ITAT, VISKHAPATNAM BENCH Explanation 5 to section 32 of IT Act, 1961 is clarificatory in nature and hence, it will have retrospective operation

Explanation 5 to section 32 of IT Act, 1961 is clarificatory in nature and hence, it will have retrospective operation



After the insertion of Explanation 5 to section 32, the depreciation cannot be taken as ‘notionally allowed’, but only as ‘actually allowed’



ITAT, VISKHAPATNAM BENCH, VISAKHAPATNAM

Padmavathi Srinivasa Cotton Ginning & Pressing Factory

v.

DCIT

ITA No. 71/Vizog/2003

March 6, 2009

RELEVANT EXTRACTS:

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5.7 The effect of omission of section 34 and Rule 5AA and consequential amendment in section 32 by omitting reference to section 34 makes it clear that one cannot taken support from the decision of the Hon’ble Apex Court in the case of Mahendra Mills, supra, after the amendment. Section 43(6) of the Act which defines the term “Written Down Value” reads as under :-

  “Written down value means:-

(a) in the case of asset acquired in the previous year, the actual cost of the assessee;

(b) in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Act or under the …………”

The term “actually allowed” still exists under the statues. The above analysis of provision of Income tax Act makes it clear that the intention of the parliament has always been that the allowance of depreciation is mandatory. When the courts interpreted the term “Written Down Value” by giving importance to section 34 referred to in section 32, it is evident that the Parliament has omitted section 34 and made consequential amendment in section 32 through Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986 to make its intentions clear. When the Hon’ble Apex Court upheld the view that the depreciation claim is optional by its order dated March 15, 2000, it was felt that further clarification is necessary in this mater and accordingly Explanation 5 to section 32 was inserted by Finance Act, 2001 to make the intention very clear that the depreciation claim is mandatory.

5.8 The learned A. R. contended that there is no decision to support the view that explanation 5 to section 32 is retrospective and further submitted that the facts pertaining to Gold Coin Health Food Pvt. Ltd. (supra) are totally different from the instant case. However, we are unable to agree with his contentions, in view of the decision of Hon’ble Supreme Court in the case of Gold Coin Health Food Pvt. Ltd. (supra), which lays down the proposition for interpretation of law. Under article 141 of the Constitution of India, the law declared by the Supreme Court shall be binding on all Courts within the territory of India. Hence, in our opinion, the Explanation – 5 to section 32 is clarificatory in nature and hence it will have retrospective operation. Accordingly, in the instant case, the depreciation cannot be taken as ‘notionally allowed’, but only as ‘actually allowed’. Hence the Assessing Officer is right in deducting only the Written Down Value in order to compute the short- term capital gain.

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