1. The Income-tax Appellate Tribunal has referred the following four questions to this court at the instance of the assessee under section 256(1) of the Income-tax Act, 1961 :

For the assessment year 1972-73 and 1973-74 :

"(1). Whether, on the facts and circumstances of the case, the Appellate Tribunal was right sin law in holding that the rent income derived in respect of factory building No. 2 was chargeable under the head 'Income from house property ' and that no depreciation was allowable in respect thereof under section 32(1)(ii) of the Income-tax Act, 1961 ?

(2) If the answer to question No. 1 is in the negative, whether the Tribunal was correct in law in invoking the provisions of section 32(1) read with section 39(2) of the Income-tax, while holding that along with the factory building was a business asset no depreciation was allowable on the same in view of the character of its user ?

For the assessment year 1973-74 :

(3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in not deciding the question whether the assessee was entitled to claim the extra liability resulting from the exchange rate fluctuation of Rs. 6,03,172 as revenue expenses ?

(4) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in not holding that, on the basis of the mercantile system of accounting, the additional liability had arisen at the end of the accounting year and the same was of revenue nature and/or capital nature includible in the cost of the machinery ?"

2. The assessee wanted the following four questions to be referred to this court :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in not deciding the question whether the assessee was entitled to claim the extra liability resulting from the exchange rate fluctuation of Rs. 6,03,172 as revenue expenses ?

2. If the answer to the above question is in the affirmative, whether, on the facts and in the circumstances of the case, The Tribunal was justified in law in holding that the said claim for revenue expenses could not have been a risen at all during the period year relevant to the assessment year under reference and whether the Tribunal was justified in permitting the Revenue to raise the said objection for the first time in appeal before it ?

3. Whether, on facts and in the circumstances of the case, the Tribunal was justified in not holding that, on the basis of the mercantile system of accounting, the additional liability had arisen at the end of the accounting year and the same was of revenue nature and/or capital nature includible in the cost of the machinery ?

4. Whether the Tribunal was further justified in not deciding the alternative contention that the said liability was liable was liable to be taken in to account under section 43A of the Act for the purpose of determining depreciation ?"

3. As the Tribunal did not agree with the assessee and chose to refer the above mentioned four questions, it has filed Income-tax Application No. 26 of 1980 under section 256(2) of the Act and prayed that the Tribunal be directed to raise and refer those questions top this court along with a supplemental statement of case. This court issued rule in that application and directed it to be heard along with this reference. Therefore, both the reference and the application are heard together and disposed of by this common judgment.

4. The assessee is a limited company and is engaged in manufacturing cameras, photographic paper, etc. It had let out one of its factory buildings and had, during the assessment year 1972-73 and also 1973-74, claimed depreciation on the ground that the income derived from it was business income. A similar contention was raised by the assessee for the earlier assessment years also and holding that it was income from house property and, therefore, no depreciation was allowable in respect thereof under section 32(1)(ii) of the Act.

5. During the year previous to the assessment year 1973-74, the assessee had imported certain machinery from Germany,. When it had purchased the same, its value, in terms of rupees, was Rs. 26,82,299. Since the assessee received that machinery started using it during the relevant previous year and because of the change in the foreign exchange rate, its liability had increased by Rs. 6,03,172, it claimed depreciation on the increased liability also. A contention was also raised that the said increased liability was in the nature of revenue expenditure, but it was conceded before the Income-tax Officer that it could not be regarded as revenue expenditure. Before the Appellate Assistant Commissioner, that point was not raised but lit appears that it was again before the Tribunal. The Tribunal rejected that claim and the question in that behalf has been referred to us. But at the time of hearing of this reference, learned counsel appearing for the assessee stated that he is not pressing the said question. Therefore, no further discussion with respect to that question is necessary.

6. The claim for depreciation of the machinery on its increased cost as a result of fluctuation in the foreign exchange rate was rejected by the Income-tax Officer holding that the increased liability was determined on the last date of the accounting year and as such it was relevant for the following accounting period. Two more reasons were given by the Income-tax Officer for rejecting the said claim, but the Tribunal has not thought it fit to base its conclusion relying upon those two reasons. As the assessee's claim for depreciation in respect of its factory building No. 2, which was let out, and it claim for treating the additional liability, which had arisen at the end of accounting year as a result of fluctuation in the exchange rate for depreciation purposes were not accepted by the Income-tax Officer, it preferred two appeals before the Appellate Assistant Commissioner one in respect of the assessment year 1972-73 and one in respect of the assessment year 1973-74.

7. The Appellate Assistant Commissioner agreed with the Income-tax Officer that the income which the assessee had derived as a result of letting out factory building No. 2 was not business income, but it was income from house property, and, therefore, that part of the assessee's appeal was dismissed. He, however, agreed with the contention raised on behalf of the assessee that section 43A was attracted in that case, and that the assessee was entitled to deduction for appropriate depreciation for the provision year itself on the basis of the increase in the liability as a result of enhancement in the rate of exchange. He, therefore, allowed the appeal partly and directed the Income-tax Officer to allow depreciation as admissible on a further sum of Rs. 6,03,172.

8. Thereupon, the assessee preferred two appeals to the Tribunal and one appeal was filed by the Revenue. The assessee preferred those appeals because its claim for depreciation treating the rental income as business income was dismissed. As the assessee's claim for benefit on the basis of the additional liability which had arisen at the end of the accounting year because of the exchange rate fluctuation was allowed, the Revenue had preferred that appeal.

9. The tribunal also agreed with the view that the rental income which the assessee had received was not business income from house property. Therefore, it up held that part of the order passed by the Income-tax Officer and conformed by the Appellate Assistance Commissioner. As regards the claim for deduction of Rs. 6,03,172 on the ground that it was in the nature of revenue expenditure, the Tribunal held that the said question did not really arise for consideration in the assessment years in respect of which the appeals were preferred and therefore it did not decide that the question. As regards the assessee's claim for depreciation on the enhanced value of the machinery, the Tribunal held that,

"..... the liability for payment of instalment would accrue only in the subsequent year and, therefore, the decision of the Appellate Assistant Commissioner allowing the claim for depreciation was not justified both in law as well as on facts"

. The Tribunal was of the view that no enforceable obligation had arisen during the relevant previous year as the first instalment was to be paid in the following accounting year. Thus, accordance to the Tribunal, the claim for higher depreciation did not arise really for consideration so far as the assessment year under appeal was concerned. The Tribunal, therefore, dismissed the appeal so far as those contention were concerned but partly allowed the same with respect to some other claims. As the assessee was not satisfied with the decision of the Tribunal, it preferred three applications - two arising from the orders passed in his appeal filed by the Revenue for referring four questions to this court. As stated above, instead of referring the questions suggested by the assessee, the Tribunal has though it fit to refer the abovestated four question to this court.

10. We find that the questions which are suggested by the assessee are more or less covered by the questions which have been referred top us, and for that reason, we have thought it fit to dismiss the application filed by the assessee.

11. As stated above, learned counsel for the assessee has not pressed questions No. 3 and, therefore, we have not considered the same.

12. The point which is raised by question No. 1 is now covered by the decision of this court in the case of the assessee itself in Income-tax Reference Nos. 199 and 199A to 199E of 1978, which is now reported CIT v. New India Industries Ltd. [1993] 201 ITR 208, wherein this court has held that if the commercial asset is not capable of being used as such or as a commercial asset, then its being let out to others does not result in the accrual of business income. It is further held that, when the asset is in the nature of land or building capable of being used for any other purpose and when the assessee ceases to use if as a commercial asset either himself or even through others, the income derived by him by renting out the same would more appropriately fall under the head "Income from house property" In viewed of the said decision, it will have to be held that the Tribunal was right in holding that the rental income derived in respected of the factory building was chargeable under the head "Income from house property" and no depreciation was allowable in respect thereof under section 32(1)(ii) of the Act. As we have held that the Tribunal was right in deciding like this question No. 2 is not required to be considered.

13. As regards question No. 4, it was urged by learned counsel for the assessee that though the Tribunal has not recorded a specific finding that section 43A applies to the facts of the case, by implication, it can be said that it has held that section 43A is applicable, other wise, it would not have made an observation that this claim for higher depreciation would arise for consideration in the subsequent previous year. Learned counsel for the Revenue also made his submission on the basis that the Tribunal has not held that section 43A did not apply to the facts of the case. Therefore, the contention which was raised before us that the Tribunal committed an error in holding that the claim made by the assessee could not be considered in the assessment year 1973-74, and that such a claim would arise for consideration only when the liability of the assessee is increased as a result of payment of the instalments in subsequent years will have to be accepted. The Supreme Court, in the case of Commissioner Of Income Tax, Gujarat v. Arvind Mills Ltd.. [1992] 193 ITR 255, has also held that, after the introduction of that section what would have been the position independently of that section cannot be considered, and that there would be no justification to disregard the enacted provision. Therefore, the only controversy arising for consideration is : Can the assessee's liability be said to have increased as result of fluctuation in the exchange rate ? It was contended on behalf of the assessee that, when the assessee purchased the assets, its liability to pay the price thereof accursed and the said liability increased in the relevant previous year as a result of devaluation of the rupee, and increase in the value of the German currency. As against that, it was contended by learned counsel for the Revenue that the liability of the assessee would increase only when it pays the instalments and as admittedly no instalment was payable and paid during the relevant previous year, the assessee was not entitled to claim depreciation on the enhanced value of the machinery in Arvind Mills' case [1992] 193 ITR 255, though the Supreme Court was not directly concerned with a claim arising under section 43A(1), but was called upon to consider the validity of the claim made under sub-section (2) of that section, it did examine the scope of section 43A as a whole and in view of the rival contentions raised before it, interpreted not only sub-section (2) but also sub-section (1) was inserted only to define the year in which the increase or decrease of liability has to be adjusted, it held that section 43A lays down, firstly, that the increase or decrease in liability should be taken into account to modify the figure of actual cost and secondly, that such adjustment should be made in the year in which the increase or decrease in liability arises on account of the fluctuation in the rate of exchange. In view of this clear pronouncement of the Supreme Court, the only aspect which we are required to examine is as to whether the liability of the assessee can be said to have increased on account of devaluation of the rupee in this clear pronouncement of the Supreme Court, the only aspect which we are required to examine is as to whether the liability of the assessee can be said to have examine is as to whether the liability of the assessee can be said to have increased on account of devaluation of the rupees in the relevant previous year. In our opinion, when the assessee purchased assets at a price, its liability to pay the same arose simultaneously. Merely because the said that the liability was to be discharged in instalments become due and payable. It was that liability which has increased on account of fluctuation in the rate of exchange. In our opinion, the contention raised on behalf on the Revenue that the liability to pay the price of the asset arose only when the instalments became due and payable cannot be accepted for the reason that we are considering a provision which is made inter alia, for the purpose of determining the allowability of depreciation allowance. If the assessee become the owner of the machinery and starts using the same, it would become entitled to depreciation allowance. It is for the purpose of working out the amount of depreciation that one has to look at the cost of the asset in respect of which depreciation is claimed. It is in this context that we have to consider as to when the liability can be said to have arisen. If the contention raised on behalf of the Revenue is accepted, then it would defeat the very purpose of the provision. As view to mitigate hardships which were likely to be caused to the assessee as a result of fluctuation in the rate of exchange. For these reasons, we hold that the Tribunal was not right in holding that the assessee was not entitled to claim the benefit on the basis of this additional liability resulting from the exchange rate fluctuation.

14. In the result, we answer question No. 1 in the affirmative, that is, against the assessee and in favour of the Revenue. We decline to answer question No. 2 as it does not call for any reply. Question No. 3 is not answered as it is not pressed and question No. 4 is answered in the negative, that is in favour of the assessee and against the Revenue. No order as to costs.

15. The reference application is dismissed. Rule is discharged with no order as to costs.

16. As this reference arises out of three reference applications made before the Tribunal, the office is directed to give three separate numbers to the three matters arising out of those three reference applications treating Income-tax Reference No. 74 of 1980 as arising out of the order passed in Reference Application No. 119/(Ahd) of 1979.