Commissioner of Income Tax vs Kirloskar Bros. Ltd.

Sugla, J.—In this departmental reference relating to the assessee''s assessment for the year 1973-74, the Tribunal has referred to this Court the following question of law for opinion u/s 256(1) of the income tax Act, 1961 (''the Act''):

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was entitled to depreciation u/s 32 of the income tax Act, 1961, on assets such as building, machinery, plant, etc., used for scientific research related to its business and in respect of which it had already obtained 100 per cent deduction u/s 35(1)(iv) read with section 35(2) of the Act ?"

While it is the case of the assessee that in view of our Court''s recent judgment in the case of Commissioner of Income Tax Vs. Mico Products Pvt. Ltd., , the question is required to be answered in the affirmative and in favour of the assessee, Shri Jetly, the learned counsel for the revenue, relies on the Supreme Court''s decision in the case of Commissioner of Income Tax Vs. Indian Telephone Industries Ltd., , for the proposition that in view of the retrospective amendment of section 35 of the Act, depreciation on the assets, full cost of which was allowed as deduction u/s 35, is not permissible.

It may not be out of place to mention here that similar arguments had been advanced on behalf of the department before us in another case. We had held therein that the decision of the Supreme Court arose out of reference proceedings. Since the Tribunal could not have considered the vires of the Act, it could not have referred such a question to the High Court. Since the High Court in reference proceedings could not have considered the vires of the Act, the Supreme Court in appeal against the judgment of the High Court in reference could not also have done so. The situation obtained now is that by our Court''s judgment in writ proceedings in the case of Hico Products (P.) Ltd. (supra), we have held that insofar as the amendment of section 35 is retrospective, the amendment is unreasonable and is, therefore, ultra vires the Constitution. That being so, when we are considering the question in reference proceedings, we have to proceed on the basis as if the section was not amended with retrospective effect. In that view of the matter we again take the view that our judgment in Hico Products (P.) Ltd. ''s case (supra) governs the issue. Accordingly, we answer the question in the affirmative and in favour of the assessee. No order as to costs.