax Officer determined the depreciation allowance under sections 10(2)(vi) and 10(2)(vi-a) and computed the loss permissible under section 10(2)(vii) at Rs. 78. The assessee contended that the loss sustained was Rs. 708 and not Rs. 78.
Finding of the Court:
The court held that the written down value of the vehicle should be arrived at after taking into account the depreciation allowance that is actually allowed to the assessee by reason of section 10(3) of the Act and not the normal depreciation and additional depreciation to which an assessee is entitled under section 10(2), clauses (vi) and (vi-a).
Issues: 1. Whether by reason or sale of motor car for Rs. 4,025 the assessee sustained any loss thereon for the purpose of making the allowance spoken of in section 10(2)(vii); and 2. If the answer to the above question is in the affirmative, whether the said loss is Rs. 78 or Rs. 708 or another sum.
Ratio Decidendi: The court interpreted the definition of 'written down value' in section 10(5)(b) of the Income Tax Act, 1961, and held that it means the actual cost to the assessee less all depreciation actually allowed to him under the Act. The court found that the Legislature had advisedly used the words 'depreciation actually allowed' to the assessee and that there was a distinction between 'depreciation allowable to an assessee' and 'depreciation allowed to him'. The court also rejected the theory that the concept underlying section 10(3) is that the asset used partly for business purposes and partly for non-business purposes should be regarded as half the asset used for business purposes.
Final Decision: The court answered both questions in favor of the assessee and held that the loss sustained by the assessee was Rs. 708 and not Rs. 78.
ORDER :
CHANDRA REDDY, C.J.
2. This reference raises questions of interest and importance and is bare of authority. It involves the following questions:—
(1) Whether by reason or sale of motor car for Rs. 4,025 the assessee sustained any loss thereon for the purpose of making the allowance spoken of in section 10(2)(vii); and
(2) If the answer to the above question is in the affirmative, whether the said loss is Rs. 78 or Rs. 708 or another sum.
3. The circumstances leading to this reference may be briefly stated. The assessee family is a dealer in tobacco. A new Vauxhall motor car was purchased by this family on 12th December 1952, for Rs. 13,144 for the use partially of the family business and partially for non-business purpose; such as personal requirements of the members of the family. The accounts of the bnsiness were made up for the year ending with 31st March of every year. For the assessment years 1953-1954, 1954-1955 and 1955-1956 the Income. Tax Officer made allowance of depreciation under sections 10(2)(vi) and 10(2)(vi-a). The car was sold for Rs. 4,025 on 22nd August, 1955, i.e., in the ‘previous year’ ended with 31st March, 1956, relevant to the assessment year 1956-1957.
In that year also the Income-tax Officer determined the depreciation allowance under sections 10(2)(vi) and 10(2)(vi-a) and computed the loss permissible under section 10(2)(vii) at Rs. 78.
4. Contending that the loss sustained by the assessee in that deal was Rs. 708 and not Rs. 781 the assessee carried the matter in appeal to the Appellate Assistant Commissioner. The appellate authority confirmed the assessment concurring in the view of the Income-Tax Officer.
5. In the further appeal taken by the assessee to the Income-Tax Appellate Tribunal, this contention was repeated by the assessee. The Appellate Tribunal felt that the procedure adopted by the department in anrving at the written down value was erroneous, since it had not taken into account the depreciation allowable under clauses (vi) and (vi-a) in the determination of the written down value. The Tribunal expressed the view that, the methed of computation adopted by the department was more favourable to the assessee in that if the method indicated by them was adopted, the sale of the car should have resulted in a profit and not in a loss. However, as there was no appeal by the department against the assessment made by the Income-Tax Officer, the Tribunal opined that they could not enhance the assessment. In the result, the appeal was dismissed. The questions stated above have been referred to us under section 66(1).
6. The point that calls for decision here is whether the written down value of the vehicle should be arrived at after taking into account the normal depreciation and additional depreciation to which an assessee is entitled under section 10(2), clauses (vi) and (vi-a) or the depreciation allowance that is actually allowed to him by reason of section 10(3) of the Act.
7. This depends upon the language of sections 10(2), clauses (vi), (vi-a), (vii), section 10(3), sections 10(5)(a) and 10(5)(b).
Section 10(2): Such profits or gains shall be computed after making the following allowances, namely:
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Clause (vi): In respect of depreciation of such buildings, machinery, plant or furniture being the property of the assessee, a sum equivalent .. .. .. to such percentage on the original cost thereof to the assessee as may in any case at class of cases be prescribed . . . . . to such percentage on the written down value thereof an may in any case or class of cases be prescribed.
And where the buildings have been newly erectedr or the machinery of plant being new, not being machinery or plant entitled to the development rebate under clause (vi-b) has been installed, after the 31st day of March, 1945, and before the 1st day of April, 1956, a further sum which shall however not be deductible in determining the written down value for the purposes of this clause in respect of the year of erecti
