(a) Income‑tax‑‑‑

‑‑‑‑Depreciation‑‑‑Previous year‑‑‑Change in previous year‑‑‑Computation of depreciation ‑‑‑Effect of proviso to R.5(1) ‑‑‑Assessee seeking change in previous year resulting in particular previous year extending to fifteen months ‑‑‑ITO allowing change subject to condition that claim for depreciation would be restricted for twelve months‑‑‑Condition was in contravention of R.5(1) and was not valid‑‑‑Indian Income Tax Act, 1961, Ss.3 & 32‑‑‑Indian Income Tax Rules, 1962, R. 5.

(b) Income‑tax‑‑‑

‑‑‑‑General principles‑‑‑No estoppel against provisions of statute ‑‑‑Assessee accepting invalid condition can challenge such condition.

(c) Income‑tax‑‑‑

‑‑‑‑Depreciation‑‑‑Extra‑shift allowance‑‑Extra‑shift allowance to be granted on basis of double shift or triple shift worked by concern as a whole‑‑‑Indian Income Tax Act, 1961, S:32‑‑‑Indian Income Tax Rules, 1962, Appex.I.

The assessee would be entitled to extra‑shift allowance in respect of plant and machinery on the basis of the double shift or triple shift worked by the concern as a whole, and not with reference to the working of each item of machinery or plant.

South India Viscose Ltd. v. CIT (1997) 227 ITR 286 (SC) fol.

Under the proviso to rule 5(1) of the Income Tax Rules, 1962, where the assessee was allowed to vary the meaning of the expression, "previous year" in respect of any business or profession, the depreciation to be allowed shall be increased by multiplying the fraction of which the numerator is the number of complete months of the previous year and the denominator is 12.

The assessee was closing its accounts on December 31, every year.

It desired to change its accounting year so that it would end on March 31. It wrote to the Income‑tax Officer on November 20, 1979, requesting permission for the change. If the assessee's request for change of the previous year was accepted, it would result in the previous year for the assessment year 1980‑81 extending from January 1, 1979 to March 31, 1980. That meant, the assessee would have a previous year of the duration of 15 months. The Income‑tax Officer to guard himself from granting certain additional depreciation, issued a letter, dated November 29, 1979, stating that he would consider the request of the assessee for the change of the previous year subject to four conditions and one of the conditions was that even though the entire income for 15 months would be considered for the assessment of tax for the assessment year 1980‑81, insofar as the claim to depreciation was concerned, it would be confined only for a period of one

Year‑‑‑12 months: The assessee accepted the condition initially but subsequently challenged it. The Commissioner of Income‑tax (Appeals) held that the condition imposed by the Income‑tax Officer was in violation of the proviso to rule 5(1) of the Income‑tax Rules and this view was upheld by the Tribunal. On a reference:

Held, that although the assessee had accepted the condition imposed by the Income‑tax Officer at the time of change of the previous year, since the condition was against the provisions of the Income‑tax Act it was open to it to challenge the same as there can be no estoppel against the provisions of the statute. Applying the proviso to rule 5(1) of the Income‑tax Rules, the assessee would be entitled to depreciation at the rate of 15/12. i.e., the depreciation for the entire 15 months. The condition imposed by the Income tax Officer that the claim of the assessee would be restricted only for a period of 12 months was clearly in contravention and violation of the specific rule 5(1) of the Income‑tax Rules and such a condition being in violation of the provisions of the Income‑tax Act, could not be said to be valid in the eye of law. The Tribunal was right in holding that the assessee was entitled to the depreciation calculation for the entire period of fifteen months.

J.K. Synthetics Ltd. v. O.S. Bajpai, ITO (1976) 105 ITR 864 (All.) ref.

C.V. Rajan for the Commissioner.

P.P.S. Janarthana Raja for the Assessee.

JUDGMENT

N.V. BALASUBRAMANIAN, J.‑‑‑The following questions have been referred by the Appellate Tribunal, at the instance of the Revenue for the assessment year 1980‑81, for our consideration:

"(1)????? Whether, the Tribunal's further finding that the assessee is entitled to extra‑shift allowance in respect of the plant and machinery newly added during the year on the basis of double and triple shifts worked by the concern as a whole?

(2)??????? Whether, on the facts and in the circumstances and having regard to the provisions of section 3(4) of the Income‑tax Act, the Tribunal is correct in law in holding that the depreciation for 15 months should be allowed notwithstanding the fact that the assessee consented for allowance of depreciation for 12, months at the assessment stage?"

In so far as the first question of law that is referred to us for our consideration is concerned, the issue raised is covered against the Revenue by a decision of the Supreme Court in South India Viscose Ltd. v. CIT (1997) 227 ITR 286 wherein the apex Court has held that the assessee would be entitled to extra‑shift allowance in respect of plant and machinery on the basis of the double shift or triple shift worked by the concern as a whole, and not with reference to the working of each item of machinery or plant. Following the said decision of the Supreme Court, we answer the first question of law in the affirmative and against the Revenue.

. The second question of law relates to the claim of depreciation by the assessee for 15 months due to change of the previous year. The assessee is a private limited company carrying on business in the manufacture and sale of cotton yearn. The assessee was previously closing its accounts on 31st December every year. But, it desired to change its accounting year ending on 31st March and, accordingly, the assessee, by a letter, dated November' 20, 1979, requested the permission of the Income‑tax Officer for change of the previous year. If the assessee's request for change of the previous year is accepted, it would result in the previous year for the assessment year 1980‑81 extending from January 1, 1979, to March 31, 1980. That means, the assessee would have a previous year of the duration of 15 months. The Income‑tax Officer to guard himself from granting certain additional depreciation, issued a letter, dated November 29, 1979, stating that he would consider the request of the assessee for the change of the previous year subject to four conditions and one of the conditions was that even though the entire income for 15 months would be considered for the assessment of tax for the assessment year 1980‑81, in so far as the claim of depreciation is concerned, it would be confined only for a period of one year‑‑‑12 months. The assessee, by a letter, dated November 30, 1979, accepted all the conditions imposed by the Income‑tax Officer and in this regard it stated as follows:

"We were also advised that the depreciation for one year only is admissible against the income of fifteen months and we have already stated that we would agree for this condition in our letter, dated November 20, 1979. "

The Income‑tax Officer, accordingly, granted the permission to vary the previous year as prayed for by the assessee since the assessee accepted all the conditions which the Income‑tax Officer had imposed. The Income‑tax Officer completed the assessment on that basis and allowed depreciation only for the period of one year 12 months.

The assessee filed an appeal against the order of the Income‑tax Officer contending that under the proviso to rule 5(1) of the Income‑tax Rules, 1962, the assessee would be entitled to higher amount of depreciation and the condition restricting the quantum of depreciation imposed by the Income‑tax Officer for the change of previous year is not in consonance with the proviso to rule 5(1) of the Income‑tax Rules and since the Income‑tax Officer has no power to impose such a condition, the condition is invalid in the eye of law and, therefore, mere acceptance by the assessee of the condition would not prevent the assessee from challenging the same and claiming that it is entitled to depreciation at the rate provided and prescribed therefor under the proviso to rule 5(1) of the Income‑tax Rules.

The Commissioner of Income‑tax (Appeals) held that the condition imposed by the Income‑tax Officer was in violation of the proviso to rule 5(1) of the income‑tax Rules and the Income‑tax Officer can only impose conditions for the change of the previous year which are in consonance with the provisions of the Act. Therefore, he held that the assessee would be entitled to depreciation for the period of 15 months as provided under the proviso to rule 5(1) of the Income‑tax Rules and directed the Income‑tax Officer to allow depreciation in accordance ‑with the said rules.

The Revenue carried the matter by way of appeal before the Appellate tribunal. The Appellate Tribunal also confirmed the view of the Commissioner (Appeals) on the ground that the Income‑tax Officer cannot impose conditions which are not in consonance with the provisions of the Act and the Income‑tax Officer could not have denied the change of the previous year, even if the assessee has not accepted the conditions. In this view of the matter, the Appellate Tribunal confirmed the order of the Commissioner (Appeals) and dismissed the appeal preferred by the Revenue.

Mr. C.V. Rajan, learned counsel for the Revenue, submitted that the assessee has accepted the condition for the change of the previous year that the depreciation would be granted to the assessee for the period of twelve months only and if the depreciation for the entire fifteen months is granted, it would create an anomalous situation resulting in the claim for depreciation for a period of fifteen months, though the assessee may put to use a machinery on the last date of the previous year. In his fairness, learned counsel for the Revenue brought to our notice the decision of the Allahabad High Court in the case of J.K. Synthetics Ltd. v. Bajpai (O.S), ITO (1976) 105 ITR 864, and also the relevant provisions of the Act.

Mr. P.P.S. Janarthana Raja, learned counsel for the assessee supported the order of the Appellate Tribunal.

We have carefully considered the submissions of learned counsel for the respective parties. Under subsection (4) of section 3 of the Income‑tax Act, an assessee is entitled to change his previous year only with the consent of the Income‑tax Officer and upon such condition, as the Income‑tax Officer may talk fit to impose. The fact remains that when the Income‑tax Officer gave his permission for the change of the previous year, he stipulated that the assessee should claimed depreciation only for .a period of twelve months and the assessee also accepted the same. But, the question that remains is whether the condition imposed by the Income‑tax Officer is valid in the eye of law and to test the validity of the condition imposed, it is necessary to refer to rule 5(1) of the Income‑tax Rules, with the proviso. In so far as it is relevant for the purpose of this case, rule 5(1) reads as under:

"Subject to the provisions of sub‑rules (2) and (3), the allowance under clause (i) or clause (ii) of subsection (1) of section 32 in respect of depreciation of buildings, machinery, plant or furniture or the allowance under clause (i) of subsection (IA) of section 32 in respect of depreciation of any structure or work referred to in that subsection shall be calculated at the percentages specified in the second column of the Table in Part 1 of Appendix I to these rules on the actual cost or, as the case may be, the written down value of such of the assets aforesaid as are used for the purposes of the business or profession of the assessee at any time during the previous year:

Provided that in a case where the assessee has been allowed to vary the meaning of the expression', 'previous year' in respect of any business or profession under subsection (4) of section 3 and, thereby, his income from such business or profession for a period of thirteen months or more is included in his total income of any previous year, the allowance referred to in this sub‑rule, calculated in the manner stated hereinabove, shall be increased by multiplying it by a fraction of which the numerator is the number of complete months in such previous year and the denominator is twelve."

Under the proviso to rule 5(1) of the Income‑tax Rules, where the assessee was allowed to vary the meaning of the expression, "previous year" in respect of any business or profession, the depreciation to be allowed shall be increased by multiplying the fraction of which the numerator is the number of complete months of the previous year and the denominator is 12. Applying the said proviso to rule 5(1) of the Income‑tax Rules, the assessee would be entitled to depreciation at the rate of 15/12 i.e., the depreciation for the entire fifteen, months. "Me condition imposed by the, Income‑tax Officer' that the claim of assessee will be restricted only for a period of twelve months is clearly in contravention and violation of the specific rule 5(1) of the Income‑tax Rules and such a condition being in violation of the provisions of the Income‑tax act, cannot be said to be valid in the eye of law. Though the assessee had accepted such a condition at the trine of change of the previous year, since the condition is against the provisions of the Income‑tax Act, we are of the view that it: is' still open to the assessee to challenge the name on the ground that the condition imposed was in contravention .of law as there can be no estoppel against the provisions of the statute. The said position is well‑settled by the decision of the Allahabad. High Court in J.K. Synthetics Ltd..'s case. (1976) .105 ITR.864, wherein the Allahabad High Court held that, the condition for the change of the previous year must be valid, legal and reasonable and the Income‑tax Officer cannot impose such conditions which‑are contrary to the provisions of the Act. Since the condition imposed by the Income-tax Officer is against the provisions of the Act, the Income‑tax Officer has no jurisdiction, to impose such a condition and as observed by the Allahabad High Court, there is no estoppel against the provisions of the Act and the condition is invalid in the eye of law and it is open to the assessee to challenge the same. Therefore, we hold that though the assessee had accepted the condition initially at the time of change of the previous year it is still open to the assessee to challenge the same when it finds that the condition imposed by the Income‑tax Officer is against the provisions of the Act.

Further, the anomaly pointed out by learned counsel for the Revenue with regard to the grant of depreciation for the entire fifteen months even though the assessee may put to use the machinery on the last date of. The previous year exists in the grant of the normal depreciation, and it is inherent in the grant of depreciation. Therefore, when the Legislature consciously provided that the assessee is entitled to an increased amount of depreciation when there is the change of the previous year by elongation of the length of the previous year, it is not open to the Income‑tax Officer to deny the same and overlook the provision of the Act. Furthermore, when the intention of the Legislature is clear in granting the increased amount of depreciation. The anomaly pointed out by counsel for the Revenue is not of much help to the Revenue. Accordingly, we hold that there is no infirmity in the order of the Appellate Tribunal in holding that the assessee is entitled to the depreciation calculated for the entire period of fifteen months. Accordingly, we answer the second question of law also in the affirmative and against the Revenue. However, there will be no order as to costs. ????????

M.B.A./626/FC ????????????????????????????????????????????????????????????????????????????????? Order accordingly.