Commissioner Of Income-Tax v. Mahindra Sintered Products Ltd.

Factual and Procedural Background

This reference under section 256(1) of the Income-tax Act, 1961 concerns a single question arising from the assessment year 1971–72. For that year the assessee claimed depreciation under section 32(1)(ii) of the Income-tax Act, 1961, in respect of laboratory equipment used for scientific research to the extent of Rs. 33,781, on the ground that the plant continued to be used for scientific research. In earlier assessment years deductions had already been allowed under section 35 of the Act for these same assets—Rs. 25,409 for the assessment year 1969–70 and Rs. 8,372 for the assessment year 1970–71. The reference asks whether the Tribunal was correct in allowing the depreciation claim for 1971–72 despite those earlier deductions.

Legal Issues Presented

1. “Whether, the Tribunal was right in allowing for the assessment year 1971–72, the assessee's claim for depreciation under section 32 of the Income-tax Act, 1961, in respect of plant and machinery of Rs. 33,781 continued to be used for scientific research notwithstanding the deduction allowed to the assessee in respect of such capital expenditure under section 35 of the said Act in the earlier years, namely, Rs. 25,409 for the assessment year 1969–70 and Rs. 8,372 for the assessment year 1970–71?”

Arguments of the Parties

Mr. Jetly (for the Revenue)

• Submitted that, in view of the retrospective amendment to clause (iv) of sub-section (2) of section 35 of the Income-tax Act, 1961, effected by the Finance (No. 2) Act, 1980 (with retrospective effect from April 1, 1962), the depreciation claimed by the assessee under section 32(1)(ii) could not have been allowed where a deduction had already been allowed under section 35 in earlier years.

Mr. Hariharan (assessee's representative)

• Made no submission and stated that he had been instructed not to make any submission in the matter.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The court accepted Mr. Jetly's submission. It examined the plain language of clause (iv) of sub-section (2) of section 35 as amended retrospectively from April 1, 1962 by the Finance (No. 2) Act, 1980, and concluded that the amended clause precludes allowance of a deduction under clause (ii) of sub-section (1) of section 32 where, in any previous year, a deduction has been allowed under section 35 for the same assets. The factual findings in the reference showed that deductions equal to the full value of the assets in question had already been allowed in earlier years under section 35 for the very assets for which depreciation was later claimed under section 32(1)(ii). The assessee's representative made no counter-submission. On that basis the court found the Revenue's position well-founded.

Holding and Implications

Holding: The question referred to the court is answered in the negative and in favour of the Revenue.

Implications:

• The depreciation claim of Rs. 33,781 for assessment year 1971–72 under section 32(1)(ii) is not allowable where deductions for the same assets had already been allowed under section 35 in earlier years.
• The court made no order as to costs.
• The opinion does not discuss or announce any broader precedent beyond the application of the statutory amendment; its direct effect is limited to the disallowance described above.