Commissioner of Income-tax v. Kikani Exports P. Ltd. (No. 2)
[Citation -2014-LL-0909-38]

Citation 2014-LL-0909-38
Appellant Name Commissioner of Income-tax
Respondent Name Kikani Exports P. Ltd. (No. 2)
Court HIGH COURT OF MADRAS
Relevant Act Income-tax
Date of Order 09/09/2014
Judgment View Judgment
Keyword Tags profits and gains of business or profession • due date for furnishing the return • distribution of power • legislative intention • period of limitation • plant and machinery • capital expenditure • written down value • quantum appeal • audit report • actual cost
Bot Summary: JUDGMENT The judgment of the court was delivered by R. Sudhakar J.-This batch of tax case are filed by the Revenue challenging the orders of the Income-tax Appellate Tribunal on the ground that the assessees in the above tax case have not exercised their option to claim depreciation under section 32 of the Income-tax Act, 1961, in the manner prescribed under the second proviso to rule 5(1A) of the Income-tax Rules, 1962, before filing their return of income. The Assessing Officer was of the view that the assessee in each of the cases should exercise their option in terms of the second proviso to rule 5(1A) prior to the filing of the return, which they failed to do and they would not be entitled to depreciation in terms of rule 5(1) Appendix I, but only under rule 5(1A) Appendix IA of the Income-tax Rules. Since the assessees did not exercise their option before furnishing the return of income, they are not eligible to claim depreciation as per rule 5(1) Appendix I and they are eligible to claim only under rule 5(1A) Appendix IA. He submits that when the statute prescribes that the assessee has to exercise their option before the due date, it means, only before and not the due date or after the due date. The claim made by the assessees for depreciation in the return of income satisfies the requirement of the second proviso to rule 5(1A) of the Income-tax Rules. The only relevant substantial question of law that arises for consideration now in the above tax case is as follows: Whether the return of income filed by the assessee under section 139(1) of the Income-tax Act claiming depreciation can be treated as exercising of option before the due date as prescribed in the second proviso to rule 5(1A) of the Income-tax Rules. According to the Revenue, each one of the assessees should file a separate application or a letter indicating their intention to avail of depreciation in terms of section 32 read with rule 5(1) of the Income-tax Rules and since the assessee in each case has not exercised such an option before the due date for furnishing the return of income, they will not be entitled to the benefit of rule 5(1) Appendix I but depreciation only under rule 5(1A) Appendix 1A. It is relevant to note that while filing the return of income, a procedure has been prescribed for claiming depreciation as pointed out above. The assessee in these cases filed return of income for the previous assessment year claiming depreciation within the time in accordance with section 32(1) of the Income-tax Act and the Rules and that will enure to the benefit of the assessee for the subsequent years in view of the third proviso to rule 5(1A) of the Income-tax Rules, which reads as follows: 5.


JUDGMENT judgment of court was delivered by R. Sudhakar J.-This batch of tax case (appeals) are filed by Revenue challenging orders of Income-tax Appellate Tribunal on ground that assessees in above tax case (appeals) have not exercised their option to claim depreciation under section 32 of Income-tax Act, 1961, in manner prescribed under second proviso to rule 5(1A) of Income-tax Rules, 1962, before filing their return of income. Since issue involved in all above tax case (appeals) are one and same, common order is passed in above matters. brief facts common to all above tax case (appeals) are as follows: respondent-assessee in each of cases, which are companies, have installed wind electric generator and claimed depreciation at rate prescribed under rule 5(1) Appendix I of Income-tax Rules. Assessing Officer was of view that assessee in each of cases should exercise their option in terms of second proviso to rule 5(1A) prior to filing of return, which they failed to do and, therefore, they would not be entitled to depreciation in terms of rule 5(1) Appendix I, but only under rule 5(1A) Appendix IA of Income-tax Rules. Rule 5(1A) second proviso reads as follows: "Provided further that undertaking specified in clause (i) of sub-section (1) of section 32 of Act may, instead of depreciation specified in Appendix IA, at its option, be allowed depreciation under sub-rule (1) read with Appendix I, if such option is exercised before due date for furnishing return of income under subsection (1) of section 139 of Act." Aggrieved by orders of Assessing Officer, assessees went on appeal before Commissioner of Income-tax (Appeals). In some of cases, it appears, Commissioner of Income-tax (Appeals) following decision of Tribunal in case of K. K. S. K. Leather Processors (P.) Ltd. v. ITO (I. T. A. Nos. 826 and 827 of 2009 dated November 20, 2009) [2011] 9 ITR (Trib) 758 (Chennai) , allowed appeals and in some cases, Commissioner of Income-tax (Appeals) dismissed appeals. Aggrieved by orders of Commissioner of Income-tax (Appeals), both Revenue, as against granting of relief to assessees, as well as assessees, as against dismissal of their appeals, filed appeals before Income-tax Appellate Tribunal. Income-tax Appellate Tribunal uniformly applying principle laid down in case of K. K. S. K. Leather Processors (P.) Ltd. v. ITO (I. T. A. Nos. 826 and 827 of 2009, dated November 20, 2009) [2011] 9 ITR (Trib) 758 (Chennai) (subject matter of appeal in T. C. (A.) Nos. 1011 and 1012 of 2010) allowed appeals filed by assessees and rejected appeals filed by Revenue holding that so long as option of depreciation is exercised by assessees in their return of income along with audit report and books of account, it is within time limit prescribed under second proviso to rule 5(1A) of Income-tax Rules and benefit will flow therefrom. As against orders of Income-tax Appellate Tribunal, Revenue is before this court by filing above tax case (appeals). Learned standing counsel appearing for Revenue submits that as per provisions of section 32(1)(i) of Income-tax Act undertakings engaged in generation/generation and distribution of power, rate of depreciation on machineries engaged for such purposes are to be allowed on such percentage on actual cost thereof as may be prescribed. prescribed rates under rule 5(1A) of Income-tax Rules are set out in Appendix IA Schedule. However, second proviso to rule 5(1A) provides that undertaking may be permitted to avail of depreciation at normal rates under sub-rule (1) read with Appendix I, at option of assessee, provided such option has to be exercised before due date for furnishing return of income under section 139(1) of Income-tax Act. He further submits that rule prescribes that assessee should have to exercise their option before furnishing return of income. Since assessees did not exercise their option before furnishing return of income, they are not eligible to claim depreciation as per rule 5(1) Appendix I and they are eligible to claim only under rule 5(1A) Appendix IA. He submits that when statute prescribes that assessee has to exercise their option "before" due date, it means, "only before and not due date or after due date". Hence, when intentment is clear in provision, it should not be brushed aside to confer benefits. learned counsel appearing for Revenue pleaded that Tribunal is not correct in granting benefit to assessees ignoring language of second proviso to rule 5(1A) of Income-tax Rules. Per contra, learned counsels appearing for assessees submitted that return of income filed on due date of filing of returns of income as per section 139(1) of Income-tax Act along with audit reports showing claim of assessee regarding depreciation has to be treated as option exercised by assessee in terms of second proviso to rule 5(1A) of Income-tax Act. They further submit that there is no prescribed form to exercise option. rule is silent about procedure to be followed. claim made by assessees for depreciation in return of income satisfies requirement of second proviso to rule 5(1A) of Income-tax Rules. Hence, Tribunal is right in granting benefit to assessee. Heard Mr. T. R. Senthil Kumar, Mr. M. Swaminathan, Mr. K.Suresh Kumar, learned standing counsel appearing for Revenue and Mr. S. Sridhar, Mrs. (Dr.) Anita Sumanth, Mr. Karthik Raja, Mr. R. Vijayaraghavan, Mr. R. Venkat Narayanan, Mr. J. Balachander and Mr. K. Ravi, learned counsel appearing for assessees and perused materials placed before this court. Substantial questions of law in different manner were raised by Revenue on this issue and some of them were admitted by this court in few cases. We find that issue is common in all these cases. only relevant substantial question of law that arises for consideration now in above tax case (appeals) is as follows: "Whether return of income filed by assessee under section 139(1) of Income-tax Act claiming depreciation can be treated as exercising of option before due date as prescribed in second proviso to rule 5(1A) of Income-tax Rules." Before going into merits of case, it is appropriate to extract relevant provisions, which are as follows: Section 139(1) provides filing of return of income: "139. Return of income.-(1) Every person, if his total income or total income of any other person in respect of which he is assessable under this Act during previous year exceeded maximum amount which is not chargeable to income-tax, shall, on or before due date, furnish return of his income or income of such other person during previous year, in prescribed form and verified in prescribed manner and setting forth such other particulars as may be prescribed." Section 32 of Income-tax Act deals with depreciation, which reads as follows: "32. Depreciation.-(1) In respect of depreciation of buildings, machinery, plant or furniture owned wholly or partly by assessee and used for purposes of business or profession, following deductions shall, subject to provisions of section 34, be allowed- (i) in case of assets of undertaking engaged in generation or generation and distribution of power, such percentage on actual cost thereof to assessee as may be prescribed; (ii) in case of any block of assets, such percentage on written down value thereof as may be prescribed." Rule 5 of Income-tax Rules deals with depreciation, which read as follows: "5. Depreciation.-(1) Subject to provisions of sub-rule (2), allowance under clause (ii) of sub-section (1) of section 32 in respect of depreciation of any block of assets shall be calculated at percentages specified in second column of Table in Appendix I to these rules on written down value of such block of assets as are used for purposes of business or profession of assessee at any time during previous year. (1A) allowance under clause (i) of sub-section (1) of section 32 of Act in respect of depreciation of assets acquired on or after 1st day of April, 1997, shall be calculated at percentage specified in second column of Table in Appendix IA of these rules on actual cost thereof to assessee as are used for purposes of business of assessee at any time during previous year: Provided that aggregate depreciation allowed in respect of any asset for different assessment years shall not exceed actual cost of said asset: Provided further that undertaking specified in clause (i) of subsection (1) of section 32 of Act may, instead of depreciation specified in Appendix IA, at its option, be allowed depreciation under sub-rule (1) read with Appendix I, if such option is exercised before due date for furnishing return of income under sub-section (1) of section 139 of Act, (a) for assessment year 1998-99, in case of undertaking which began to generate power prior to 1st day of April, 1997; and (b) for assessment year relevant to previous year in which it begins to generate power, in case of any other undertaking: Provided also that any such option once exercised shall be final and shall apply to all subsequent assessment years." (emphasis supplied) We notice that depreciation is claimed in different methods and it is set out in form. Form ITR-6 contains specific schedules for depreciation. Schedule DOA provides for filing returns claiming depreciation on other assets and Schedule DEP is for summary of depreciation on assets. Schedule DOA Depreciation on other assets (other than assets on which full capital expenditure is allowable as deduction) DEPRECIATION 1 Block of Building Furniture Intangible Ships ON OTHER ASSETS assets and fittings assets 2 Rate (%) 5 10 100 10 25 20 (i) (ii) (iii) (iv) (v) (vi) 3 Written down value on first day of previous year 4 Additions for period of 180 days or more in previous year 5 Consideration or other realization during pre- vious year out of 3 or 4 6 Amount on which depreciation at full rate to be allowed (3 + 4 - 5) (enter 0, if result is negative) 7 Additions for period of less than 180 days in previous year 8 Consideration or other realizations during year out of 7 9 Amount on which depreciation at half rate to be allowed (7-8) (enter 0, if result is negative) 10 Depreciation on 6 at full rate 11 Depreciation on 9 at half rate 12 Additional depreciation, if any, on 4 13 Additional depreciation, if any, on 7 14 Total depreciation (10 + 11 + 12 + 13) 15 Expenditure incurred in connection with tran-s-fer of asset/assets 16 Capital gains/loss under section 50 (5 + 8 - 3 - 4- 7 - 15) (enter negative only if block ceases to exist) 17 Written down value on last day of previous year (6+9-14) (enter 0, if result is nega-tive) Schedule DEP Summary of depreciation on assets (other than on assets on which full capital expenditure is allowable as deduction under any other section) 1 Plant and machinery Block 1a entitled for depreciation @ 15 per cent. (Schedule DPM-14i) b Block 1b entitled for depreciation @ 30 per cent. (Schedule DPM-14ii) c Block 1c entitled for depreciation @ 40 per cent. (Schedule DPM-14iii) d Block 1d entitled for depreciation @ 50 per cent. (Schedule DPM-14iv) e Block 1e entitled for depreciation @ 60 per cent. (Schedule DPM-14v) f Block 1f entitled for depreciation SUMMARY @ 80 per OF cent. DEPRECIATION (Schedule ON ASSETS DPM 14vi) g Block 1g entitled for depreciation @ 100 per cent. (Schedule DPM-14vii) h Total depreciation on 1h plant and machinery (1a + 1b + 1c + 1d+ 1e + 1f + 1g ) 2 Building Block 2a entitled for depreciation @ 5 per cent. (Schedule DOA- 14i) b Block 2b entitled for depreciation @ 10 per cent. (Schedule DOA- 14ii) c Block 2c entitled for depreciation @ 100 per cent. (Schedule DOA- 14iii) d Total depreciation on 2d building (total of 2a + 2b + 2c) 3 Furniture and fittings 3 (Schedule DOA- 14iv) Short of repetition, issue that arises for consideration is for purpose of claiming depreciation, whether assessee should exercise option before due date in manner other than by filing return of income in terms of sub- section (1) of section 139 of Income-tax Act. According to Revenue, each one of assessees should file separate application or letter indicating their intention to avail of depreciation in terms of section 32 read with rule 5(1) of Income-tax Rules and since assessee in each case has not exercised such option before due date for furnishing return of income, they will not be entitled to benefit of rule 5(1) Appendix I but depreciation only under rule 5(1A) Appendix 1A. It is relevant to note that while filing return of income, procedure has been prescribed for claiming depreciation as pointed out above. assessee has to set out manner in which depreciation is claimed for assessment years in question. All details required for claiming depreciation under various heads are set out thereunder. Rule 5 of Income-tax Rules is in relation to determination of profits and gains of business or profession and depreciation forms part of such determination. Therefore, there cannot be option exercised in isolation (i.e.) depreciation with regard to determination of profits and gains of business or profession in manner other than procedure prescribed under section 139(1) of Incometax Act. assessee is liable to file return of income and claim depreciation in accordance with various provisions and state in exactitude what he claims under different heads of depreciation. Schedules DOA and DEP in Form ITR- 6 contain break up of various heads under which depreciation can be claimed. All that second proviso to rule 5(1A) of Income-tax Rules states is that assessee has to exercise option before due date for furnishing return of income. In other words, if option is exercised after furnishing of return of income under subsection (1) of section 139, it is of no avail. This assumes importance, as no procedure is prescribed for exercising option. Form ITR- 6 gives methodology on which depreciation can be claimed and, therefore, statute did not provide for any other method to exercise option except through filing of return. Therefore, to read something more into second proviso to rule 5(1A), that option should be exercised separately would make returns filed meaningless. Our view as above is fortified by reasoning in decision reported in CIT v. Vijaya Hirasa Kalamkar (HUF) [1998] 229 ITR 772 (Bom), Bombay High Court, while dealing with word "before", held as follows (page 774): "Having regard to object of Ordinance and words used in section 3(1), it seems to us that declaration received on January 1, 1976, was well within time. In whole context, word'before' will have to be construed as'up to' or as'not after'. There are various provisions in Income- tax Act, wherein expression'before' has been used (sections 139(1)(a)(i), section 139(1)(b); section 184; section 212). expression has always been taken to mean'up to'. Section 3 specified period before which declaration in respect of income has to be made for purposes of getting benefit under Ordinance. It provides period of limitation within which certain benefits are available. In case of ambiguity construction which preserves right to are available. In case of ambiguity construction which preserves right to one which defeats it, has to be preferred. After all, this is taxing statute which in case of doubt should be interpreted in favour of taxpayer. Had legislative intention been to make December 31, 1975, last day for making declaration, it could have clearly said so in proviso. very fact that date January 1, 1976, is in terms mentioned indicates that time limit was up to that date. That in given case word'before' in context of time can be construed as'not after' is well settled (R v. Arkwright [1848] 12 QB 960). This court in case of Premchand Nathmal Kothari v. Kisanlal Bachharaj Vyas, AIR 1976 Bom 82, had read word'before' in section 3 of Maharashtra (Vidarbha Region) Agricultural Debtors' Relief Act, 1969, as'up to'." Tribunal in case of K. K. S. K. Leather Processors (P.) Ltd. v. ITO (I. T. A. Nos. 826 and 827 of 2009, dated November 20, 2009 [2011] 9 ITR (Trib) 758 (Chennai) (subject matter of appeal in T. C. (A.) Nos. 1011 and 1012 of 2010) following decision of Bombay High Court reported in CIT v. Vijaya Hirasa Kalamkar (HUF) [1998] 229 ITR 772 (Bom)), held as follows (page 771 of 9 ITR-Trib): "From abovementioned decisions, it is clear that word 'before' would have to be construed as up to or not after. hon ble Bombay High Court has specifically referred to provisions of section 139 of Act while explaining expression of word'before'. Therefore, we hold that option exercised by assessee on due date by way of making claims of depreciation in return of income along with audit report and books of account wherein assessee has adopted rate as claimed is within time limit prescribed under second proviso to rule 5(1A) of Income-tax Rules. Even otherwise as held by Bombay High Court in case of CIT v. Shivanand Electronics [1994] 209 ITR 63 (Bom) provision can be understood with reference to intent of Legislature and not upon language in which intent is clothed. If object of enactment will be defeated by holding it as directory it should be construed as mandatory. Whereas if by holding it mandatory, serious general inconvenience will be created to innocent persons without very much furthering object of enactment, it should be construed as directory. limit provided under second proviso to rule 5(1A) is only to facilitate Assessing Officer in discharging its obligations and duties as per provisions of sub-section (1) of section 32 of Income-tax Act. Therefore, said requirement cannot be considered as mandatory. Moreover, Assessing Officer cannot act on option exercised before return is filed and therefore no fruitful purpose or object can be achieved by mandating exercise of option prior to filing of return on due date." reading of abovesaid decision of Bombay High Court makes it clear that if assessee exercised option in terms of second proviso to rule 5(1A) of Income-tax Rules at time of furnishing of return of income, it will suffice and no separate letter or request or intimation with regard to of exercise of option is required. Since returns are filed in accordance with section 139(1) of Income-tax Act and form prescribed therein make provision for exercising option in respect of claim of depreciation, no separate procedure is required, as contended by Department. We are in agreement with reasoning of Tribunal. Accordingly, question of law is answered in favour of assessee and against Revenue. In so far as T. C. (A.) No. 509 of 2013 is concerned, as contended by learned counsel appearing for assessee, on quantum appeal, Commissioner of Income-tax (Appeals) as well as Tribunal held in favour of assessee and there is no appeal on that issue before this court. Therefore, question of law raised in this appeal becomes academic, in any event, not required to be answered. In T. C. (A.) Nos. 1012, 1014 of 2010 and 272 of 2014, assessee therein filed return of income belatedly for subsequent years and claimed benefit of depreciation. assessee in these cases filed return of income for previous assessment year claiming depreciation within time in accordance with section 32(1) of Income-tax Act and Rules and that will enure to benefit of assessee for subsequent years in view of third proviso to rule 5(1A) of Income-tax Rules, which reads as follows: "5. Depreciation.-(1) Subject to provisions of sub-rule (2), allowance under clause (ii) of sub-section (1) of section 32 in respect of depreciation of any block of assets shall be calculated at percentages specified in second column of Table in Appendix I to these rules on written down value of such block of assets as are used for purposes of business or profession of assessee at any time during previous year... Provided also that any such option once exercised shall be final and shall apply to all subsequent assessment years." As third proviso clearly states that option once exercised will continue to all subsequent years, assessee is not required to exercise such option each and every year separately. In view of foregoing discussions, we pass following order: (i) We answer substantial question of law in favour of assessees and against Revenue; (ii) Consequently, orders of Tribunal stand confirmed. In result, all above tax case (appeals) are dismissed. No costs. Consequently, connected M. Ps. are also dismissed. *** Commissioner of Income-tax v. Kikani Exports P. Ltd. (No. 2)
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