* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA No. 333/2008 & ITA No.338/2008
Reserved on : 11th August, 2009
Pronounced on: 9th October, 2009
1. ITA No.333/2008
COMMISSIONER OF INCOME TAX ...Petitioner
Through: Ms. Prem Lata Bansal, Mr. Paras
Chaudhary,Advocates.
VERSUS
HYBRID RICE INTERNATIONAL PVT. LTD. ....Respondent
Through: Mr. C.S.Aggarwal, Sr. Advocate with
Mr. Prakash Kumar, Advocate.
2. ITA No. 338/2008
COMMISSIONER OF INCOME TAX ...Petitioner
Through: Ms. Prem Lata Bansal, Mr. Paras
Chaudhary,Advocates.
VERSUS
HYBRID RICE INTERNATIONAL PVT. LTD. ....Respondent
Through: Mr. C.S.Aggarwal, Sr. Advocate with
Mr. Prakash Kumar, Advocate.
CORAM:
HON'BLE MR. JUSTICE A. K. SIKRI
HON'BLE MR. JUSTICE VALMIKI J.MEHTA
1. Whether the Reporters of local papers may be allowed to see
the judgment?
ITA Nos. 333/2008 & 338/2008 Page 1
2. To be referred to the Reporter or not?
3. Whether the judgment should be reported in the Digest?
%
VALMIKI J. MEHTA, J.
1. This common order will dispose of the two ITAs 333/2008 & 338/2008.
At the time of admission, following two questions of law were framed and
which we answer by means of this judgment:-
” 1. Whether ITAT was correct in law in allowing
depreciation to the assessee on WDV on germplasm as on
31.03.2001 when the Department had challenged the said WDV
computed by ITAT in assessment year 2001-2002?
2. Whether the cost incurred by the assessee much before
becoming an “assessee” can still be treated as actual cost to the
assessee in complete disregard to the peculiar circumstances of
the case?”
2. The issue therefore pertains to the claim for depreciation on germplasm
seeds which is a plant. That the germplasm seeds are a plant is undisputed by
the revenue. The facts of the case are that the assessee is in the business of
producing superior quality hybrid seeds of rice for supply to farmers. For the
purpose of producing hybrid seeds, the assessee is using paddy seeds, also
referred to as germplasm seeds. The germplasm is an expression broadly used
to denote the hereditary properties of the seed, which are transmitted from one
generation to another. The germplasm seed is capable of passing on the
character to the next generation and it is used as basic plant material in plant
ITA Nos. 333/2008 & 338/2008 Page 2
breeding. The assessee has claimed depreciation on germplasm seeds treating
the same asset used in the business. In the earlier years, the assessee had treated
the activity of producing hybrid seeds as an agricultural activity, which is
exempt from tax and therefore, no depreciation had been claimed. However,
after the decision of the tribunal in case of parent company i.e. M/s Pro Agro
Seeds Co. Ltd. for assessment year 1996-97, in ITA No. 90/Del/2000 wherein
similar activity was held to be non agricultural, the assessee revised the return
for the assessment year 2001-02 onwards and declared income from the activity
as business income and claimed depreciation on germplasm seeds. Depreciation
had been claimed on the actual cost of the germplasm seeds, which had been
acquired in the earlier years without making any allowance for depreciation in
the earlier years as the income in those years had been shown as agricultural
income and no depreciation had been claimed. The A.O. was not satisfied with
the claim. He asked the assessee to submit a depreciation chart on the basis of
written down value (WDV) after making notional allowance for depreciation in
earlier years. The assessee did not file any such chart and rather insisted that
the depreciation be allowed on the actual cost. In the absence of details, the
A.O. disallowed the entire claim of depreciation for the assessment year 2001-
02. For assessment year 2002-03, the depreciation allowed by him was on the
basis of WDV as per the assessment order for assessment year 2001-02. The
basic issue raised in these appeals is as to what should be the WDV of
ITA Nos. 333/2008 & 338/2008 Page 3
the germplasm seeds for the purpose of computation of depreciation. There is
no dispute about allowability of depreciation.
3. Before we proceed to deal with the issue raised, it may be appropriate to
refer to the relevant provisions of the Act relating to the allowance of
depreciation. Depreciation on an asset used for the purpose of business is
allowable under the provisions of Section 32 at a prescribed rate on the basis of
written down value (WDV) of assets of block of assets.
The WDV has been defined under sub-section (6) of section 43 to mean:
(a) In the case of assets acquired in the previous years, the actual cost
to the assessee;
(b) In the case of asset acquired before the previous year the actual
cost to the assessee less all depreciation actually allowed to him
under this Act or under the Income Act 1922 or any Act repeated
by that Act or any executive orders issued when the Indian Income
tax Act 1886 was in force.
The actual cost has been defined in sub-section(1) of section 43 as per
which actual cost means „the actual cost‟ of the assets to the assessee reduced
by that portion of the cost thereof if any as has been met directly or indirectly by
any other person or authority.
4. We find that the issue in question as to whether actual cost should be
taken for allowing of depreciation or only market value or notional written
down value (WDV) at the commencement of the assessment year is no longer
ITA Nos. 333/2008 & 338/2008 Page 4
res integra and covered by three judgments of the Supreme Court reported as
CIT Vs. Straw Products Ltd. (1966) 60 ITR 156, CIT Vs. Dharampur Leather
Co. Ltd. (1966) 60 ITR 165, CIT Vs. Nand Lal Bhandari Mills (1966) 60 ITR
173. The relevant portions of the Supreme Court judgment in Straw Products
Ltd. case reads as under:-
“The Appellate Assistant Commissioner, disagreeing with the
Income-tax Officer, held on appeal that the assessee had not been
allowed excess depreciation allowance as per the original
assessment and there was no basis for initiating proceedings
under section 34. He was of the view that the expression
“actually allowed” could not imply depreciation allowed by a
mental phenomenon. The Appellate Tribunal upheld the order of
the Appellate Assistant Commissioner and directed the
computation of the allowance on that basis. On a reference the
High Court by its judgment dated August 22, 1961, answered the
question as follows:
“In the circumstances of this case the correct basis for computing
written down value of depreciable assets of the company is the
one adopted by the Appellate Assistant Commissioner.”
“Mr. A.V. Viswanatha Sastri, the learned counsel for the
Revenue, urges before us that the High Court was wrong in
answering the question in favour of the assessee. He urges that
the expression ” actually allowed under any laws or rules of a
merged State.” occurring in paragraph 2 of the Taxation Laws
(Merged States) (Removal of Difficulties) Order, 1949, meant
income of an assessee is exempted from taxation for a certain
number of years, the assessee must be deemed to have claimed
depreciation and deemed to have been allowed depreciation
according to the provisions of the said laws or rules. He further
says it does not matter whether the assessee made a claim or not
because it is fair that when the Indian Income Tax Act is applied
the assessee should be brought at par with the assessees who had
suffered taxation under the Act.
We are unable to give such an artificial meaning to the
expression “all depreciation actually allowed under any laws or
rules”, and we agree with the High Court that the expression
“actually allowed” is unambiguous and connotes the idea that the
ITA Nos. 333/2008 & 338/2008 Page 5
allowance was actually given effect to. If it was intended to
include any allowance which are not actually allowed then the
Central Government would have added a deeming provision as
the legislature did in the Explanation to section 10(5) of the Act.”
The judgment in Dharampur Leather Co. Ltd. case having been passed on
the same day by the Supreme Court in the Straw Products case affirms the view
in the Straw Products case that the words actually allowed does not include
notional allowance.
In the Nand Lal Bhandari Mills case the Supreme Court ( per Subha Rao
& Sikri JJ), held as under:-
“that in fixing the depreciation allowance for the years in
which the respondent was assessed as a non-resident under the
Indian Income-tax Act, the Income-tax Officer had “actually
allowed” only a portion of the amount towards depreciation
allowable in assessing its world income. The mere fact that in
the matter of calculation the total amount of depreciation was
first deducted from the world income and thereafter a
proportion was struck did not amount to an actual allowance of
the entire depreciation in ascertaining the taxable income that
accrued in British India. Therefore, the depreciation deducted
in arriving at the taxable income alone could be taken into
account and not the depreciation taken into account for arriving
at the world income.”
In Mahendra Mills case the Supreme Court after reviewing various
decisions including those of its own overruled the views of various High Courts
which held that actually allowed would include notionally allowed and
approved the views of other High Courts which held that actually allowed
means only actually allowed and not notionally allowed. The head note portion
succinctly brings out the ratio of the case and the same reads as under:-
ITA Nos. 333/2008 & 338/2008 Page 6
“The language of the provisions of section 32 and 34 of
the Income-tax Act, 1961, is specific and admits of no
ambiguity. Section 32 allows depreciation as deduction subject
to the provision of section 34. Section 34 provides that
deduction under section 32 shall be allowed only if the
prescribed particulars have been furnished. Rule 5AA of the
Income-tax Rules, 1961, since deleted, provided for the
particulars required for the purpose of deduction under
section32. Even in the absence of rule 5AA, the return of
income in the form prescribed itself requires particulars to be
furnished if the assessee claims depreciation. These particulars
are required to be furnished in great detail. There is a circular
of the Board dated August 31, 1965, which provides that
depreciation could not be allowed where the required particulars
have not been furnished by the assessee and no claim for the
depreciation has been made in the return. The Income-tax
Officer in such a case is required to compute the income
without allowing depreciation allowance. The circular of the
Board dated April 11, 1955, imposes merely a duty on the
officers of the department to assist the tax payers in every
reasonable way, particularly, in the matter of claiming and
securing relief. The officer is required to do no more than to
advise the assessee. It does not place any mandatory duty on
the officer to allow depreciation if the assessee does not want to
claim. The provision for claim of depreciation is certainly for
the benefit of the assessee. If he does not wish to avail of that
benefit for some reason, the benefit cannot be forced upon him.
It is for the assessee to see if the claim of depreciation is to his
advantage. Income under the head “profits and gains of
business or profession” is chargeable to income tax under
section 28 and income under section 29 is to be computed in
accordance with the provisions contained in section 30 to 43A.
The argument that since section 32 provides for depreciation it
has to be allowed in computing the income of the assessee
cannot in all circumstances be accepted in view of the bar
contained in section 34. If section 34 is not satisfied and the
particulars are not furnished by the assessee his claim for
depreciation under section 32 cannot be allowed. Section 29 is
thus to be read with reference to other provisions of the Act. It
is not in itself a complete code.
If the revised return is a valid return and the assessee has
withdrawn the claim of depreciation it cannot be granted relying
on the original return when the assessment is based on the
ITA Nos. 333/2008 & 338/2008 Page 7
revised return. Allowance of depreciation is calculated on the
written down value of the assets, which written down value
would be the actual cost of acquisition less the aggregate of all
deductions “actually allowed”. If the assessee has not claimed
deduction of depreciation in any past year it cannot be said that
it was notionally allowed to him. A thing is “allowed” when it
is claiomed. A subtle distinction is there when we examine the
language used in section 16 and sections 34 and 37 of the Act.
It is rightly said that a privilege cannot be to a disadvantage and
an option cannot become an obligation. The Assessing Officer
cannot grant depreciation allowance when the same is not
claimed by the assessee.”
5. The counsel for the revenue has strongly relied upon the judgment of the
Supreme Court in CIT Vs. Saharanpur Electrical Supply Corporation Ltd. 194
ITR 294. We fail to understand as to how the said judgment would apply at all
to the facts of the present case. In the said judgment, the Supreme Court has
only held that if actual cost is wrongly assessed earlier, then, in the subsequent
assessment years the actual cost can be recomputed and the mistake can be
corrected. However, the facts of the present case clearly are different because in
the earlier assessment years there did not arise any question of calculation of the
actual cost because no depreciation was claimed for the earlier years. We,
therefore, also fail to understand as to how the assessee is taking advantage of
his own wrong as contended by the revenue. In fact, what is wrong which the
assessee has done of which he is seeking to take advantage is not understood
because, once it is held that depreciation is a privilege and can only be on the
basis of actually allowed and not notionally allowed, there does not remain any
issue of any wrong by the assessee. There is no wrong and as held by the
ITA Nos. 333/2008 & 338/2008 Page 8
Supreme Court in the Mahendra Mills case, it is only a privilege which the
assessee may choose to exercise or not. No doubt, statutorily a legislature can
require the actual cost to be computed in a particular way but when that is not
so, why should the assessee be deprived the benefit of depreciation with respect
to computation of his income when depreciation has not been claimed by the
assessee in the earlier years.
6. We, therefore, answer the question of law framed in that we hold that
ITAT was correct in law in allowing depreciation to the assessee on the actual
cost of the germplasm seeds and the actual cost incurred by the assessee much
before becoming an assessee can still be treated as an actual cost to the assessee
when depreciation has to be claimed.
With these observations, the appeals are dismissed.
VALMIKI J.MEHTA, J
A.K. SIKRI, J
October 9, 2009
ib
ITA Nos. 333/2008 & 338/2008 Page 9