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HIGH COURT OF CALCUTTA
CHAKRABARTI, LAHIRI
KARNANI INDUSTRIAL BANK LTD. - Appellant
Versus
COMMR. OF INCOME-TAX, WEST BENGAL - Respondent
I. T. Ref. 74 Of 1952
Decided On : JUNE 29, 1953
{'KEYWORD': 'INCOME TAX - Depreciation - Written down value - Determination of - Actual cost - Meaning of.', 'SUBJECT': 'INCOME TAX', 'ACT SECTION LIST': ['INCOME TAX ACT, 1922, SECTION 10(2)(VI)', 'INCOME TAX ACT, 1922, SECTION 10(5)'], 'SUMMARY': "The assessee claimed depreciation allowance on the original cost of machinery acquired in 1938. The Income-tax Officer, while assessing for the years 1946-47 and 1947-48, determined the actual cost of the machinery to be less than the original cost and disallowed depreciation allowance. The assessee contended that the Income-tax Officer was bound by the original cost as accepted in previous assessments and could not go behind it. The Court held that the Income-tax Officer was entitled to determine the actual cost of the machinery and was not bound by the original cost accepted in previous assessments. The definition of 'written down value' in Section 10(5) of the Income Tax Act, 1922, requires the Income-tax Officer to determine the actual cost of the asset and deduct the depreciation allowed in the past to arrive at the written down value."}
Fact of the Case:
The assessee acquired cinematographic machinery in 1938 at a cost of Rs. 3,94,000/-. The Income-tax Officer, while assessing for the years 1946-47 and 1947-48, determined the actual cost of the machinery to be Rs. 2,80,000/- and disallowed depreciation allowance.
Finding of the Court:
The Court held that the Income-tax Officer was entitled to determine the actual cost of the machinery and was not bound by the original cost accepted in previous assessments. The definition of 'written down value' in Section 10(5) of the Income Tax Act, 1922, requires the Income-tax Officer to determine the actual cost of the asset and deduct the depreciation allowed in the past to arrive at the written down value.
Issues: Whether the Income-tax Officer, dealing with the assessments for the years 1946-47 and 1947-48, was entitled in law to go behind the original cost which was accepted by his predecessor ever since the assessment year 1939-40?
Ratio Decidendi: The definition of 'written down value' in Section 10(5) of the Income Tax Act, 1922, requires the Income-tax Officer to determine the actual cost of the asset and deduct the depreciation allowed in the past to arrive at the written down value. This shows that the Income-tax Officer is not bound by the original cost accepted in previous assessments and can determine the actual cost of the asset for the purpose of calculating depreciation allowance.
Final Decision: The question referred to the Court was answered in the affirmative, holding that the Income-tax Officer was entitled to determine the actual cost of the machinery and was not bound by the original cost accepted in previous assessments.
( 1 ) ONLY a few facts require to be stated in order to explain how the question referred in this case arises.
( 2 ) THE assessee, Messrs. Kamani Industrial Bank is a limited company and on 6-4-1938, it acquired from one of its creditors some cinematographic machinery at the price, as was claimed, of Rs. 3,94,000/ -. That figure of the cost of the machinery was accepted in successive assessments of the assessee, but was doubted for the first time in the course of the assessment for the year 1946-47. That year, the Income-tax Officer seems to have made an enquiry into the circumstances in which the machinery had been acquired and he came to the conclusion that its real cost to the assessee had been not Rs. 3,94,000/-, as claimed and as also allowed in previous assessments, but only Rs. 2,80,000/ -. Since he found that depreciation allowance of the amount of Rs. 2,84,000/- had already been allowed to the assessed, he came to the conclusion that the written down value had been reduced to a minus figure and, therefore, there was no further depreciation allowance to be allowed. Necessarily, in the next assessment also, that for the year 1947-48, he made a similar order.
( 3 ) THE assessee's contention is that the Income-tax Officer was not entitled to determine afresh, as it were the original costs of the machinery to the assessee, but had merely to take the written down value of the previous year and to work out there-bom the written down value for the assessment year and then allow the statutory percentage of deduction. The authorities below did not agree and decided against it. Thereupon, the Tribunal was required to refer the matter to this Court which has been done in the form of the I following question: whether the Income-tax Officer, dealing with the assessments for the years 1946-47 and 1947-48, was entitled in law to go behind the original cost which was accepted by his predecessor ever since the assessment year 1939-40?
( 4 ) AS framed, the question seems to raise a point of estoppel or 'res judicata. ' It refers to what had been done by successive Income-tax Officers since the assessment year 1939-40 and asks whether the Income-tax Officer, dealing with the assessments for the two years in question, could take a view different from theirs with regard to the original costs of the machinery. Mr. Mitra, however, appearing for the assessee, expressly disclaimed any intention to put his argument on the ground of anything like res judicata or estoppel. He said that the terms of Section 10 (2) (vi) sufficed for him and he would only draw attention to what the section enjoined. According to Mr. Mitra, the language of Section 10 (2) (vi) limited the Income-tax Officer to working down to the written down value for the year for which he was making the assessment from the written down value accepted for the previous year. Further behind he could not, under The terms of the section, go.
( 5 ) SECTION 10 (2) (vi) is expressed in the follow ing terms: 10 (2) "such profits or gains shall be computed after making the following allowances, namely:. . . . . (vi) in respect of depreciation of such buildings, machinery, plant or furniture being the property of the assessee, a sum equivalent, where the assets are ships other than ships ordinarily plying on inland waters, to such percentage on the original cost thereof to the assessee as may in any case or class of cases be prescribed and in any other case, to such percentage on the written down value thereof as may in any case or class of cases be prescribed. . . . . ". We are really concerned with the last clause of the section. This is not a case of ocean-going ships, but one of "other" cases and, therefore, under the language of the section, the depreciation is the prescribed percentage on the written down value of the machinery or plant concerned in the case.
( 6 ) MR. Mitra's contention was that the written down value had a well understood meaning in commerce an
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