ORDER
Per Chander – The Commissioner of Income-tax, Delhi-VII, New Delhi is before us with a prayer that the following two questions, said to be questions of law and said to arise out of the order of the Tribunal bearing ITA No. 4040/DEL/1985 dated 31-7-1987 be referred to the Honble High Court for its option :-
“1. Whether on the facts and in the circumstances of the case, the ITAT was right in law in holding that the balancing charge of Rs. 28,488 on sale of a truck was not exigible to tax when the income from the said truck for the assessment years 1974-75 to 1980-81 had been assessed on a net profit basis.
2. Whether, on the facts and in the circumstances of the case the Tribunal was right in law in holding that section 41(2) of the I. T. Act cannot be invoked on the basis of depreciation implicitly allowed in the computation of income ?”
2. After hearing both the sides, however we are of the opinion that no referable question of law arises out of the order of the Tribunal for the following reasons.
3. Before the Tribunal the objection was that the Commissioner (A) erred in law and against the facts of the case by sustaining an addition of Rs. 28,460 under section 41(2) on the sale of Truck No. 8198. Truck No. 8198 was purchased by the assessed in the previous year relevant for the assessment year 1974-75 for Rs. 43,000. The assessed not having maintained any books of account for any of the past years, the income from the truck was estimated for the years 1974-75 to 1980-81. The income so estimated from the truck ranged between Rs. 5,000 (Assessment Year 1974-75) and Rs. 9600 (Assailment year 1980-81). The assessed claimed no depreciation on this truck for any of the assessment years. From these facts, the ITO assumed that the income assessed was the net income after allowing all expenses including depreciation. The Commissioner (A) also did so. Thus, when the assessed sold the truck for Rs. 32,000 in this year, the ITO calculated the balancing charge, at Rs. 28,466. The Commissioner (A) rejected the assesseds claim that no depreciation having been actually allowed, there was no room for taxing any profit under section 41(2). This was on the ground that the income assessed from the truck in the past was so low that depreciation must be deemed to have been allowed.
4. After hearing the parties, the Tribunal found that the addition of Rs. 28,460 was bad in law and against the facts on record. It is common ground before it that no depreciation was claimed by the assessed at any time and none was allowed actually by the ITO for any of the past assessment years. Section 41(2) clearly stipulates that a profit there under may be assessed only where the sale proceeds of the machinery or plant exceeds the written down value. Under section 43(6) “Written down value” means the actual cost of the assessed of the asset less the depreciation actually allowed to him. There was no room here for any deemed depreciation allowance.
5. The above position found by the Tribunal shows that there was no allowance of depreciation to the assessed on the truck was sold. Since, factually, there was no depreciation allowed, the question of any amount to be taxed u/s. 41(2) could not arise. The questions as sought by the revenue are, therefore, not referable questions of law. The reference application is missed.
DRAFT STATEMENT OF THE CASE
Applicant revenue by their present reference application u/s. 256(1) of the Income-tax Act, 1961, presented on 18-2-1988, require the Tribunal to refer, for the esteemed opinion of the Honble Delhi Highs Court, the questions mentioned hereinafter said to be referable questions of law and further stated to be arising out of order dated 31-7-1987, of Amritsar Bench, Camp at New Delhi, of the ITAT, in ITA No. 4040(Del.) 85 for the asstt. year 1981-82.
2. The said questions are as under :-
“1. Whether on the facts and in the circumstances of the case, the ITAT was right in law in holding that the balancing charge of Rs. 28,466 on sale of a truck was not exigible to tax when the income from the said truck for the asstt. years 1974-75 to 1980-81 had been assessed on a net profit basis ?
2. Whether on the facts and in the circumstances of the case the Tribunal was right in law in holding that section 41(2) of the I. T. Act cannot be invoked on the basis of depreciation implicitly allowed in the computation of income ?”
3. Since the order dated 31-7-1987 of the Bench was prepared by the worthy Vice President, Western Zone, (Dr. S. Narayanan) as the learned Accountant Member, this order in the present reference application was prepared by the learned Accountant Member, Shri S. K. Chander, on 27-7-1988. I have carefully perused the said order in the light of the asstt. order, the first appellate order and the Tribunals order. My inability to agree with the conclusion arrived at by my learned brother is regretted. The learned Accountant Member has proposed that reference application should be dismissed. On the other hand, I am of the view that referable questions of law as suggested by the applicant, do indeed arise from the Tribunals order as the finding was recorded by the Bench after following the ratio in the case of Karamat Khan 52 ITR 642 (All.) (sic). In view of the above I am of the view that mixed questions of law and fact do definitely arise and, therefore, reference is required to be made to the Honble High Court for their valued opinion.
4. The draft statement is prepared as under :-
5. assessed in this case is an individual by status and derived income from supply of building material and also plying of trucks. Accounting period was the year ending 31-3-1981. The assessed purchased Truck No. 8198, during the period relevant to the asstt. year 1974-75, for a sum of Rs. 43,000. Income there from was declared on estimate basis, as no books of accounts were maintained. The said truck was sold for Rs. 32,000 against the purchase price of Rs. 43,000. The assessed claimed a capital loss of Rs. 11,000. The learned ITO noted that the income from the truck had been shown from asstt. years 1974-75 to 1980-81, on various figures, on estimate. The assesseds claim of capital loss was rejected and in fact on account of balancing charges, an addition of Rs. 28,460 was made, inter alia, with the following observation :-
“The assessed was required to explain the reasons for claiming loss of Rs. 11,000 on sale of this truck it was stated that the same represents the difference between the cost of acquisition of the truck and the selling price i. e., Rs. 43,000 minus Rs. 32,000 = Rs. 11,000. The assessed asserted that this loss was claimed as a business loss since no depreciation had been claimed on the said truck. I do not agree with the version of the assessed. The assessed has been returning very ridiculously low figure of income from the plying of this truck and has never stated in the return that depreciation is not being claimed. Where the income from plying of trucks and buses etc. is returned on estimate basis, it is deemed that the same has been disclosed after duly claiming the depreciation thereon, otherwise as in the case of the assessed the return income would have been a loss every year. The balance charge derived by the assessed on the sale of this truck is computed as under. :
W.D.V. after allowing depreciation @ 30% on the original cost of truck from asstt. years 1974-75 to 1980-81 Rs. 32,000
(-) Rs. 3,540
Rs. 28,460
Rs. 28,460.”
Copy of the asstt. order dated 1-2-1984 is marked as annexure A and forms part of the statement of the case.
6. This issue was contested by the assessed and the learned AAC, New Delhi, agreeing with the reasons of the learned ITO, refused to interfere.
Copy of the first appellate order dated 30-11-1985 is marked as annexure B and forms part of the statement of the case.
7. Thereafter the matter was brought by the assessed before the ITAT and the following ground was taken :
“That the learned AAC has grossly erred in law as much as against the fact of the case by sustaining the addition of Rs. 28,460 under the head of balancing charges in respect of sale of Truck No. 9198 ?”
8. The Bench after considering the facts in details and the rival submissions deleted the addition with the following observation :
(Reproduced para 5 of the Tribunals order)
A copy of the Tribunals order dated 31-7-1987 is marked as annexure C and forms part of the statement of the case.
9. From the preceding paragraphs it is clear that referable mixed questions of law and fact to arise from the Tribunals order and the same are, therefore, referred for the esteemed opinion of the Honble Delhi High Court.
ORDER U/S. 255(4) OF THE I. T. ACT, 1961.
We have not been able to arrive at an agreed conclusion in the above matter and the file is, therefore, being placed before the Honble President for further action for reference to a Third Member. The point of difference is as under :
“Whether on the facts and in the circumstances of the case, no referable questions of law arises out of the order of the Tribunal bearing ITA No. 4040/DEL/1985 dated 21-7-1987 as held by the Accountant Member or a reference lies on the questions raised by the Revenue as suggested by the Judicial Member ?”
THIRD MEMBER ORDER
Per Shri Ch. G. Krishnamurthy, President – The Commissioner of Income-tax Delhi VI, New Delhi filed a reference application before the Income-tax Appellate Tribunal u/s. 256(1) of the Income-tax Act urging that the following two questions, said to be questions of law, arise out of the order of the Tribunal in ITA No. 4040 (Del) of 1985 in relation of the assessment year 1981-82 :
“1. Whether, on the facts and in the circumstances of the case, the ITAT was right in law in holding that the balancing charge of Rs. 28,466 on sale of a truck was not exigible total when the income from the said truck for the assessment years 1974-75 to 1980-81 had been assessed on a net profit basis ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that section 41(2) of the I. T. Act cannot be invoked on the basis of depreciation implicitly allowed in the computation of income ?”
2. The members, who heard this reference application had a difference of opinion. The learned Accountant Member pointed out that the Tribunal while deciding the appeal recorded an unequivocal finding of fact that neither the assessed claimed any depreciation nor was any allowed to it and when that was so the question of considering the depreciation as notionally allowed for the purpose of computing profit u/s. 41(2) could not arise. But the learned Judicial Member held that since in deciding the appeal, the Tribunal referred to a decision of the Allahabad High Court in the case of Karamat Khan (supra) where the interpretation of the words “actually allowed” in section 10(2) (vii) of the Income-tax Act, 1922, corresponding to section 41(2) of the Income-tax Act, 1961, came up for consideration, it could not be said that the order of the Tribunal did not give rise to a question of law because reliance upon a High Court decision to interpret a word as to its meaning cannot but give rise to a question of law. That was how the point of difference of opinion formulated in the following manner was referred to the President for assigning it to a Third Member for his opinion under section 255(4) of the Income-tax Act, 1961 :
“Whether on the facts and in the circumstances of the case, no referable question of law arise out of the order of the Tribunal bearing ITA No. 4040/DEL/1985 dated 21-7-1987 as held by the Accountant Member or a reference lies on the questions raised by the Revenue as suggested by the Judicial Member ?”
3. I have heard today the learned Departmental Representative Shri D. C. Agazrwal and the learned representative for the assessed Shri R. S. Singhvi. The learned Departmental Representative relied very strongly upon the following High Court decisions to press the view that the interpretation of the word “actually” as used in section 43(6) of the Income-tax Act, 1961, which was also interpreted by the Tribunal for its view, had been interpreted by those High Courts though variously :
1. Medeva Upendra Sinai v. Union of India [1975] 98 ITR 209 (SC);
2. Kanshi Ram Wadhwa v. CIT [1982] 138 ITR 830/9 Taxman 79 (Punj. & Har.); 3. CIT v. Dr. Kishanchand [1983] 144 ITR 1 (MP);
4. CIT v. East Asiatic Co. Ltd. [1983] 13 Taxman 20/ [1984] 148 ITR 124 (Cal.);
5. Indian Bank Ltd. v. CIT [1985] 153 ITR 282/22 Taxman 479 (Mad.);
6. Hukumchand Mills Ltd. v. CIT [1986] 160 ITR 661 (Bom.).
He submitted that since the expression “actually” had thus become the subject matter of judicial interpretation by the various High Courts, it cannot be said now that the interpretation placed by the Tribunal upon the same word did not give rise to a question of law particularly when there is no decision of the jurisdictional High Court on this aspect. He pointed out that the Punjab and Haryana High Court in the case of Kanshi Ram Wadhwa (supra) had even mentioned that if the Income-tax Officer had observed in his order that the in come was taken subject to the allowance of depreciation, it meant that the depreciation was actually allowed, which would then mean that there was implied allowance of depreciation and which would be equal to actual allowance of depreciation. He also referred to a decision of the Supreme Court in the case of Madeva Upendra Sinai (supra) where the Supreme Court also had interpreted the word “actually” for the purpose of calculation of depreciation and even that decision of the Supreme Court authoritatively pronounces that if the depreciation could be taken to have been taken into account by the Income-tax Officer, then it would be taken to have been actually allowed and thus the interpretation placed upon the expression “actually allowed” by the Tribunal gives rise to a question of law. That was how the arguments of the learned Departmental Representative ran.
4. On the other hand, the learned representative for the assessed submitted that the Tribunal gave a categorical finding that the assessed neither claimed depreciation in any of the previous years nor any depreciation was actually allowed by the department. The orders of the Income-tax Officer do not show that the income computed from the truck was after allowing depreciation. There was no presumption in law that the income computed from the trucks should always be after depreciation. The claim for the allowance of depreciation is subject to certain conditions imposed under the Act. The allowance of depreciation always subject to the satisfaction of those conditions. If those conditions are not satisfied, the depreciation will not be allowed even though claimed. Therefore in the absence of any presumption that the computation of income from the truck was after allowance of depreciation and also in the face of the fact found that the Income-tax Officer never allowed depreciation or even mentioned about it in the assessment orders and when that was a fact found by the Tribunal and when that fact was not disputed by the department in any manner, it could not now be said that a question of law would arise out of a fact found by the Tribunal in its order. He thus commended the view taken by the learned Departmental Representative were on the interpretation of the order of the Income-tax Officer as to whether the depreciation was actually allowed or not allowed but did not refer to a case where the depreciation was actually allowed or not allowed. Referring to the Supreme Court decision in the case of Madeva Upendra Sinai (supra) on which reliance was placed by the learned Departmental Representative, the learned representative of the assessed advocated that in this case also the Supreme Court had pointed out that the expression depreciation actually allowed used in section 43(6) of the Income-tax Act, 1961 means depreciation actually taken into account or granted or given effect to by the Income-tax Officer but not depreciation notionally allowed and that such a construction would contra-indicate a deeming construction of the word “allowed” it qualifies and was also the antithesis of the concept of actually allowed and that any meaning other than the notional meaning would become speculative, theoretical or imaginary. The Supreme Court having thus given an authoritative pronouncement upon the meaning of the words “actually allowed” as meaning actually allowed in contradistinction to notionally allowed the matter must be deemed to have been finally settled by the decision of the Supreme Court and therefore reference on the very same question would not arise.
5. I have gone through the facts of the case carefully and I inclined to agree with the view canvassed on behalf of the assessed and therefore agree with the view expressed by the learned Accountant Member. The issue before the Tribunal was whether the profit under section 41(2) computed at Rs. 28,466 on the sale of a Truck No. 8198 was proper or improper. The assessed did not maintain any books of account for any of the years. The truck was purchased by the assessed in the previous year relevant for the assessment year 1974-75 for Rs. 43,000. The income from this truck was computed on the basis of estimate for the assessment years 1974-75 to 1980-81. The income estimated from the truck ranged between Rs. 5,000 in the assessment year 1974-75 to Rs. 9,600 in the assessment year 1980-81. The assessed claimed no depreciation on this truck for any of these assessment years nor the Income-tax Officer allowed any depreciation as such for any of the assessment years. The truck was sold in the assessment year relevant to the assessment year under reference for Rs. 32,000. The Income-tax Officer calculated the balancing charge at Rs. 28,466 by observing that in estimating the income in the earlier years depreciation must be deemed to have been allowed and therefore the depreciation allowed in the previous years must be brought to tax u/s 41(2). It was on this assumption that the calculated the balancing charge at Rs. 28,466. On appeal the Commissioner (A) rejected the assesseds claim against the inclusion of balancing charge and confirmed the order of the Income-tax Officer. In the further appeal before the Tribunal, the Tribunal observed (a) that it was common ground before it that no depreciation was claimed by the assessed at any time, none was allowed actually by the Income-tax Officer for any of the past assessment years and (b) section 41(2) clearly stipulates that profit there under be assessed only where the sale proceeds of the machinery or plant exceeds the written down value u/s. 43(6). Section 43(6) defines written down value as the actual cost of the assessed less the depreciation actually allowed to him. Since no depreciation was actually allowed to the assessed at any time, the Tribunal held that there was no room to hold that depreciation was deemed to have been allowed. It therefore held that there was no balancing charge to be brought to tax u/s. 41(2) and deleted the addition.
6. These facts found by the Tribunal do go to show that no depreciation was ever claimed by the assessed or allowed by the department. In the absence of such a claim or allowance by the department, the question of bringing any profit u/s. 41(2) to tax for the notional allowance of depreciation does not arise. This is what was found by the Supreme Court in the case of Madeva Upendra Sinai (supra). This was a decision of the Full Bench of the Supreme Court of five judges, of whom one learned Judge dissented. The majority view expressed was :
“(i) The key word in clause (b) of section 43(6) of the Income-tax Act, 1961, is “Actually”. It is the antithesis of that which is merely speculative, theoretical or imaginary. “Actually” contra-indicates a deeming construction of the word “allowed” which it qualifies. The connotation of the phrase “actually allowed” is thus limited to depreciation actually taken taken into account or granted and given effect to, i. e., debited by the Income-tax Officer against the incomings of the business in computing the taxable income of the assessed, it cannot be stretched to mean “notionally allowed” or merely allowable on a notional basis.
(ii) Even in the case of assets acquired before the previous year, where in the past no depreciation was computed, actually allowed or carried forward, for no fault of the assessed, the “written down value” may also, under section 43(6) (b) be the actual cost of the assets to the assessed.”
This is therefore an authority for the proposition that the meaning of the expression “actually” used in section 43(6) is actually allowed the depreciation and not depreciation notionally allowed and unless the depreciation was actually taken into account or granted or given effect to by the Income-tax Officer in making the assessment, the expression “actually allowed” could not be stretched to mean notionally allowed or merely allowable on a notional basis. Since the fact found in this case by the Tribunal was that the assessed neither claimed depreciation nor the department allowed and since this fact was not disputed by the department either then or now before me, I hold that the conclusion of the Tribunal is a pure finding of fact, which does not give rise to any question of law can be said to arise out of the order of the Tribunal, it is settled by the decision of the Supreme Court in the case referred to above. In view of the fact that the law according to me is settled by the decision of the Supreme Court, no controversy can really arise as to the meaning of the word “actually”. It is not the case of the Revenue that the Income-tax Officer mentioned in the assessment orders that the income was computed after taking into account the depreciation. Therefore it cannot be said that even an implied allowance of depreciation was made.
7. Before I would part with the case, I would like to mention that none of the cases relied upon by the Departmental Representative touch upon this aspect. In all those cases the unanimous conclusion of the High Courts was that the expression “actually allowed” meant actually allowed i. e., expressly allowed and not even deemed to have been allowed or allowable. In the case before the Punjab and Haryana High Court in Kanshi Ram Wadhwas case (supra), on which a certain amount of emphasis was laid by the learned Departmental Representative, I find that was a case where the assessed agreed before the Income-tax Officer in respect of the assessment year 1971-72 to compute the income after allowing a certain amount of depreciation and when in the subsequent year the question arose as to whether any depreciation was allowed or not, the High Court pointed out that the assessed having derived the benefit of an agreed order of assessment, could not contend that the Income-tax Officer did not allow any depreciation during the relevant previous year. It therefore upheld the finding of the Tribunal that depreciation was computed and allowed in the assessment year 1971-72. In arriving at this conclusion, the Punjab and Haryana High Court relied upon the decision of the Supreme Court in the case of Madeva Upendra Sinai (supra). It is of the interest to note that in this case one of the questions referred to the Honble High Court was :
“(1) Whether, on the facts and in the circumstances of the case, the profits under section 41(2), second proviso, should be computed by deducting depreciation actually allowed under section 32 and not any notional depreciation allowable under section 32 from the written down value of trucks within the meaning of section 43(6) (b) ?”
In answering this question, the Punjab and Haryana High Court held :
“We have heard the learned counsel for the parties. The decision on the first point does not admit of any difficulty because it stands concluded against the Revenue because of the view taken by the Supreme Court of India in Madeva Upendra Sinai v. Union of India [1975] 98 ITR 209.”
This shows that all the High Courts have consistently taken the view that depreciation actually allowed means expressly allowed and not any notional allowance. In this case other than the presumption that there was a notional allowance of depreciation, there was no actual allowance of depreciation,
8. The matter will now go before the regular Bench for decision according to majority view.