Income-tax---

----Depreciation---Actual cost---Plant and machinery bought in foreign country---Increase in cost due to fluctuation in rate of foreign exchange-- Assessee entitled to additional depreciation for relevant assessment year but could not reopen earlier assessment for grant of increased depreciation-- Indian Income Tax Act 1961, Ss.32 & 43-A.

A perusal of section 43-A of the Income Tax Act, 1961, makes it clear that in so far as the depreciation is concerned it has to be allowed on the actual cost of the asset, less depreciation that was actually allowed in respect of earlier years. However, where the cost of the asset subsequent increased due to devaluation, the written down value of the asset will have to be taken on the basis of the increased cost minus the depreciation earlier allowed on the basis of the old cost.

The assessee was a company. During the year ending on May 31 1966, relevant to the assessment year 1967-68; the assessee had acquired some plant and machinery from abroad with the aid of loan taken from the Industrial Development Bank of India. The loan was to be repaid in instalments and in view of the fluctuation in the rate of foreign exchange, there was an increase in the expenditure of a sum of Rs.11,974 in the previous year ending with May 31, 1976, relevant to the assessment year 1977-78. The Income-tax officer considered the additional expenditure to be capital in nature and disallowed the same. The assessee preferred an appeal to the Commissioner of Income-tax (Appeals), against the order of assessment and contended that the extra depreciation that would be admissible to the assessee on the basis of the actual cost should be granted from the inception. Alternatively, toe assessee claimed, that the consolidated total or extra depreciation that would be admissible in all the previous years, should be allowed in the assessment year 1977-78. The Commissioner of Income-tax (Appeals) did not accept the contentions urged by the assessee. On further appeal, the Appellate Tribunal also did not agree with the contentions of the assessee. On a reference:

Held, that the assessee was entitled to additional depreciation consequent to the revision of actual cost under section 43-A of the Income Tax Act, 1961, for the ~ assessment year 1977-78. However, the assessee could not claim the total or consolidated extra depreciation that would have been admissible in the earlier years in the present assessment year and it was also not permissible for the assessee to reopen the earlier assessments for grant of depreciation in each of the earlier years.

CIT v. Arvind Mills Ltd. (1992) 193 ITR 255 (SC) applied.

R. Kumar for the Assessee.

S.V. Subramanian for the Commissioner.

JUDGMENT

N.V. BALASUBRAMANIAN, J.---At the instance of the assessee, the Income-tax Appellate Tribunal has referred the following question of law under section 256(1) of the Income Tax Act, 1961, for the opinion of this Court.

"Whether, on the facts and in the circumstances of the case, the assessee was entitled to the additional depreciation arising for earlier assessment years consequent to the revision of the actual cost under section 43-A of the Income Tax Act, 1961?"

The assessee is a company. During the year ending on May 31, 1966, relevant to the assessment year 1967-68, the assessee had acquired some plant and machinery from abroad with the aid of loan taken from the Industrial Development Bank of India. The loan was to be repaid in instalments and in view of the fluctuation in the rate of foreign exchange, there was an increase in the expenditure of a sum of Rs.11,974 in the previous year ending with May 31, 1976, relevant to the assessment year 1977-78. The Income-tax Officer considered the additional expenditure to be capital in nature and disallowed the same, presumably by applying section 43-A of the Act. The assessee preferred an appeal to the Commissioner of Income-tax (Appeals), against the order of assessment and contended that the extra depreciation that would be admissible to the assessee on the basis of the actual cost should be granted from the inception. 'Alternatively, the assessee. claimed that the consolidated total or- extra depreciation that would be admissible to all the previous years, should be allowed in the assessment year 1977-78. The Commissioner of Income-ta4 (Appeals) did not accept the contentions urged by the appellant, but held that the depreciation calculated by the Income-tax Officer was correct and in accordance with law. On further appeal, the Appellate Tribunal also did not agree with the contentions of the assessee and held that it is pot possible to rework the depreciation from the inception and grant of depreciation in the current assessment year. It is that order that is questioned in this reference.

Mr. Kumar, learned counsel appearing for the assessee brought to our notice the decision of the Supreme Court in CIT v. Arvind Mills Ltd. (1992) 193 ITR 255 and submitted that the assessee is entitled to depreciation on the basis of the decision of the Supreme Court and the cost should be worked out, applying the provisions of section 43-A of the Income-tax Act. Mr. S.V. Subramanian, learned senior counsel appearing for the Department, submitted that the assessee is not entitled to depreciation pertaining to the earlier years to be allowed in the assessment of income for the assessment year 1977-78. The precise question whether the assessee is entitled to additional depreciation or extra depreciation from the date of inception came up for consideration before the Supreme Court in Arvind Mills Ltd.'s case (1992) 193 ITR 255 and the Supreme Court after considering the provisions of section 43-A of the Act, held that in so far as the depreciation is concerned, it has to be allowed on the actual cost of the asset, less depreciation actually allowed in respect of the earlier years. However, where the cost of the asset subsequently increased due to devaluation, the written down value of the asset will have to be taken on the basis of the increased cost minus the depreciation earlier allowed on the basis of the old cost. Counsel for the assessee now submits that the assessee will be satisfied if the assessee is given depreciation on the basis of the decision of the Supreme Court, (supra).

However, we find that the question as referred to us, does not reflect the controversy between the parties. Hence, we reframe the question as under:

"Whether, on the facts and in the circumstances of the case, the assessee is entitled to additional depreciation consequent to the revision of actual cost under section 43-A of the Income-tax Act, for the assessment year 1977-78?"

We are of the view that the assessee is entitled to the additional depreciation on the basis of the principle laid down by the Supreme Court in Arvind Mills Ltd.'s case (1992) 193 ITR 255. We also make it clear that the assessee cannot claim the total or consolidated extra depreciation that would have been admissible in the earlier years in the present assessment year and it is also impermissible for the assessee to reopen the earlier assessments for grant of depreciation in each of the earlier years. Hence, we answer the question as refrained by us in the affirmative and in favour of the assessee. No costs.

M.B.A./4068/FC Order accordingly.