RAJAPALAYAM MILLS LTD. v. INCOME TAX OFFICER
[Citation -1986-LL-0418-1]

Citation 1986-LL-0418-1
Appellant Name RAJAPALAYAM MILLS LTD.
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 18/04/1986
Assessment Year 1981-82
Judgment View Judgment
Keyword Tags profits and gains of business or profession • higher rate of depreciation • 100 per cent depreciation • additional depreciation • depreciation allowance • substantive provision • computation of income • extra shift allowance • plant and machinery • excess depreciation • written down value • excess advance tax • additional ground • rate of interest • create a charge • wealth-tax act • charge of tax • special bench • market value • actual cost • tea estate • net wealth • new ship
Bot Summary: In spite of this substantial impingement on the charge to wealth-tax, rule 1BB has been held to be only procedural and would have a being on the assessments to be made after the rule came into force, even though such assessments related to assessment years before the rule even though such assessments related to assessment years before the rule came into force. Citing the decision in the case of CIT v. Dean Bahadur Ramgopal Mills Ltd. 1961 41 ITR 280, it is submitted that the rule regarding depreciation is merely procedural and should apply to all pending assessments unless there is a clear indication that the rule as it stands is to be applied for and from a particular assessment year. What is prescribed by rule 5 through the Appendix as to the rates of depreciation is only part of section 32 , Instead of making section 32 cumbersome by making the various rates of depreciation as part of it, they have been given in the form of an Appendix to the Rules. In these circumstances if rule 1BB of the Wealth tax Rules is considered procedural in Biju Patnaik's case supra, the same ratio should be applied to the interpretation of the change in rule 5 read with Appendix I of the Income-tax Rules. A already mentioned, the Income-tax Third Amendment rules was notified on 26-2-1983 while the Income-tax Fourth Amendment rules was notified on 28-2-1983. If the arguments of the two assesses in these appeals are accepted, the assessments for any assessment year made after 26-2-1983, but before 2-4-1983 would be governed by the table of depreciation as amended by the Income-tax Third Amendment rules and any assessments made after 2-4- 1983 would be governed by the rates of depreciation as modified by the Income Tax fourth amendment Rules. We must, on the other hand, consider that is was the intention of the Government in prescribing these notification to allow depreciation on us items of machinery only at 30 per cent for the assessment year 1983-84 following the date of the notification, namely, 26-2-1983 regarding Income-tax Third Amendment Rules and that higher rate of depreciation is to be allowed on these items of machinery for the assessments following the Income-tax Fourth Amendment Rules, namely, the assessment years coming up after 2-4-1983, i.e., 1984-85 assessment year and later years.


These appeals have been posted before this Bench for considering following question: "Whether depreciation as per Income-tax (Fourth Amendment) Rules, 1983 is to be allowed in all case which were pending on 2-4-1983 irrespective of assessment year involved or is to be allowed only in 1984-85 and subsequent assessment years [in view of divergent vies of Tribunal Benches in case of Rayalaseema passenger and good transports (P.) Ltd. v. IAC [1984] 7 ITD 111 and ITO v. Bharat Roadways [1985] 12 ITD 647 (Cal.)]." 2. Originally reference to Special Bench was made in case of Rajapalayam mills Ltd., Rajapalayam in IT Appeal No. 547 (Mad.) of 1985 in which Shri S. Swaminathan, learned counsel for Sri Rani Lakshmi Gng., Spg. and Wvg. Mills (P.) Ltd., Madurai entered appearance as intervener. In course of hearing appeal in IT Appeal No. 566 (Mad.) of 1985 in case of Sri Rani Lakshmi Gng., Spg. & Wvg. Mills (P.) Ltd. Was also taken up for hearing. In both appeal only question is same, that is question set out in first paragraph. 3. question involves only quantum of depreciation to be allowed to these two assesses for respective assessment years under appeal. assessment year in both cases is same, namely 1981-82. 4. In case of Rajapalayam Mills Ltd., original claim for depreciation was in sum of Rs. 29,40,062. This together with claim for additional depreciation amounted to total of Rs. 29,56,253. ITO allowed as depreciation and additional depreciation of Rs. 25,05,430. In addition, he allowed Rs. 25,638 as depreciation and additional depreciation on lathe capitalized. He disallowed Rs. 4,25,185 as excess depreciation claimed. 5. Two variations were made on appeal in this computation of depreciation by ITO. first was in determining written down value by reference to t h e subsidy from SIPCOT while ITO took subsidy in to account for reducing written down value of assets, Commissioner (Appeals) directed him to work out written down value without reducing cost by subsidy. other point was extra shift depreciation allowance which was computed by ITO by taking into account actual period during which each item of machinery worked extra shift. Commissioner (Appeals) directed him to work out extra shift allowance on basis of number of days for which concern, as whole, worked extra shift. Both resulted in enhancement of depreciation allowable to assessee. We are not concerned in this appeal with these two points. 6. Before Commissioner (Appeals), assessee Rajapalayam Mills Ltd. raised question referred to this Bench by way of additional ground. It seemed to have been raised orally. Commissioner (Appeals) admitted this ground but rejected it for reasons stated by him in last paragraph of his order and Annexure. He considered four possible interpretations including interpretation placed on similar position resulting from Income-tax (Fifth Amendment) Rules, 1980, by Tribunal, Madras Bench 'C' in case of Rayalaseema Passenger and goods Transports (P.) Ltd. v. IAC [1984] 7 ITD 111. He rejected three of them and held that this amended rule would apply only for assessment years commencing after 2-4-1983, date on which amended rule was to take effect. 7. order of Commissioner (Appeals) does not mention quantum of claim of depreciation claimed by assessee, Rajapalayam Mills Ltd. o n its interpretation of Income-tax (Fourth Amendment) Rules, 1983. claim was not presented in quantified sum before him, assessee making claim on basis of table of depreciation rates as laid down by Income-tax (fourth Amendment) Rules and leaving working to be made at here rates. In course of hearing before us, claim has been quantified and presented to us. According to this working, as against original claim allowed by Commissioner (Appeals) in sum of Rs. 29,40,062, revised claim is in sum of Rs. 43,98,102. variation is due to higher rates in Income-tax (Fourth Amendment) Rules. department has not verified this working. 8. In case of Sri Rani Lakshmi Gng., Spg. & Wvg. Mills (P.) Ltd. also original claim was not on basis of Income-tax (Fourth Amendment) Rules, but at rates of depreciation prescribed earlier. claim on revised rates was raised by way of additional ground before Commissioner (Appeals) which was admitted by him. assessee claimed depreciation on buildings at rate of 10 per cent as against 2.5 per cent [as stated by Commissioner (Appeals) and at rate of 15 per cent on general plant and machinery as against 10 per cent earlier. Commissioner (Appeals) has rejected this claim for same reasons he gave in case of Rajapalayam Mills Ltd. 9. Shri K. R. Ramamani appearing for Rajapalayam Mills Ltd. made these submission. Income-tax (Fourth Amendment) Rules was by Notification No. SO 151(E), dated 28-2-1983. (This is published in [1983] 141 ITR (St.) 61.) rule specifically lays down that it comes into effect form 2-4-1983. Under section 295(4) of Income-tax Act, 1961 retrospective operation of rule is possible. rule together with Appendix specifying rates of depreciation gives formula for calculating depreciation. Depreciation itself is allowed under section 32 of Income-tax Act. rules nearly quantify depreciation which is granted to assessee as allowance under section 32. Under this section assessee is entitled to depreciation. specification of rates at which depreciation is to be allowed can only be considered procedural. Therefore, rule as amended should apply to all assessments made after date on which it came into effect. 10. Shri Ramamani drew support for this proposition from order of Special Bench of Tribunal in case of Biju Patnaik v. WTO [1983] 3 ITD 693 (Delhi). That was with reference to rule 1BB of Wealth-tax Rules, 1957, which laid down manner in which value of residential property is to be computed. Tribunal held that this rule should be apples to all assessments that come up to be made after rule come into force. Shri Ramamani has pointed out that rule 1BB determines value of immovable property. determination of th e value of property had definite bearing on quantum of tax payable. In spite of this substantial impingement on charge to wealth-tax, rule 1BB has been held to be only procedural and, therefore, would have being on assessments to be made after rule came into force, even though such assessments related to assessment years before rule even though such assessments related to assessment years before rule came into force. Drawing parallel, it is submitted that, similarly, even though quantum of allowance of depreciation would have substantial effect on quantification of total income, rule regarding allowance of depreciation should be considered only procedural and should, therefore, be applied to all assessments made after amendment came into force, irrespective of assessment year to which they relate. 11. Shri Ramamani has pointed out that conclusion of Tribunal in Biju Patnaik's case (supra) has been approved by Karnataka High Court in case CWT v. Vidyavathi Kapur [1984] 150 ITR 319 and by Gujarat High Court in case of CWT v. Kasturbhai Mayabhai [1986] 24 TAXMAN 427. 12. Shri Ramamani drew our attention also to decision of Bombay High Court in case of CIT v. Minerva Maritime Corpn. [1985] 155 ITR 258. It is pointed out that High Court has approved observation of Tribunal in that case that Income-tax Rules, 1962 cannot curtail or go counter to main provision of relevant section or sections of Act. He further pointed out that question involved in that case was quantum of depreciation allowable on ship. 13. attention of Shri Ramamani was brought to observations of Calcutta High Court in case of Burrakur Coal Co. Ltd. v. CIT [1982] 135 ITR 804 which are as follows: "... It appears to us that following propositions are well settled and cannot be disputed: (1) depreciation or allowance of expenditure must be determined with reference to law prevalent in year of assessment. (2) In determining depreciation allowable, actual cost as computed and in accordance with provisions of Income-tax Act, namely, section 32 read with section 43(1) (6) and section 32(2) , should be computed irrespective of what was position on previous year." (p. 809) 14. Shri Ramanamni submitted that that observation may not be of help in sorting out question here. According to him term 'the year of assessment' contained in this observation might well be taken to mean year in which assessment of any assessment year is made and not assessment year as may be generally understood. 15. Shri S. Swaminathan, learned counsel for Sri Rani Lakshmi Gng. S p g . & Wvg. Mills (P.) Ltd. made these submissions. There is distinction between charging sections and machinery sections in Income-tax while former are substantive provisions and, therefore, take effect only from day they came into force, machinery section are only procedural and should be given effect to in all assessments made after they came into force. It is submitted that only sections 3 and 4 of Indian Income-tax Act, 1922 and sections 4 and 5 of Income-tax act are charging provisions, rest of enactments are merely machinery sections and they have to be applied whenever assessments are made after they became effective. Reliance is placed in this regard on following decisions - Chatturam v. CIT [1974] 15 ITR 302 (FC), Kudilal Govindram Seksarai v. CIT [1964] 54 ITR 653 (Bom.), ITO v. Calcutta Discount Co. Ltd. [1953] 23 ITR 471 (Cal.), CIT v. P.M. Bagchi & Co. [1951] 20 ITR 33 (Cal.), Motilal Ambaidas v. CIT [1977] 108 ITR 136 (Guj.) and Addl. CIT v. Madura South India Corpn. (P.) Ltd. [1977] 110 ITR 322 (Mad.). 16. Citing decision in case of CIT v. Dean Bahadur Ramgopal Mills Ltd. [1961] 41 ITR 280 (SC), it is submitted that rule regarding depreciation is merely procedural and should, therefore, apply to all pending assessments unless there is clear indication that rule as it stands is to be applied for and from particular assessment year. Instance of such specification of assessment year were given by Shri S. Swaminathan. These are: (1) Taxation laws (Amendment) Act, 1970 regarding section 32 (1A) - [1971] 79 ITR (St.) 5. (2) Direct Taxes (Amendment) Act, 1974 regarding section 32 - [1974] 95 ITR (St.) 153. (3) Finance Act, 1975, regarding proviso to section 32(1) (ii) - [1975] 99 ITR (St.) 137. (4) Finance (No. 2) Act, 1980, specifying date with regard to section 32(1) (iia) - [1980] 124 ITR (St.) 68. 17. It is submitted that such specification is absent in respect of impugned notification and, therefore, there is no restriction to its application to all ending assessments. It is also submitted that change in depreciation rates ensures to benefit of assessee in that rates have been increased and changed deprecation schedule should be considered to be benevolent provision. Since it is benevolent provision, it would operate on all pending assessments. 18. Shri S. V. Jaganathan, learned departmental representative, submitted as follows. Appendix I, Part I to income-tax Rules is part of rule 5 which itself is part of section 32. What is prescribed by rule 5 through Appendix as to rates of depreciation is only part of section 32 , Instead of making section 32 cumbersome by making various rates of depreciation as part of it, they have been given in form of Appendix to Rules. It is contention that section 32 should be considered substantive provision because depreciation allowed goes into computation of income. Since it is part of substantive law, it can apply to assessment year commencing on 1-4- 1984 and onwards and not for any earlier assessment year. Reliance is placed for this proposition on order of Tribunal in case of ITO v. Bharat Roadways [1985] 12 ITD at p. 649 (Cal.). 19. It is submitted that order of Tribunal in Biju Patnaik's case (supra) has not been accepted by department and matter is under reference to High court. Shri Jaganathan also distinguished Biju Patnaik case [supra] from case before us. Rule 1BB was made under section 46[2] [a] of wealth tax Act, 1957 ['the 1957 Act']. This rule only prescribed manner in which market value of particular property is to be computed. It is pointed out that section 7 of 1957 Act lays down that value of asset for purpose of assessment to wealth tax is price it would fetch if sold in open market i.e., to say it is market value. This section of 1957 Act itself lays down what is to be charged to wealth tax, namely, market value of asset. Rule IBB merely prescribes how market value is to be determined. It does not by itself lay down that wealth-tax is to be charged on market value. It is submitted that only in this sense could rule 1BB has been considered rule of evidence and, therefore, procedural. It is then submitted that rule under consideration in this appeal is regarding depreciation to be allowed, that section 32 of 1961 Act does not lay down that depreciation on fixed that section 32 of 1961 Act does not lay down that depreciation on fixed assets is to be allowed on any general concept of depreciation but only at rates prescribed and therefore, there is distinction between rule 5 of Income-tax Rules and rule 1BB of Wealth-tax Rules. It is pointed out that section 295[2] [d] of Income-tax Act leaves it to Government to prescribed percentage of written down value to be allowed as depreciation in other words to quantify depreciation in respect of v various assets in contradistinction to section 46[2] [a] of Wealth-tax Act where Government can only prescribe manner in which market value may be determined. 20. It is submitted that it has been laid down by Supreme court in case of Karimtharuvi Tea Estate Ltd. v. State of Kerala [1966] 60 ITR 262 that law as it stood on first day of assessment year governed assessment for that assessment year. It is pointed out that Chief Court of Sind in case of CIT v. Sind Hindu Provident Funds Society [1940] 8 ITR 467 has held that Income tax Rules framed under ACt are to be considered on par with provisions of Act. It is contended that rules of substantive nature as rule 5 read with Appendix will have to be applied only in accordance with decision of Supreme Court in case of Karimtharuvi Tea Estate Ltd. [supra]. It is submitted that decision of Calcutta High court in case of Barrakur Coal Co. Ltd. [supra] is only to effect that rule regarding depreciation rates is substantive in nature. Reliance is also placed in this regard on decision of Supreme court in case of CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589. Shri S. V. Jaganathan also cited decision of Madras High Court in CIT v. India Cements Ltd. [1975] 98 ITR 69 in support of his proposition that unless depreciation rates are amended specifically with retrospective effect, they can only be considered to be prospective in operation. departmental representative also relied on decision of Supreme Court in CIT v. Southern Roadways (P.) [1975] 98 ITR 205. 21. Shri Ramamani in reply submitted that section 32 allowed depreciation to assessee having income under head Profits and gains of business or profession leaving it to Government to prescribe rates at which depreciation is to be allowed. rule can, therefore, be considered only procedural on procedural on analogy that rule 1BB was held procedural in Biju Patnaik case [supra]. It is submitted that no valid distinction can be drawn between allowance of depreciation under Income tax Act and determination of market value under rule 1BB of wealth-tax Rules. former affects computation of income while latter affects quantum of wealth. In these circumstances if rule 1BB of Wealth tax Rules is considered procedural in Biju Patnaik's case [supra], same ratio should be applied to interpretation of change in rule 5 read with Appendix I of Income-tax Rules. It is also submitted that classification of different types of rules contained in section 295[2] and words used may not really determine question here. 22. We have carefully considered these submissions. provision which i s subject matter of controversy was introduced by Income tax [Fourth Amendment] Rules. This is reproduced in [1983] 141 ITR [St.] 61. It is provided in paragraph 1[2] that 'they shall come into force on 2nd day of April 1983'. This amends Part I of Appendix I of Income-tax Rules. This part of Appendix carries title 'Table of rates at which depreciation is admissible'. In this notification as well as in earlier notifications amending, adding or altering rates of depreciation, this part is referred to and described as 'Table of rates at which depreciation is admissible'. 23. Income-tax [Fourth Amendment] rules made substantial increase in rates of depreciation. It also made certain qualitative changes. Thus, in place of previously existing differential rates of depreciation for buildings raining from 2.5 of 7.5 per cent general rate has been laid at 5 per cent and special rate for factory buildings at 10 per cent. term 'buildings' has been defined to include roads, bridges, culverts, wells and tube-wells, thus, setting at rest certain earlier controversies. general rate for machinery has been raised to 15 per cent and, consequently, items previously having special rates of 4 per cent and 15 per cent have been omitted. special rates in table start with 20 per cent and goes up to 100 per cent. 24. Before we proceed further, it would be necessary to refer to one earlier amendment to depreciation table. This is in fact immediately preceding notification called Income-tax [Third Amendment] Rules, 1983 published in [1983] 141 ITR [St.] 60. This was notification dated 26-2-1983 published in SO 94 in Gazette of India, Extraordinary, Part II Section 3(ii) dated 26-2-1983, and was to come into effect on date of publication. [The income tax [fourth Amendment] rules 1983 was noticed on 28-2-1983 but with effect from 2-4- 1983.] Income-tax [third Amendment] Rules provided for inclusion of group of items of machinery under general heading Energy saving devices in Group D under special rates as item [10C]. They were to be allowed depreciation at 30 per cent by this classification. 25. same group of machineries have been reclassified as item [2A] in Group F by Income-tax [fourth Amendment] Rules. This classification allows 100 per cent depreciation in this group. already mentioned, Income-tax [Third Amendment] rules was notified on 26-2-1983 while Income-tax [Fourth Amendment] rules was notified on 28-2-1983. We would advert to this position later in this order. 26. controversy in these appeals is whether depreciation rates as modified by income tax [fourth amendment] Rules are to be applied year prior to 1984-85. According to asse ssee they are to be applied to all assessments made after impugned date, viz., 2-4-1983. According to department they are to be applied only to assessments for assessment years following 2-4-1983 that is to say from assessment year 1984-85. assessee's view finds support in order of Tribunal in case of Rayalaseema Passenger and Goods Transports (P.) Ltd. (supra) while department's stand is supported by order of Tribunal in case of Bharat Roadways [supra]. 27. Supreme Court has held in Karimtharuvi Tea Estate's Ltd.'s case (supra) that law as it stood on 1st day of April of any year will apply to assessment for that assessment year, that unless made specifically retrospective nay changes effected after 1st day of April will not apply to that assessment year. This has been reiterated in Third ITO v. M. Damondar Bhat [1969] 71 ITR 806 [SC]. Certain exceptions are recognized for this rule. One such exception is that changes in law relating to procedure apply to pending actions. point in theses appeals is, therefore, reduced to question whether changes in depreciation rates introduced by Income-tax [Fourth Amendment] Rules relate to matter of procedure or substantive law. 28. Shri Swaminathan has argued that sections 4 and 5 are only charging provisions and that all other section are only machinery section. matters dealt with in these other sections are, therefore, only procedural. Depreciation as allowance is granted under one of these other sections, namely, section 32. Therefore, any changes effected in this section or in relevant rules made to give effect to this provision is only change in procedure. He has relied on decision of Federal Court in case of Chatturam [supra] Shri Jaganathan, departmental representative, has submitted that distinction drawn in this decision is not between substantive provisions and procedural provisions. 29. We would agree with departmental representative. two sections referred to as charging sections create charge to income-tax on total income of assessee. other provisions determine essentially two matters. first is to define, for purpose of determination, what total income is, second is to delineate steps by which income-tax levied at t h e rates laid down by annual Finance Act is to be collected by exchequer. Both sets of provisions provide machinery for realizing charge contemplated in charging sections and in that sense form machinery for carrying out two sets of provisions qualitatively different. set of provisions for quantification of income cannot be considered to be of same nature as other set which lays down method of collecting tax. former determines extent of liability to tax, while latter merely sets out manner of collecting tax. former belongs to realm of substantive law while latter to realm of procedural law. 30. It is not necessary to labour this point. decision of Supreme court in Scindia Steam Navigation Co. Ltd's case [supra] is clearly on this point. There it was question of applicability of clause [vii] of subsection [2] of section 10 of Indian Income-tax Act [which came into force on 5-5-1946] to assessment year 1946-47. It was held that it did not apply to that assessment year as it was not in force on 1-4-1946. This was clearly on basis that this clause in section 10 was substantive provision even though it would be classified as machinery provision according to earlier decision of Federal Court in case of Chatturanm [supra]. It is, therefore, difficult to accept proposition made by Shri Swaminathan that because section 32 is to be classified as machinery provision in accordance with above decision of Federal Court, it deals with procedural matter only. 31. Shri Swaminathan has cited decision of Supreme court in case of Dewan Bahadur Ramgopal Mills Ltd. [supra] in support of his proposition that table of rates of depreciation prescribed in rule is only procedural provision. He has pointed out that notification laying down manner in which written down value is to be adopted for purpose of assessment under Indian Income-tax Act has been held to be retrospective in this decision and contended that it follows that rule prescribing rates of depreciation should be considered procedural and should be applied to all pending assessments. This contention cannot be accepted. In that case notification itself was specifically made retrospective, to be applied to all assessments made under Indian Income tax Act after this act was extended to part B States of which Hyderabad was one. dispute was not whether notification was respective in intent. There was in fact no dispute on this. dispute was only whether Government was competent to issue that notification with retrospective effect. It was this dispute that was resolved in that case. 32. Shri Swaminathan has pointed out that Part B States concessions order had left details of working to executive, that details would and did include rates of depreciation and computation of written down value. He has contended that this would lead to conclusion that specification of depreciation rates is mare matter of from. In our opinion, this decision does not support such conclusion. In first place, if such conclusion were correct, there was no need to provide for specific retrospective operation of notification. It would have been enough if notification had been issued without any specification as to its retrospective notification had been issued without any specification as to its retrospective operation. Far from supporting contention of Shri Swaminathan, it supports contention of department that matters connected with allowance of depreciation are substantive and not procedural. 33. Shri Swaminathan has referred to changes in depreciation allowance introduced on three occasions. first was insertion of subsection (1A) in section 32 by section 5 of Taxation Laws [Amendment] Act, 1970. This provision authorizes depreciation allowance on construction made after particular date, viz., 31-3-1970. second was insertion of clause [vi] in sub section [1] of section 32 by section 3 of Direct Taxes [Amendment] Act 1974, giving additional depreciation on plant and machinery acquired after 31-5-1974. third is insertion of clause [iia] in sub section (1) of section 32 by Finance [No. 2] Act, 1980. Here plant and machinery should have been installed within specified period. It is contention of Shri Swaminathan that in all these amendments specific dates are mentioned making them prospective. specified dates are also with reference to installation of Machinery. It is submitted that these changes have become prospective because specific dates are mentioned about erection or installation. It such specification is absent, change could have been retrospective. 34. We are unable to accept this proposition. It is clear that these amendments specified dates of erection or installation not with intention mainly of making amendments to particular classes of assets. It does not follow that specification of dates or periods as case may be made them prospective but with intention of confining different treatments to particular classes of assets. It does not follow that specification of dates or periods as case may be made them prospective that otherwise they would have been retrospective on periods, Taxation Laws [Amendment] Act, 1970 and Finance [No. 2] Act, 1980 also specified dates on which they came into force, namely, 1-4-1971 and 1-4-1981 [by Finance Act, 1980] and, therefore, they became prospective changes. 35. It may be pointed out this juncture that Income tax [Fourth Amendment] Rules also lays down date as date on which changed depreciation rates come into force. This is 2-4-1983. It cannot be said that no date has been specified in Income-tax [fourth Amendment] Rules for changed rates to come into force. 36. Shri Swaminathan has also pointed out that impugned notification namely, Income-tax [Fourth Amendment] Rules substitutes certain existing items and entries by new entries. According to him effect of this substitution is that old rule is effaced and new rule takes its place. He has referred to Bindra on Statutes, Seventh edn. page 1117 in this regard. We agree that old rule is effaced by this substitution and new rule takes its place. Still question remains as to when this substitution has taken place. No answer to this question seems to arise from this proposition. 37. Shri Swaminathan has referred to three other decisions. first is Madras High Court Decision in he case of Madura South India Corpn. (P.) Ltd. [supra]. This relates to liability of Government to pay interest under section 214 of Income-tax Act on excess advance tax paid by assessee. There was increase in rate of interest from 6 per cent to 9 per cent made by Taxation laws [Amendment] Act, 1967. amending provision was to effect that interest at 9 per cent shall be payable from 1-10- 1967. question in that case was rate applicable to period prior to 1- 10-1967. High court held that since assessment has been completed after 1-10-1967, interest at 9 per cent should be paid by Government even in respect of period before 1-10-1967. It was on ground that liability to pay interest arose to Government only after 1-10-1967 and, therefore, interest should be paid at enhanced rate. It does not support contention of Shri Swaminathan that section 214 , not being either section 4 or section 5 , is procedural section. 38. second case cited by Shri Swaminathan is decision of Calcutta High court in case of CIT v. P.M. Bagchi and Co. [1951] 20 ITR 33. provision considered here was section 23[5] [a] of Indian Income-tax Act. This was held to be retrospective in operation. It is clear from ratio of this decision that this was clearly procedural provision evolving more convenient made of collection of tax. 39. third case cited by Shri Swaminathan is decision of Gujarat High Court in case of Motilal Ambaidas (supra). He has drawn our attention to observation at page 150. question considered by Gujarat High court was whether section 41[1] of Income-tax Act is charging section. High Court referred to case of Chatturam [supra] to point out that charging sections [in Indian Income tax] were section 3 and 4 and held that section 41[1] is not charging section. His contention is that other provisions of Act are only machinery sections and, therefore, only procedural in nature. We have already considered this submission. Gujarat High Court has observed as follows: "..... Indeed, by now position has been well recognized that it is only section 3 read with section 4 of act of 1922 and section 4 read with section 5 of act of 1961 which are charging sections in relevant Acts. rest of sections in respective acts constitute assessment of tax but he charge of tax is under section 4 of act of 1961 ..." [p. 150]. It would be seen that Gujarat High Court has drawn distinction in respect of provisions other than charging sections, between machinery for computation and levying of tax and machinery for assessment t o tax. distinction we had earlier drawn between substantive and procedural provision is in fact supported by this decision. 40. In light of above discussion, conclusion that emerges is that sections other than charging sections, even though they constitute machinery for realising charge, contain both substantive and procedural provisions. decision of supreme court in case of Scindia Steam Navigation Co Ltd. [supra] also indicates that provisions of Act regarding depreciation allowance are substantive provisions. 41. question then arises whether rule 5 and Appendix containing table of rates at which depreciation is to be allowed are also substantive in nature. Shri Jaganathan has submitted that table of depreciation rates is part of rule 5 which itself is part of section 32 and, therefore, they are substantive in nature to same extent as section 32. We agree with this view. Section 32 allows depreciation on different assets at rates prescribed. section itself does not lay down rates except in respect of certain categories of assets. This because, as pointed out by Shri Jaganathan, departmental representative, enumerating various assets and different rates for different assets in section 32 itself would have made it cumbersome. It is only with view to avoiding such cumbersome insertion in main provision that rates of depreciation are separately enumerated in Appendix to Income tax Rules. Where specification of rates in section itself would not make it cumbersome, rates have been specified in section itself. See clauses [iv], [v] and [vi] of sub-section 32. We consider that Appendix containing table of depreciation rates should be constructed in same manner as section 32. 42. Rule 5 lays down that depreciation allowances under clause [i] or clause [ii] of sub-section [1] of section 32 in respect of buildings, machinery, plant or furniture shall be calculated at percentage specified in second column of table in Part I of Appendix I. actual rates of depreciation on various assets are specified in Part I, Appendix I. This part is referred to in rule itself as table and heading for this part reads 'Table of rates at which depreciation is admissible'. It is clear form description of Part I of Appendix I, that different rates of depreciation for various kinds of plant and machinery are as specified in form of table in order to remove otherwise cumber some specification of depreciation rate in section, namely, section 32 authorising depreciation allowance. table of depreciation should, therefore, be considered to be only part of section 32. We have already section 32 contains substantive provision though it might be part of machinery sections for effectuating charge laid under sections and . It would follow that part I of Appendix I is also substantive provision which should be interpreted in same way as substantive provisions in act. We, therefore, consider that Income-tax [Fourth Amendment] Rules which has been made and brought into force with effect from 2-4-1983 would not apply to assessment year 1983-84, as it was not part of law that was in force on 1-4-1983. It would follow that changes introduced by this amendment rule would not apply to assessment years earlier to 1984-85. 43. We have earlier pointed out that Income-tax [Fourth Amendment] Rules was preceded by Income-tax [Third Amendment] Rules. Income tax [third amendment] rules was notified on 26-2-1983 with effect form that day, while Income-tax [Fourth Amendment] rules was notified on 26-2-1983 with effect from 2-4-1983. If arguments of two assesses in these appeals are accepted, assessments for any assessment year made after 26-2-1983, but before 2-4-1983 would be governed by table of depreciation as amended by Income-tax [Third Amendment] rules and any assessments made after 2-4- 1983 would be governed by rates of depreciation as modified by Income Tax [fourth amendment] Rules. We have also pointed out earlier that same ground of machinery, namely, energy saying devices were allowed depreciation at 30 per cent under Income-tax [Fourth Amendment] Rules, but were allowed depreciation at 100 per cent by income-tax [Fourth amendment] Rules. For same assessment year preceding even assessment for assessment year 1984-85, depreciation on this group of machinery would have been given at 30 per cent if made before 2-4-1983 and at 100 per cent if made after 2-4-1983, if interpretation by two assesses before us represents correct legal position. notifications containing these two amendments, third and fourth were made within gap of 2 days. If this were correct legal position, then act of Government prescribing these two different rates of depreciation for same group of machinery, within short period of two days would appear to be purposeless exercise. There would have been no need for Government to have notified Income-tax [Third amendment] Rules, Which it would appear provided for first time depreciation on these items of machinery by grouping them together under head 'Energy seven devices'. We do not think that one can or should invest Government with such purposeless intention in Discharge of its statutory functions. We must, on other hand, consider that is was intention of Government in prescribing these notification to allow depreciation on us items of machinery only at 30 per cent for assessment year 1983-84 following date of notification, namely, 26-2-1983 regarding Income-tax [Third Amendment] Rules and that higher rate of depreciation is to be allowed on these items of machinery for assessments following Income-tax [Fourth Amendment] Rules, namely, assessment years coming up after 2-4-1983, i.e., 1984-85 assessment year and later years. 44. Shri Ramamani has relied upon order of special Bench of tribunal in case of Biju Patnaik [supra]. We have earlier detailed his arguments. In that case, Tribunal held that rule 1BB was only rule of evidence for determining market value and, therefore, procedural. Shri Ramamani has pointed out that Karnataka High Court in case of CWT v. Vidyavathi Kapur [1984] 150 ITR 319 and Gujarat High Court in case of CWT v. Kastubhai Mayabhai [1986] 24 TAXMAN 427 has upheld this conclusion of Tribunal in case of Biju Patnaik [supra]. His arguments has been that valuation of property would have substantive impact on quantification of net wealth of a assessee and also on wealth-tax payable by assessee. In spite of this, it is pointed out, that Tribunal has held that rule 1BB of wealth-tax rules is only procedural. He has drawn analogy on this and submitted that rule 5 and part I of Appendix I of Income tax rules should be considered as same. 45. We have carefully considered these submissions. We have pointed out that tribunal has designated rule 1BB as only rule of evidence. charge to wealth tax is on value of property to be included in net wealth is to be arrived at. This view of Tribunal has been approved by Gujarat High court in Kastubhai Mayabhai 's case (supra). Gujarat High Court has observed that when rule sets out method or formula for determining market value of any particular assets, it can only be considered to be procedural and not substantive. position in respect of allowance of depreciation under Income-tax Act, in our opinion, is different. Section 32 of Income-tax Act lays down that depreciation to be allowed as deduction at such percentage on written down value, as may in any case or class of cases be prescribed be allowed. Contrasted to this, section 7[1] of Wealth-tax Act provides that value of any asset other than cash shall been estimated for purpose of Wealth-tax Act to be price which in opinion of WTO it would fetch, if sold in open market on valuation date. This deference, in our opinion is qualitative and allowance nude section 32 , commonly described as depreciation, is specific allowance that is to be regulated with reference to table of depreciation. table of depreciation cannot be considered to be just method or formula for determining quantity, which has been specified in section itself. rates of depreciation, which quantify allowance to be given under section 32 are not just formula but rates of allowance itself referred to in section 32. On other hand, section 7[1] lays down that value of any asset to be included in net wealth of assessee is to be taken as its market value. manner in which market value can be determined has been subject of discussion and consideration in various forms even before rule 1BB was introduced. concept of market value is well recognized one and different methods for arriving at market value of property were already known even before rule 1BB was introduced. same cannot be said of allowance contemplated under section 32. allowance cannot be granted without refrain to table of depreciation, while market value contemplated under section 7[1] can be detrained even in absence of rule 1BB. We, therefore, do not consider that ratio of decision of Special Bench of Tribunal in case of Biju Patnaik [supra] and Gujarat High Court in Kasturbhai Mayabhai's case (supra) can really be applied in case of depreciation allowance under Income-tax Act. 46. Shri Ramamani has submitted that under section 295[4] , it is possible for Government to give retrospective effect to rule that is made under authority of this provision. There can be no quarrel about this proposition; but it cannot be said that Income-tax [Fourth Amendment] Rules has been brought into force by Government with retrospective effect. Government on other hand, has specifically notified its coming into force from 2-4-1983. Retrospectivity is possible only if rule detailing allowance of depreciation is considered as procedural provision. Since, in our opinion, it is not so, there can be no retrospectivity to his change in table of depreciation. It is needless to say that retrospective operation cannot be implied in substantive provision of law but should be expressly stated. 47. Shri Ramamani has also referred to decision of Bombay High court in Minerva Maritime Corpn.'s case (supra). In that case question related to depreciation to be granted on ship belonging to non resident shipping company. company was assessed to tax on voyage basis in respect of its earning at Indian ports. ship was built in 1944 but was purchased by assessee in 1962. At time of purchase, according to Income-tax Rules, anticipated life of the ship was seven years. assessee claimed proportionate depreciation allowance under rule 5[2]. According to that rule, in case of second hand ships, depreciation allowance shall first be computed in same manner as in case of new ship i.e., on actual cost. It shall then be multiplied by fraction 20 L, L being expectancy of life of ship as at of its purchase as given in appropriate table. ITO did not allow depreciation claimed by assessee on ground that at time of purchase anticipated life of ship has already expired. It was held that assessee was entitled to depreciation on said ship so long as depression actually allowed did not exceed actual cost. It was held by High Court that rules cannot be construed in such way as to curtail or run counter to main provisions of relevant sections of Act and that rule 5(2) contains only formula for computing depreciation allowance. Shri Ramamani has relied upon this observation that rule 5(2) contains only formula for computing depreciation for his contention that rule specifying depreciation is only procedural. We do not think that this decision supports contention of learned counsel for assessee. dispute in that case before Bombay High Court was really as to whether interpretation placed on rule by ITO was valid interpretation. In determining this question, High Court has only held that Rules cannot be so interpreted as to run counter to provisions of Income-tax Act. Now under section 32(1) (i), wherein depreciation allowance is authorised for ships, it is laid down that percentage on actual cost shall be allowed as allowance under this provision. There is no further constraint that in case of second-hand ship anticipated life expectancy period should not have expired at time asset falls to be used. On this question Bombay High Court has held that rule 5(2) contains formula for determination of depreciation in case of ships. It cannot be said that because Rules specified formula for allowance of depreciation in case of ship, it was not substantive. question that was really decided in that case was whether rule itself exceeded authority contained in that substantive provision, namely, section 32(1) (i). It was only held that rule cannot be interpreted in such way as to restrict depreciation allowance to any extent greater than what is contained in section 32(1) (i) and section 34(2) of Income-tax Act. 48. We have earlier referred to decision of Calcutta High Court in Burrakur Coal Co. Ltd.'s case (supra) and observations at p. 809. departmental representative submitted that High Court in that case must be considered to have held that depreciation is to be calculated at rates in force during assessment year. We feel that effect of this observation of Calcutta High Court in that case is that rates of depreciation that is in force on first day of any assessment year should be given effect to for that assessment year and subsequent assessment years. We would, therefore, conclude that rates of depreciation provided in table of depreciation contained in Part I of Appendix I contain substantive provisions and, therefore, any changes made in table of depreciation should be given effect to only in assessment year, which follows date on which such changes are made. s far as Income-tax (Fourth Amendment) Rules are concerned, since new table of depreciation has been brought into force only on 2-4-1983, this table will not and cannot apply to any of assessment years before assessment year 1984-85. orders of Commissioner (Appeals) in these two cases are, therefore, confirmed. 49. These appeals are dismissed. *** RAJAPALAYAM MILLS LTD. v. INCOME TAX OFFICER
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