COMMISSIONER OF INCOME TAX Vs. PREMIER MILLS LIMITED

JUDGEMENT

(1.) AT the instance of the Department, the Tribunal has referred the following questions of law for our consideration :

(2.) THE assessee is a public limited company engaged in the spinning of yarn, textiles etc. THE assessee was following the financial year as the previous year and in its application dt. 11th February, 1980 the assessee-company desired a change of its accounting year ending on the month of June of every subsequent year. THE ITO by his letter dt. 21st February, 1980 acceded to the request of the company on the following conditions :

(3.) AN assessee is not entitled to vary the expression 'previous year' as is applicable to him except with the consent of the ITO and upon such conditions as the ITO may think fit to impose. Sub-s. (4) of s. 3 of the Act provides that it is impermissible for the assessee to change his previous year except with the consent of the ITO and it is open to the ITO to stipulate such conditions as the ITO may think fit to impose for the change of the previous year. In our view, the conditions imposed by the ITO for the change of the previous year should be legal, valid and reasonable and should not be against the provisions of the Act. In Esthuri Aswathiah vs. CIT , the income of the entire previous year consisting of 21 months, consequent to the change of previous year was taxed at the rate prescribed by the relevant Finance Act. The contention of the assessee before the Supreme Court was that the ITO should have assessed the total income at the rate applicable to the income of the last period of 12 months. But the Supreme Court rejected the contention of the assessee and held once the length of the previous year was fixed and the income of the previous year was determined, that income must be charged at the rate specified in the Finance Act relevant for the asst. yr. 1952-53. The decision of the Supreme Court makes it clear that once the length of the previous year is fixed and the income of the previous year is determined, that income is liable to be charged at the rate specified in the Finance Act. Therefore, it follows that assessee is also entitled to all statutory deductions which are admissible for the said period and it is impermissible for the ITO to curtail the statutory deductions available for the said period. There can be no dispute that the proviso to r. 5(1) of the IT Rules, in its terms has no application to the facts of the case as the said rule is applicable only where there is a change in the previous year exceeding a period of 12 months. In the absence of any provision of the Act or the rule curtailing the grant of deduction, we are of the view that it is impermissible to curtail the amount of depreciation allowable only on the ground that the previous year fixed was three months, especially where the assessee is entitled to full depreciation even if the machinery or plant was used for the purpose of his business for a single day during the previous year. The anomaly pointed out by the learned counsel for the Revenue is inherent in the statute granting the normal depreciation and the condition imposed cannot be against the provisions of the statute. Though the assessee has initially agreed that it will resist in its claim of depreciation for a period of three months, the condition imposed by the ITO is against the provisions of the Act and it does not bind the assessee though it was accepted by the assessee earlier. The Allahabad High Court in J.K. Synthetics Ltd. vs. ITO , has held that the conditions imposed by the ITO for the change of the previous year should be valid, legal and reasonable. We have held that once the length of previous year is determined, the assessee is entitled to all the statutory deductions which are admissible under the law for such period and the statutory deductions cannot be curtailed unless the provisions of the statute warrant the same.