The Supreme Court of India, in a major relief to Jindal Steel and Power, upheld the adoption of Written Down Value (WDV) method in place of the straight line method while computing depreciation on the assets used for power generation by assessee.
In consideration of the legality of adoption of Written Down Value (WDV) method in place of the straight line method while computing depreciation on the assets used for power generation, the apex court observed that, “This claim of the assessee was denied by the assessing officer on the ground that no option for this purpose was exercised by the assessee before filing of the return. Though the assessee had stated so in the return itself, that was not treated as exercising the option in a valid manner. All the appellate authorities answered this issue in favour of the assessee.”
This issue arises in the case of the respondent-assessee M/s Jindal Steel and Power Ltd., for the assessment year 2001-2002.
Assessee claimed depreciation on MV turbines on and around 08.07.1998 for the purpose of its eligible business at the rate of 25% on WDV basis. On perusal of the materials on record, assessing officer held that in view of the change in the law with regard to allowance of depreciation on the assets of the power generating unit w.e.f. 01.04.1997, the assessee would be entitled to depreciation on straight line method in respect of assets acquired on or after 01.04.1997 as per the specified percentage in terms of Rule 5 (1A) of the Income Tax Rules, 1962.
The Assessing officer however noted that the assessee did not exercise the option of claiming depreciation on WDV basis. Therefore, it would be entitled to depreciation on straight line method.
It was observed by the Supreme Court that, “After obtaining the clarification of the assessee, assessing officer held that since the assessee did not exercise the option of adopting WDV method, therefore, in view of the provision of Rule 5(1A) of the Income Tax Rules, 1962 , it would be entitled to depreciation on the straight line method.”
In the appeal before the CIT(A), the assessee contended that the assessing officer had erred in limiting the allowance of depreciation on the turbines to Rs. 1,59,10,047.00 as against the claim of Rs. 2,85,37,634.00. However, vide the appellate order dated 16.05.2005, CIT(A) confirmed the disallowance of depreciation made by the assessing officer.
On further appeal by the assessee before the Tribunal, vide the order dated 07.06.2007, the Tribunal on the basis of its previous decision in the case of the assessee itself for the assessment year 2000-2001 answered this question in favour of the assessee.
In further appeals, the High Court held that there was no perversity in the reasoning of the Tribunal and therefore, the question raised by the revenue could not be said to be a substantial question of law.
Rule 5 provides for the method of calculation of depreciation allowed under Section 32 (1) of the Income Tax Act.
It says that such depreciation of any block of assets shall be allowed, subject to provisions of sub-rule (2), as per the specified percentage mentioned in the second column of the table in Appendix-I to the Rules on the WDVof such block of assets as are used for the purposes of the business or profession of the assessee during the relevant previous year.
In so far the present case is concerned, the bench observed that, it is not in dispute that sub-rule (2) has no application.
Appendix-1 provides for a table of rates at which depreciation is admissible. While the first column refers to the block of assets, such as, tangible assets, including buildings, furniture and fittings, machinery and plant etc., and intangible assets, the second column mentions the relatable depreciation allowance as per percentage of WDV. On the other hand, Appendix-1A has been inserted by the Income Tax (Twelfth Amendment) Rules, 1997 with retrospective effect from 02.04.1997.
While column one of Appendix-1A mentions about the class of assets, column two provides for the relatable depreciation allowance of such class of assets as per the percentage of actual cost.
From a comparison of the two appendixes, it is evident that the depreciation allowance as per percentage of WDV in Appendix-1 is higher than the depreciation allowance as per percentage of actual cost under Appendix-1A, the bench noted.
From a conjoint reading of Rules 5(1) and (1A) of the Rules read with Appendix-1 and Appendix-1A, it is evident that while subrule (1) provides for allowance of depreciation in respect of any block of assets in terms of the second column of the table in Appendix 1, sub-rule (1A) enables an assessee to seek allowance of depreciation of assets acquired on or after the 1st day of April, 1997 as per the percentage specified in the second column of the table in Appendix-1A on actual cost basis.
However, the second proviso to sub-rule (1A) clarifies that an assessee may opt for depreciation under Appendix-1 instead of Appendix-1A but such option has to be exercised before the due date for furnishing the return of income under sub-section (1) of Section 139 of the Income Act.
In the instant case, there is no dispute that the assessee had claimed depreciation in accordance with sub-rule (1) read with Appendix-I before the due date of furnishing the return of income, the bench noted.
The view taken by the assessing officer as affirmed by the first appellate authority that the assessee should opt for one of the two methods is not a statutory requirement. Therefore, the revenue was not justified in reducing the claim of depreciation of the assessee on the ground that the assessee had not specifically opted for the WDV method, the two-judge Apex Court bench noted.
A similar issue was examined by this Court in CIT Vs. GR Govindarajulu, wherein it has been held that the law does not mention any specific mode of exercising such an option. The only requirement is that the option has to be exercised before filing of the return.
Applying the aforesaid principle to the facts of the present case, we are in agreement with the view expressed by the Tribunal and the High Court that there is no requirement under the second proviso to sub-rule (1A) of Rule 5 of the Rules that any particular mode of computing the claim of depreciation has to be opted for before the due date of filing of the return, the apex court further observed.
All that is required is that the assessee has to opt before filing of the return or at the time of filing the return that it seeks to avail the depreciation provided in Section 32 (1) under subrule (1) of Rule 5 read with Appendix-I instead of the depreciation specified in Appendix-1A in terms of sub-rule (1A) of Rule 5 which the assessee has done, the Bench of Supreme Court Justices B V Nagarathna and Ujjal Bhuyan observed.
Finding no merit in the question proposed by the revenue, the Supreme Court, answered the question of law in favour of the assessee and against the revenue.
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