JUDGMENT
B.C. Patel, C.J.
1. These group of references which are at the instance of the assesses have been referred to this Court under Section 256(1) of the IT Act, 1961 (hereinafter referred to as the Act). Though there were three questions suggested before the Tribunal, however the Tribunal has referred only one question which reads as under :
“Whether, on the facts and circumstances of the case, the depreciation was correctly allowed on factory and non-factory buildings purchased from Dalmia Cement (Bharat) Ltd. which had ceased to be a holding-company in the asst. yr. 1976-77 ? ”
The same question has been raised for other assessment years, namely, 1977-78, 1978-79, 1979-80, 1980-81, 1981-82, 1982-83.
2. The undisputed facts are required to be noted, which are as under:
For the previous year ending on 30th June, 1974, relevant to the asst. yr. 1975-76, the assessed purchased on payment, factory buildings for Rs. 16,24,355 and non-factory building for Rs. 3,75,202 from its holding-company, namely, Dalmia Cement (Bharat) Ltd. Since the written down value (hereinafter WDV) of these buildings in the hands of the holding-company was Rs. 7,45,483 and Rs. 2,51,559, respectively, the AO, CIT(A) and the Tribunal by placing reliance on the provisions contained in Section 43(1), Expln. 6 and Section 43(6), Expln. 2 allowed depreciation on the two similar figures of Rs. 7,45,483 and Rs. 2,51,559 as against the claim of allowance of depreciation on the two larger figures of Rs. 16,24,355 and Rs. 3,75,202, It was contended that the depreciation on the higher figures was admissible for the asst. yr. 1976-77 as against the allowance granted by the two authorities for WDV as worked out on the basis of last year’s assessment. The same decision is followed in subsequent years and, therefore, all these references are being disposed of by a common judgment.
Originally, the assessed was known as M/s Dalmia Ceramic Industries Ltd. and thereafter, it changed its name to Shri Natraj Ceramic & Chemical Industries Ltd.
Dalmia Cement (Bharat) Ltd. ceased to be a holding-company of the assessed in the asst. yr. 1976-77. It was contended that the provisions contained in Expln. 6 of Section 43(1) and Expln. 2 of Section 43(6) were no longer applicable. As such, it was contended that the working of WDV of factory and non-factory building in 1975-76 was to be revoked and only the cost “actually” incurred by the assessed in acquiring the assets from the holding-company was to be considered. This contention of the assessed was required to be examined by the Tribunal. The reasoning given in para 3 of the Tribunal’s order for the asst. yr. 1976-77 is as under :
“After examining the provisions of law and carefully going through the decision of the Supreme Court in the case of Maharana Mills (P) Ltd. v. ITO (1959) 36 ITR 350 (SC) we find that the claim of the assessed-company is not tenable. The decision of the Hon’ble Supreme Court would be applicable in a case where the working of WDV in an earlier assessment was wrongly made. In the present case, the working of WDV and allowance of depreciation in the asst. yr. 1975-76 was in accordance with law. The Delhi Bench ‘A’ of the Tribunal had in its decision in ITA No. 4606/Del/1980, dt. 11th Aug., 1982, upheld the correctness of depreciation allowance in that assessment year. It may be that the assessed-company had ceased to be a subsidiary of its holding-company, Dalmia Cement (Bharat) Ltd. in the asst. yr. 1976-77, but that fact by itself does not render the depreciation allowance granted in the asst. yr. 1975-76 as incorrect. The decision of the Supreme Court relied upon by the learned counsel, therefore, does not help. The WDV adopted by the ITO in the asst. yr. 1976-77, therefore, needs no variation and the ground Nos. 1 and 2 are rejected.”
3. On behalf of the assessed, it is contended that the assessed has shown in the books of account the original cost to it which was shown in a previous year, i.e., 1975-76. The assessed-company being a subsidiary-company, it has shown the value of machinery as well as non-factory building as Rs. 7,45,483 and Rs. 2,51,559, respectively, being the WDV which was appearing in the books of the holding-company. However, for the asst. yr. 1976-77, the assessed was no more a subsidiary-company and having paid to its parent company the sum of Rs. 19,95,557 for the said assets, it was required to show this amount as the actual cost as per Section 43(1) of the Act, and, was entitled to get depreciation on that value year to year.
4. The only issue before this Court is whether the WDV of the holding-company is to be taken as actual cost of the assessed or the amount paid by the assessed to the holding-company ? Chapter IV of the Act refers to computation of business income and Section 43 is required to be examined for the purpose of deciding this matter. Section 43(1) of the Act defines actual cost which reads as under:
“(1) ‘actual cost’ means the actual cost of the assets to the assessed, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority :
Provided that where the actual cost of an asset, being a motor-car which is required by the assessed after the 31st day of March, 1967 but before the 1st day of March, 1975, and is used otherwise than in a business of running it on hire for tourists, exceeds twenty-five thousand rupees, the excess of the actual cost over such amount shall be ignored, and the actual cost thereof shall be taken to be twenty five thousand rupees,”
What is written down value is defined in Sub-section (6) of Section 43 which reads as under :
“written down value” means-
(a) in the case of assets acquired in the previous year, the actual cost to the assessed;”
(b) in the case of assets acquired before the previous year, the actual cost to the assessed less all depreciation actually allowed to him under this Act, or under the Indian IT Act, 1922 (11 of 1922), or any Act repealed by that Act, or under any executive orders issued when the Indian IT Act, 1886 (2 of 1886), was in force.”
It may be noted that Sub-clause (a) of Sub-section (6) would not apply in the instant case as that would apply for asst. yr. 1975-76. Sub-clause (b) clearly indicates that the WDV means actual cost to the assessed less all depreciation actually allowed to him under the Act. In the instant case, Expln. 2 to Sub-section (6) of Section 43 is relevant and is reproduced hereunder :
“Explanation 2 : When any capital asset is transferred by a holding-company to its subsidiary-company or by a subsidiary-company to its holding-company, then, if the conditions of Clause (iv), or, as the case may be, of Clause (v) of Section 47, are satisfied, the written-down value of the transferred capital asset to the transferee-company shall be taken to be the same as it would have been if the transfer or-company had continued to hold the capital asset for the purpose of its business.”
5. There is no dispute that the case falls under Sub-clause (iv) of Section 47. Therefore, it is clear that the actual cost would be the written down value of the transferor-company. This aspect is required to be borne in mind while considering the question. We will now have to turn to Expln. 6 to Section 43(1) which reads as under :
“Explanation 6 : When any capital asset is transferred by a holding-company to its subsidiary-company, or by a subsidiary-company to its holding-company, then, if the conditions of Clause (iv) or, as the case may be, of Clause (v) of Section 47 are satisfied, the actual cost of the transferred capital asset to the transferee-company shall be taken to be the same as it would have been if the transferor-company had continued to hold the capital asset for the purpose of its business.”
It is clear that what would be the actual cost to the transferee-company on the date of transfer is indicated in Section 43(1), Expln. 6. Thus, actual cost to the transferee-company will be the WDV of the holding-company (transferor-company).
6. The assessed based its submission relying on Maharana Mills (P) Ltd. v. ITO (1959) 36 ITR 350 (SC) and Saharanpur Electric Supply Co. Ltd., etc. etc. v. CIT (1992) 194 ITR 294 (SC). The assessed has also relied on Ciba of India Ltd. v. CIT (1993) 202 ITR 1 (Bom) as also on CIT v. Hides & Leather Products (P) Ltd. (1975) 101 ITR 61 (Guj). It is required to be noted that the Revenue as well as the assessed placed reliance on the decision of the apex Court in the case of Saharanpur Electric Supply Co. Ltd. v. CIT (supra) The apox Court considated the dicisions in Maharana Mills (P) Ltd. v. 1TO (supra) and CIT v. Hides & Leather Products (P) Ltd. (supra) amongst other cases. The apex Court after examining the provisions in detail pointed out at p. 315 as under :
“……Explanation 6 offers no difficulty as the relationship of ‘parent,’ and ‘subsidiary’ between the companies involved in the transfer, for the purpose of this clause, has to be determined as at the time of the transfer of the asset and will not be a wobbling or fluctuating one as suggested by the counsel for the assessed…..”
Thus, in view of Expln. 6 the WDV of the holding-company is required to be taken into consideration.
7. The learned counsel for the assessed submitted that the difference between the WDV and the price received for the property has been taxed in the hands of the holding-company in the relevant assessment years and there is no dispute on this issue. In view of this, it was submitted that the Revenue cannot have tax benefit at both the places, namely, in the hands of the parent-company and at the hands of the assessed. It was thus submitted that there is no evasion of tax.
8. On behalf of the assessed, it was contended that actual cost is not static and it is required to be determined year to year. No doubt there may be a situation which may require the AO to examine the case and. re-determine .the actual cost. In fact the apex Court has considered this aspect at p. 306 and pointed out instances. The apex Court at p. 309 pointed out as under :
“…..In principle, therefore, we are unable to accept the. contention that the actual cost cannot be determined year after year on the factual or legal position applicable for the relevant previous year and that the-actual cost once determined cannot be altered except in the three situations outlined by counsel where the original figure itself requires a modification.”
9. However, in the instant case, in view of Expln. 6 to Sub-section (1) of Section 43; the question is whether the AO is entitled to change the actual cost. In the opinion of the Court, in view of Expln. 6, the AO as well as the Tribunal have rightly rejected the contention of the assessed and have rightly held that the actual cost once determined under Section 43(1) r/w Expln. 6 will remain the same for that assessed. The apex Court indicated the principle and has considered some instances also. The Bombay High Court had occasion to examine the case of Case of India Ltd. v. CIT (supra) wherein the case of a gift to the assessed by a foreign company was examined which no doubt falls under Expln. 2 to Section 43(1) of the Act. It is worth noting that as per Expln. 2 where an asset is acquired by an assessed by way of gift or inheritance, the actual cost of the asset to the assessed shall be the WDV thereof as in the case of the previous year in which the asset is so acquired or the market value thereof on the date of such acquisition, whichever is less. The Division Bench considered “the fact that the assessed had incurred for the years relevant to the assessment’ years under consideration, amounts of Rs. 10,60,827 and Rs. 1,46,312 by way of expenditure of freight, customs duty, etc. for bringing the machinery to Bombay where it was installed. He was required to spend amounts and it is in these circumstances, the amounts were added to the original cost of acquisition in the assessment for the asst. yrs. 1964-65 and 1965-66.
10. The situation in the Bombay case is quite different and cannot be pressed into service for this case. Accordingly, the answer is required to be given in favor of Revenue and against the assessed. References are disposed of accordingly with no order as to costs.