JUDGMENT
SRINIVASA IYENGAR J. – These three references relates to the same assessee and the question referred is common but in relation to the three assessment years 1970-71, 1971-72 and 1972-73. The question referred is as follows :
“Whether, on the facts and in the circumstances of the case and on proper interpretation to be utilised for scientific research, would qualify for depreciation allowance under section 32 in the years other than the year of purchase ?”
The question of allowing depreciation in respect of certain assets which had been purchased in the earlier years and utilised for purposes of scientific research by the assessee was not put forth before the ITO in the assessment years under consideration. But such a claim was put forth before the AAC in an appeal filed by the assessee against the orders of assessment. The AAC, following a decision of the Bombay Bench of the Income-tax Appellate Tribunal, upheld the claim of the assessee and directed depreciation being allowed in accordance with the provisions of the Act, in respect of such assets. On further appeal by the department, the Commissioner, the above question has been referred for the opinion of this court.
As is clear from the question itself, the depreciation claim was in respect of assets which had been purchased in earlier years. It is also clear that the assessee had been granted relief under s. 35(2)(a) of the I.T. Act, 1961, as the capital expenditure had been incurred after the March 31, 1967, in respect of assets meant for scientific research. That is, the whole of the capital expenditure incurred in respect of the assets had been deducted in the year of purchase. The contention on behalf of the department was that by allowing depreciation in the subsequent years in respect of such assets, there would be a double relief which was not contemplated by the Act. This contention was rejected by the Tribunal and, in out opinion, rightly.
Section 32 which provides for allowance of depreciation allowance is not subject to any other allowance provided in the Act, and in particular not subject to the allowance to be made under s. 35(2)(a). Neither does the later provision restrict the grant of the depreciation allowance on the ground that relief is granted under that section. This becomes clear by a reading of cl. (iv) of s. 35(2) which is as follows :
“(iv) where a deduction is allowed for any previous year under this section in respect of expenditure represented wholly or partly by an asset, no deduction shall be allowed under clauses (i), (ii), (iii) and (vi) of sub-section (1) or under sub-section (1A) of section 32 for the same previous year in respect of that asset.”
The prohibition is only in regard to grant depreciation allowance in the same previous year in which an allowance under s. 35 is given. There is also one significant circumstance to be noticed in respect of capital expenditure incurred prior to April 1, 1967. Under s. 35(2)(i) deduction was allowed over a period of five years at 1/5th of the capital expenditure incurred in the previous year and the subsequent four years. In relation to this, cl. (v) of s. 35(2) provided :
“(v) where the asset mentioned in clause (ii) is used in the business after it ceases to be used for scientific research related to that business, depreciation shall be admissible under clauses (i), (ii) and (iii) of sub-section (1) of section 32.”
Clause (ii) made provision that :
“… where an asset representing expenditure of a capital nature incurred before the first day of April, 1967, ceased to be used in a previous year for scientific research related to the business and the value of the asset at the time of the cessation, together with the aggregate of deduction already allowed under clause (i) falls short of the said expenditure, then –
(a) there shall be allowed a deduction for that previous year of an amount equal to such deficiency, and
(b) no deduction shall be allowed under that clause for that previous year or for any subsequent previous year.”
Clause (v) was framed having in view the non-availability of deduction under cl. (i) and in order to enable the assessee to have the benefit of depreciation allowances for the subsequent years. This indicates that the legislature was keen on providing for depreciation allowance whenever a special allowance over a period was to be discontinued. We do not find any such restriction in regard to the assets in relation to which capital expenditure had been incurred subsequent to April 1, 1967. The Tribunal made some reference to the provisions of s. 43 wherein the actual cost was defined. This has no bearing on the question whether the assessee was entitled to depreciation allowance or not. If the assessee is entitled to depreciation the method prescribed for calculating the actual cost had to be followed and that would not determine the entitlement to depreciation. Therefore, the view taken by the Tribunal that the assessee was entitled to depreciation allowance in respect of the assets in regard to which capital expenditure had been incurred subsequent to April 1, 1967, is correct.
Accordingly, we answer the question in the affirmative. Parties shall bear their own costs.