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1996 Supreme(MP) 747
S.K. Kulshrestha, A Mathur J.
Commissioner Of Income-Tax
vs
Hindustan Electrographites Ltd.
DECIDED ON : 23 August, 1996
Unabsorbed depreciation is to be taken into account in arriving at the written down value for the purposes of allowing deduction under Section 80J of the Income-tax Act, 1961.
Headnote:
INCOME TAX - Section 80J - Unabsorbed depreciation - Whether to be deducted for working out written down value - Held, yes
Fact of the Case:
The assessee claimed a deduction under Section 80J of the Income-tax Act, 1961, on the amount of unabsorbed depreciation. The Assessing Officer disallowed the claim, holding that only the depreciation actually allowed should be deducted from the cost of the assets to arrive at the written down value (WDV), for the purposes of working out the deduction under Section 80J. The Commissioner of Income-tax (Appeals) upheld the order of the Assessing Officer. On further appeal, the Tribunal held that the unabsorbed depreciation was an asset in the form of debt due to the assessee and that Explanation 3 to Section 43(6) of the Income-tax Act, was not applicable in the context of Section 80J. The Revenue then made an application under Section 256(1) for reference of the question arising out of the order of the Tribunal.
Finding of the Court:
The court held that the unabsorbed depreciation is also to be taken into account in arriving at the written down value. The court found that the Tribunal was not right in the facts and circumstances of the case, in holding that the unabsorbed depreciation was not to be deducted for working out the written down value for the purposes of allowing deduction under Section 80J of the Income-tax Act.
Issues: Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that the unabsorbed depreciation is not to be deducted for working out the written down value for the purpose of allowing deduction under Section 80J of the Income-tax Act ?
Ratio Decidendi: The court held that Section 80J itself makes a reference for the purposes of arriving at the written down value to Section 43(6) as per Explanation 3 to the said Section and it is, therefore, not permissible to ignore the meaning assigned in Clause (6) of Section 43 and Explanation 3 to the said Section. With great respect, we find ourselves unable to agree with the said decision of the Calcutta High Court in relation to the determination of the written down value as, to us, on a plain reading of the provisions of Sections 80J and 43(6) of the Act in conjunction with Explanation 3 to Section 43(6), the unabsorbed depreciation is also to be taken into account in arriving at the written down value.
Final Decision: The question is, thus, answered in favour of the Revenue and against the assessee.
S.K. Kulshrestha, J.
1. The Income-tax Appellate Tribunal, Indore Bench, Indore, has referred the following question of law under Section 256(1) of the Income-tax Act, 1961, arising out of the order of the Tribunal, at the instance of the Revenue for the opinion of this court :
"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that the unabsorbed depreciation is not to be deducted for working out the written down value for the purpose of allowing deduction under Section 80J of the Income-tax Act ?"
2. The assessee is a limited company engaged in the manufacture and sale of graphite electrodes and graphite anodes, in collaboration with a French company. The claim of the assessee for deduction under Section 80J of the Act on the amount of unabsorbed depreciation was disallowed by the Assessing Officer who did not accept the assessee's contention that only the depreciation actually allowed should be deducted from the cost of the assets to arrive at the written down value (for short "WDV"), for the purposes of working out the deduction under Section 80J. The order of the Assessing Officer was upheld in appeal by the Commissioner of Income-tax (Appeals) and on further appeal to the Tribunal, the Tribunal took the view that the unabsorbed depreciation was an asset in the form of debt due to the assessee in accordance with Clause (iv) of Sub-rule (2) of Rule 19A of the Income-tax Rules. The Tribunal also held that Explanation 3 to Section 43(6) of the Income-tax Act, was not applicable in the context of Section 80J and accordingly, held that the unabsorbed depreciation was not to be deducted for the purposes of working out the written down value under Section 80J of the Income-tax Act, 1961. The Revenue then made an application under Section 256(1) for reference of the question arising out of the order of the Tribunal and, hence, the said question has been referred for the opinion of this court.
3. We have heard learned counsel for the parties and perused the record.
4. Section 80J of the Income-tax Act, 1961, provides for deduction in respect of profits and gains from newly established undertakings or a ship or a hotel business, in certain cases. Sub-Section (1) of Section 80J reads as under :
"80J. (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel, to which this Section applies, there shall, in accordance with and subject to the provisions of this Section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains (reduced by the deduction, if any, admissible to the assessee under Section 80HH or Section 80HHA) of so much of the amount thereof as does not exceed the amount calculated at the rate of six per cent, per annum on the capital employed in the industrial undertaking or ship or business of the hotel, as the case may be, computed in the manner specified in Sub-section (1A) in respect of the previous year relevant to the assessment year (the amount calculated as aforesaid being hereafter, in this Section, referred to as the relevant amount of capital employed during the previous year) . . .
(1A)(I) For the purposes of this Section, the capital employed in an industrial undertaking or the business of a hotel shall, except as otherwise expressly provided in this Section, be computed in accordance with Clauses (II) to (IV) and the capital employed in a ship shall be computed in accordance with Clause (V).
(II) The aggregate of the amounts representing the values of the assets as on the first day of the computation period of the undertaking or of the business of the hotel to which this Section applies shall first be ascertained in the following manner :--
(i) in the case of assets entitled to depreciation, their written down value ;
(ii) in the case of assets acquired by purchase and not entitled to depreciation, th
