Depreciation allowance under the Income Tax Act cannot be granted by the Income Tax Officer unless expressly claimed by the assessee, reinforcing the principle that taxpayer rights must be respected.

1 Civil Appeal No. 5394 of 1994
A common question of law arises in these appeals. It is:
"Whether on the facts and in the circumstances of the case, the Tribunal was right in coming to the conclusion that the Income Tax Officer could not grant depreciation allowance to the assessee under the Income Tax Act, 1961 when the same was not claimed by the assessee?"

2 The question was referred at the instance of the Revenue to the High Court by the Income Tax Appellate Tribunal ("the Tribunal" for short) for its opinion and answered in the affirmative in favour of the assessee and against the Revenue.

3 This question has been answered differently by various High Courts, one in favour of the assessee and the other in favour of the Revenue.

4 S.32 has since been amended by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, with effect from 1-4-1988. However, the answer to the question remains of substantial importance as various matters are stated to be pending in the High Courts relating to assessment years prior to 1-4-1988. S.32 as it stood prior to 1-4-1988, in relevant part, is as under:
"32. (1) In respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, the following deductions shall, subject to the provisions of S.34, be allowed--
(i) x x x x x x x x x x x x
(ii) in the case of buildings, machinery, plant or furniture, other than ships covered by clause (i), such percentage on the written down value thereof as may in any case or class of cases be prescribed:
Provided that where the actual cost of any machinery or plant does not exceed seven hundred and fifty rupees, the actual cost thereof shall be allowed as a deduction in respect of the previous year in which such machinery or plant is first put to use by the assessee for the purposes of his business or profession:
Provided further that no deduction shall be allowed under this clause or clause (iii) in respect of any motor car manufactured outside India, where such motor car is acquired by the assessee after the 28th day of February, 1975, and is used otherwise than in a business of running it on hire for tourists;
 x x x x x x x x x x x x
(2) Where, in the assessment of the assessee (or, if the assessee is a registered firm or an unregistered firm assessed as a registered firm, in the assessment of its partners) full effect cannot be given to any allowance under clause (i) or clause (ii) or clause (ii-a) or clause (iv) or clause (v) or clause (vi) of sub-s.(1) or under clause (i) of sub-s.(1-A) in any previous year owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-s.(2) of S.72 and sub-s.(3) of S.73, the allowance or part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years."

5 We may also quote S.28 and 29:
"28. The following income shall be chargeable to income tax under the head 'Profits and gains of business or profession',--
(i) the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year;
(ii) any compensation or other payment due to or received by,--
(a) any person, by whatever name called, managing the whole or substantially the whole of the affairs of an Indian company, at or in connection with the termination of his management or the modification of the terms and conditions relating thereto;
(b) any person, by whatever name called, managing the whole or substantially the whole of the affairs in India of any other company, at or in connection with the termination of h