ORDER
S.K. Chander, Accountant Member
1. This appeal by the revenue is directed against the order of the learned CIT(A),VI, New Delhi dated 17-1-1985 relating to the asst. year 1980-81. There is only one ground in appeal and that is as under:-
On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) erred in directing that the depreciation be allowed @ 40% as against 30% allowed by ignoring the fact that depreciation at the enhanced rate of 40% is allowable in terms of I.T. (5th Amendment) Rules, 1980 for asst. year 1981-82 as the amended rules were effective from 24-7-1980.
2. On the above ground, we have heard the parties. The issue really before us is as to the date from which the Income-tax (Fifth Amendment) Rules, 1980 should be considered effective so as to entitle the assessee to claim depreciation @ provided therein which is 40%. In this regard, we have considered the submissions of both the sides, along with the authorities cited. In exercise of the powers conferred by Section 295 of the Income-tax Act, 1961, the Central Board of Direct Taxes made rules by way of amendment of the Income-tax Rules, 1962. In this regard, Notification No. S.0.562(E) dated July 24, 1980 was issued. This can be found at Page 1 Statutes of 126 ITR. These rules are called Income-tax (Fifth Amendment) Rules, 1980. The notification records that, “they shall come into force at once”. Earlier depreciation on motor lorries was provided at the rate of 30% but under these rules, the depreciation will be at rate of 40%. The assessee derives income from transport and, therefore, claim enhanced rate of depreciation to be allowed to him for the asst. year 1980-81 for which the return was filed on 12-5 -1980. This claim of the assessee was negatived by the ITO but the learned CIT(A) allowed the claim. Hence, the appeal from the revenue.
3. It is now well settled that the law as on the 1st day of April of any asst. year should govern the’asst. for that year. However, this proposition of law is not absolute and is subject to qualification by any expressed provision or necessary implication, as held by the Hon’ble supreme Court in the case of CIT v Isthmian Steamship Lines [1951] 20 ITR 572. The Hon’ble Madras High Court in the case of ClT v. Best & Co. (P.) Ltd. [1979] 119 ITR 830, has reiterated this law and has further observed that a provision may be retrospectively brought into the statute book even subsequent to 1st April, so as to affect any year. Where any provision expressly states the date from which it is to be effected, it must be given effect to accordingly.
4. The issue, that is before us, has in fact already been considered by various Benches of the Tribunal. Hyderabad Bench “A” in the case of South India Road Transport Co. expressed the view that enhanced rate of depreciation on lorries notified by the Govt. in notification dated 24-7-1980 mentioned supra was applicable to asst. year 1980-81. However, Calcutta Bench ‘C in the case of Bharat Roadways held that the enhanced rates were not applicable to asst. year 1980-81. Thus, we find that there is a conflict of opinion on this issue.
5. We are of the considered opinion that the view taken by the Hon’ble Hyderabad Bench is applicable to the case before us because:
(a) The notification records that the amended rules shall come into force at once. This means that there is expressed intendment of the rules to be made effective from the date of this notification i.e., 24-7-1980. Therefore, to our mind this is an exception to the general proposition of law that law to be applied to an asst. is as obtaining on the First day of April of that year.
(b) These rules are substantive in nature and effect the rights of the parties. These relate to a fiscal statute. In case of a possibility of two reasonable views on such a matter, it is now well settled by various judgments of the Supreme Court that a view that favours the citizens should be adopted.
(c) Since, there is use of the words “at once”, if the rules are not made effective w.e.f. 24-7-80,these words will become redundant. Redundancy is not recognized in such matters.
(d) The CBDT after issuance of the notification.it was a common ground by the parties at the Court, has not issued any clarifications on this notification. The rules were admittedly amended for the benefit of the transport industries and higher depreciation was considered justified, in view of the rapid fall in price and lesser demand for vehicles during that period which the Govt. wanted to check.
6. Therefore, on the facts and circumstances of the case, we are of the opinion that the view taken by the CIT(A) is fully justified and warrants no interference at our hands at the instance of the revenue. The appeal of the revenue dismissed.
S.S. Mehra, Judicial Member
1. The draft order prepared by the learned A.M. has carefully been gone into. However, it is regretted that I could not persuade myself to agree with the conclusion arrived at.
2. The facts by and large have been incorporated in the order. The main issue for determination is whether the assessee was entitled to the benefit of the notification dated 24-7-80. Earlier depreciation rate was 30% on lorries whereas from the above date it was raised to 40%.
3. The assessee’s accounting period expired on 31-3-80. The notification is dated 24-7-80. It came in force at once. It may not be out of place to mention that notification ushered in a substantive provision. A right was conferred on assessee, to claim higher depreciation from the date of notification. It has not been the intention that the notification had effect from back date. It was thus relevant only from 24-7-80. The law pertaining to procedure could apply to pending matter but not one which is substantive in nature.
4. The assessee in the present case may be entitled to argue that law applicable on 1-4-80 i.e., the first day of the assessment year should be applied. There may be no dispute about such position, but from this assessee does not get the benefit. The law brought in existence on 24-7-80 could not be considered as also existing on 1-4-80. This is also the difficulty in this case brings the fact that notification did not deal with procedural law.
5. The assessee’s accounting period expired on 31-3-80 and thus, he was entitled to claim depreciation at the rate relevant on that day or at the most the next day i.e. 1-4-80. To stretch it further in my view will be erroneous and impermissible. With such understanding I hold that the learned ITO allowed depreciation at the correct rate and the learned CIT(A) without rhyme and reason vacated such finding. I vacate the impugned finding on this point and restore that of the learned ITO.
6. The appeal thus succeeds.
ORDER UNDER SECTION 255(4) OF THE I.T. ACT AND 24(11) OF THE W.T. ACT.
This appeal was heard by a Division Bench ‘D’. The Members constituting the Bench have difference of opinion on the following point:
Whether on the facts and in the circumstances of the case the assessee is entitled to depreciation at the rate of 40% on motor transport vehicles for the assessment year 1980-81 in view of the Notification dated 24-7-1980 in terms of Income-tax (Fifth Amendment) Rules, 1980 ?
2. Therefore, by virtue of the provisions of Section 24(11) of the W.T. Act, 1957 read with Section 255(4) of the I.T. Act, we refer the point of difference to the Hon’ble Presider* of the Tribunal for necessary action.
ORDER
G. Krishnamurthy, President
1. In this appeal filed by the Revenue against an order of the Commissioner (A), VI, New Delhi relating to the assessment year 1980-81, the Members of the Tribunal, who heard this case, had a difference of opinion as to the conclusion to be reached. That is how the matter has come before me as a Third Member under Section 255(4) of the Income-tax Act. The question that came up for consideration before the Bench was whether depreciation should be allowed at 40% or at 30% in terms of Income-tax (Fifth Amendment) Rules, 1980 as amended with effect from 24-7-1980.
2. In exercise of the powers conferred by Section 295 of the Income-tax Act, 1961 the Central Board of Direct Taxes made rules by way of amendment of Income-tax Rules, 1962 and issued a Notification No. S.O.562(E) dated 24th July, 1980 which is published at page 1 Statutes of 126 ITR. The notification states that these rules shall come into force at once. Earlier depreciation on motor lorries was allowable at the rate of 30% but under these rules the depreciation has to be allowed at the rate of 40%. The assessee being a transporter claimed depreciation at the enhanced rate of 40% in respect of vehicles even for the assessment year 1980-81, the return for which was filed on 12-5-1980. The Income-tax Officer negatived the assessee’s claim but it was allowed by the Commissioner (A), aggrieved by which the department filed a second appeal before the Tribunal contending that this notification providing for enhanced rate of depreciation was not available for the assessment year 1980-81 and had come into force only from the assessment year 1981-82.
3. The learned Accountant Member took the view that since it was the settled law that the law as on the 1st day of April of any assessment year should govern the assessment for that year and since the Notification issued on 24-7-80 should be deemed to be in force as on 1-4-1980 as the notification stated that it shall come into force at once, the assessee is entitled to the enhanced rate of depreciation. He relied on a decision of the Income-tax Appellate Tribunal, Hyderabad Bench ‘A’ in the case of South India Road Transport Co. for this purpose. He also noticed that the Calcutta Bench of the Tribunal in the case of Bharat Roadways had taken a contrary view. However, the view taken by the Hyderabad Bench was more preferable and for that purpose he has given four reasons in his opinion, the first of which was as we have already pointed out above that the notification was to come into force at once, which meant that there was an express intention to make the rules effective from the date of the notification, which meant taking effect from 1-4-1980. Secondly the rules were of substantive nature and affected the rights of the parties and in case of a possibility of two reasonable views, the view in favour of the subject must be preferred and thirdly if such an interpretation of giving effect to this notification with effect from 1-4-1980 is not given, the expression ‘at once’ used in the notification would become redundant. When higher rate of depreciation was considered essential by the Government with a view to promote transport industry, there is no reason as to why the benefit of the circular should not be given even for the assessment year 1980-81.
4. But the learned Judicial Member was not prepared to accept these reasons. He was of the opinion that as there was nothing in the notification to suggest that the intention was to give effect from a back date, the notification must be given effect to from the date from which it came into force i.e., 24-7-80 and as that date fell in the previous year relevant for the assessment year 1981-82 and not in the previous year relevant to the assessment year 1980-81, the effect of the notification could be given only for the assessment year 1981-82. It was to give effect to the assessment year 1981-82 that the words ‘at once’ were used and by the use of the words ‘at once’ an inference that the higher rates were available even for the assessment year 1980-81 could not be drawn. It was on account of this difference of opinion that the matter was referred to me as a Third Member couching it in the following words:-
Whether on the facts and in the circumstances of the case, the assessee is entitled to depreciation at the rate of 40% on motor transport vehicles for the assessment year 1980-81 in view of the Notification dated 24-7-1980 in terms of Income-tax (Fifth Amendment) Rules, 1980 ?
5. Notification No. S.O. 562(E) dated 24-7-1980 published on the same day in the Gazette of India states :
In exercise of the powers conferred by Section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely :-
1. (1) These rules may be called the Income-tax (Fifth Amendment) Rules, 1980. (2) They shall come into force at once.
2. In Part I of Appendix I to the Income-tax Rules, 1962, in the Table of rates at which depreciation is admissible, in column 1, under the heading “III. Machinery and Plant (not being a ship) -“, under the sub-heading “(ii) Special rates :-
(a) in Group D, for item (9), the following item shall be substituted, namely :-
‘(9) Motor buses and motor lorries other than those used in a business of running them on hire (N.E.S.A.)’
(b) in Group E, after item (1), the following item shall be inserted, namely :-
‘(1A) Motor buses, motor lorries and motor taxies used in a business running them on hire (NESA)’.
It will be seen from this notification that these rules are to come into force at once i.e., from the day these were published. The expression “at once” would indicate and strongly suggest a sense of urgency and immediacy in publishing these rules. If the rules were to come into force with effect from 24-7-1980 i.e., for the assessment year 1981-82, which would start from 1-4-1981. I am unable to see why the notification should be issued about 6 months in advance and that too by making the rules to come into force “at once”. If we see the next notification, namely, Income-tax (Sixth Amendment) Rules, 1980, which is Notification No. S.O. 695(E) dated 29-8-1980, that has clearly pointed out that the notification shall come into force on the 1st day of September, 1980. Whenever the Central Board of Direct Taxes desired the notification to come into force from a particular day, that particular day was being mentioned in the notifications. This suggests that in cases where the notification was to take effect instantaneously without any delay the words “at once” have been used. By the use of the expression “at once” and making the rules to come into force at once, the object of these rules is to extend the benefit of the enhanced rate of depreciation to motor buses and motor lorries other than those used in a business of running them on hire. This date falls on 24-7-1980. If it is taken as a date falling in a particular previous year, then this date falls in the previous year relevant to the assessment year 1981-82 only but if the date is taken as a date to come into operation in the assessment year 1980-81, it comes into operation from 1-4-1980. By making the date to come into force at once, one advantage that enures to the assessees is to compute their tax liabilities for the purpose of payment of advance tax due for the assessment year 1981-82. If that was the object which the Central Board of Direct Taxes had in mind, then the benefit must go only for the assessment year 1981-82 but at the same time we cannot forget the principle of law, which is now well settled, that the law as on the 1st day of the assessment year must be applied to make the assessment for that year. If this principle is worked its way, then the date of 24-7-80 falls in the assessment year 1981-82 and since the income is to be computed with effect from 1-4-80 onwards to 31-3-81, the effect of this notification must be given for the income that accrues in this period, which means that the benefit of the notification must be given with effect from 1-4-1980. Both the learned Members have agreed on the principle that the notification is substantive in nature, beneficial too and not procedural and that the law to be applied in the assessment year to make the assessment for that year is the law available on the 1st day of the assessment year. As I have pointed out above, the learned Judicial Member was of the view that this notification which was issued on 24-7-80 could not be related back to the date of 1-4-80 and therefore it could not be said to be in existence on that date, whereas the learned Accountant Member pointed out that it must be related back to the date of 1 -4-1980 because the assessment year starts from that day and not from the date of 24-7-1980. I see no justification and good logic in the view expressed by the learned Judicial Member. A somewhat similar situation had come up for consideration before the Constitution Bench of the Supreme Court in Mathra Parshad & Sons v. State of Punjab [11962] 13 STC 180. Here the appellant was selling manufactured tobacco as a registered dealer under Section 7 of the East Punjab General Sales Tax Act, 1948. On 1-4-1954 the Punjab Tobacco Vend Fees Act, 1954 came into force. On 27-9-1954 the Government issued a notification exempting manufactured tobacco from the levy of sales-tax by including the manufactured tobacco as item No. 51 in the Schedule of exemptions. The notification did not mention the date from which the notification is operative. The question arose whether the notification had effect only from 27-9-54 or from the beginning of the financial year. It was held by the Court by majority that as the tax under the Act was yearly and was to be paid on the taxable turnover of a dealer, the exemption whenever it came in, in the year for which the tax was payable, would exempt sales of those goods throughout the year, unless the Act said that the notification was not to have this effect or the notification fixed the date for the commencement of the exemption. As the notification did not fix the date from which the exemption was to operate, the exemption must operate for the whole year during which it was granted. The principle laid down by the Supreme Court in this case was that if a notification was issued in the middle of the assessment year and if no date was fixed from which the notification was to operate, the notification was to operate from the beginning of the year i.e. for the whole year.
6. If I apply this principle to the facts before me, the notification was issued on 24-7-80’and it was to come into force at once i.e. from that day and since that day falls in the assessment year 1980-81,1 am of the opinion that the notification was to take effect from the assessment year 1980-81 onwards and not from the assessment year 1981-82 unless it was the intention of the Central Board of Direct Taxes to give this benefit only from the assessment year 1981-82 and by the use of the words “at once” it is not possible to infer that the notification was only to operate for payment of advance tax for the assessment year 1981-82 for which there were three more instalments to be paid after the date of the issue of the notification but I do not find any such intention from the notification, which I have extracted above. Such a construction would also defeat the well settled principle of law that the law to be applied for making an assessment is the law prevalent on the 1st day of the assessment year and not the law prevalent during the previous year.
7. For these reasons I express my agreement with the view expressed by the learned Accountant Member, in arriving at which he relied on the leading Supreme Court decision on the subject namely, Isthmian Steamship Lines’ case (supra). To the same effect are the decisions of the Privy Council in the case of Maharajah of Pithapuram v. CIT [l945] 13 ITR 221,of the Supreme Court in the case of CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589 and Karimtharuvi Tea Estate Ltd. v. State of Kerala [1966] 60 ITR 262 (SC).
8. The matter will now go before the regular Bench for decision according to majority opinion.