Holding

The amendment to Section 35(2)(iv) merely clarified an existing prohibition on double deduction and is constitutionally valid.

Summary

Escorts Ltd. and other assessees challenged the Finance (No.2) Act, 1980 amendment that gave retrospective effect to clause (iv) of Section 35(2) of the Income‑Tax Act, 1961, arguing it allowed a double deduction for scientific‑research expenditure and violated Articles 14, 19(1)(g) and 300A of the Constitution. The Court examined the pre‑amendment provisions of the 1922 and 1961 Acts and held that they already prohibited a double deduction; the 1980 amendment merely clarified this rule and did not create a new burden. Consequently, the amendment was constitutionally valid and the writ petitions were dismissed.

Issues considered

Whether the pre‑1980 provisions of the Income‑Tax Acts permitted a double deduction for the same scientific‑research expenditure.
Whether the 1980 amendment to Section 35(2)(iv) was a clarificatory measure or an impermissible retrospective imposition of a new tax burden.
Whether the retrospective amendment violated Articles 14, 19(1)(g) and 300A of the Constitution.

Legislation cited

Constitution of Indias. Article 14, s. Article 19(1)(g), s. Article 300A
Finance Act, 1968s. Amendment to Section 35(2)
Finance Act, 1980 (No.2)s. Amendment to Section 35(2)(iv)
Income Tax Act, 1922s. 10(2)(vi), s. 10(2)(xiv), s. Proviso clause (d), s. Proviso clause (e)
Income Tax Act, 1961s. 32(1)(ii), s. 35(1)(iv), s. 35(2)(iv), s. 35(2)(v), s. 43(1)

Subjects

Income TaxDepreciationScientific Research DeductionDouble DeductionRetrospective AmendmentConstitutional ChallengeArticle 14Article 19(1)(g)Article 300ATax Law Interpretation

Judgment

ESCORTS LIMITED AND ANR. ETC. ETC. A
v.
UNION OF INDIA AND ORS.

OCOTBER 22, 1992

[S. RANGANATHAN, V. RAMASWAMI AND B
B.P JEEVAN REDDY, JJ.]

Income Tax Act, 1922/Income Tax Act, 1961 :

Sections JO (2) (vi) and (xiv) /32 (1) (ii), 35 (1) (iv), 35 (2) (iv), 43 · C
(1).. Explanation-Depreciation-Scientific Research-Deductions in comput-
ing business income-Depreciation allowance in re~pect of the asset as also
allowance in respect of expenditure incurred on the Scientific Research--
Whether pennissible- Retrospective amendment of Section 35(2 )-Whether
violative of Articles 14,19 (/) (g) and 300-A of the Constitution-Whether D
. impo_sed unreasonable and oppressive burden on the assessee-Nature and
effect of amendment-Position before and after the amendment-Explained.

Constitution of India, 1950 :

Articles 14, 19 ( 1) (g) and 300-A--Retrospective amendmellt of Section E
35 (2) of the Income Tax Act, 1961-Wliether violative of-Completion of
pending asses~1nents and also reopening or rectification of cotnpleted assess-
ments of earlier years in cases where double benefit was granted-Wl1ether
unreasonable and imposed oppressive burden on assessee.

.. Statute Lott-Retrospective operation-A1nended provision given retro-
spective effect-Whether open to challenge as ilnposing oppressive bur-
den-Whether new obligation created under new provision.

Section 32 (1) (ii) of the Income Tax Act, 1961 provided for deprecia-
tion, while computing business income for purpose of income tax. It was
F

allowed at a percentage of the written down value of certain capital assets G
employed in the business. Section 35(1) provided for the deduction of
four types of expenditure on scientific research and the deduction
provided under 35 (1) (iv) was to the effect that in respect of any expendi-
ture of a capital nature on scientific research related to the business
carried on by the assessee, such deduction as may be admissible under the H
153
154 SUPREME COURT REPORTS [1992] SUPP. 2 S.C.R.

A provisions of sub-section (2). Sub-Section (2) provided that, for the pur-
poses of clause (iv) of sub-section (1), one-fifth of the capital expenditure
incurred in any previous year should be deducted for that previous year;
and the balance of the expenditure should be deducted in equal instal-
ments in each of the four immed.iately succeeding previous years. It fur-
ther provided in clauses (iv) and (v) that where a deduction was allowed
B for any previous year under this section in respect of expenditure repre-
sented wholly or partly by an asset, no deduction should be allowed under
clauses (i), (ii) and (iii) of sub-section (1) of section 32 for the same
previous year in respect of that asset; and where the asset mentioned in
clause (ii) was used in the business after it ceased to be used for scientific
C research related to that business, depreciation should be admissible
under clauses (i), (ii) and (iii) of sub-section (1) of Section 32.

Explanation 1 to Section 43(1) also provided that where an asset was
used in business after it ceased to be used for scientific research related
D to that business and a deduction had to be made under clause (i), clause
(ii) or clause (iii) or sub-section (!) or sub-section (IA) of Section 32 in .
respect of that asset, the actual cost of the asset to the assessee, as
reduced by the amount of any deduction allowed under clause (iv) of
sub-section (I) of Section 35.

E The pro•isions of Section 32(1) (ii) and Section 35(2) (I) (iv). and
(v) read with Explanation 1·to Seetion 43(1) virtually repeated the
provisions contained in Section 10(2) (vi) and 10(2) (xiv) of the 1922 Act.

In 1968, there was an amendment in the provisions of Section 35(2).
F The effect of the amendment was that the entire amount of capital expen-
diture incurred in relation to scientific research was allowed as a deduc-
tion in on.e year, instead of being spread over a period of five years as was
the position earlier.

Thereafter, the Finance Act, 1980 made an amendment with
..
G retrospective effect from 1.4.1962, i.e. from the date of commencement of
Act of 1961 which provided under clause (iv) of Section 35(2), that where
a deduction ·Was allowed for any previous year under this sectio_n in
respect of expenditure represented-wholly or p3rtly by an as·set, no deduc-
tion should be allowed under clauses (i), (ii) and (iii) of sub-section (1) of .
H Section 32, for the same or any otheir previous year in respect of that asset.
ESCORTS LTD. v. U.O.L 155

In the Writ Petitions filed before this Court on behalf of the asses- A
sees it was contended that the allowances in respect of depreciation on the
one hand and of capital expenditure on scientific research on the other are
two totally different and independent heads of allowances; one was a
notional allowance to provide for the wear and tear of a capital asset
employed in the business as the years rolled by; and the other was an
allowance for actual expenditure of a capital nature, granted to give lillip
B
to new industrial innovations and development of indigenous know-how
\ and techniques by proper planning on research and development by
various business houses; and, therefore_, there was nothing wrong in con-
I
struing the statute as providing cumulatively for both types of deductions
in respect of the same capital asset; that both the types of allowances were C
\ permissible under the statute except to the extent limited by clauses(iv)
j
and (v) of Section 35 of the Act/Clauses (d) and (e) of the proviso to
Section 10(2) (xiv) of the 1922 Act; that this interpretation of the statutory
provisions was very clear, patent and unambiguous; that the retrospective
amendment of the provision would impose unexpected and impossible D
burden on them over the years, jeopardise their solvency and lay them
open to action by creditors and financial institutions ~nd such an onerous
burden was unreasonable and oppressive and the provision imposing such
a burden violated the fundamental rights of the assessees under Articles
14 and 19(1) (g) of the Constitution that retrospective provisions may be
permissible even in taxing staiutes in certain special circumstances such E
as in the case of provisions clarifying the impact of a statute, provisions
curing defective legislations in the light of the judicial decisions and the
like, but if the legislature chose to impose a totally new burden, which was
not at all in contemplation earlier and proceeded to give full retrospective
effect thereto, such an attempt should be struck down as unreasonable F
and discriminatory, that the amendment was not in the nature of a
statutory clarification of an ambiguity but a totally new and fresh imposi-
tion sought to be unjustifiably given retrospective effect, and that the
statute did not intend one deduction to preclude the other.

On behalf of the Revenue, it was contended <hat the deduction G
provided by Section 35 (1) (iv) was in the alternative to the deduction
provided by clauses (i), (ii) and (iii) of sub-section (I) and sub-section •
(lA) of Section 32; if one was availed of, the other was not available, not
only during the year or years in which the deduction under Section 35(1)
(iv) was availed of, but permanently; for the reason that if both were H
156 SUPREME COURT REPORTS [1992] SUPP. 2 S.C.R.

A allowed to be availed of, it amounted to grant of 200% deduction viz., 100%
under Section 35(1) (Iv) and another 100% under sub-sections (I) and
(IA) of Section 32, and this was totally outside the contemplation of the Act.

Dismissing the writ petitions, this Court,

B
HELD: Per Ranganathan J. (For himself and Ramaswami, J.)

I.I. There is a fundamental, though unwritten, axiom that no legis-
lature could have at all intended a double deduction in regard to the same
business outgoing; if it is intended it will be clearly expressed. In other
c words, in the absence of clear statutory indication to the contrary, the
statute should not be read so as to permit an assessee two deductions -
both under Section 10(2) (vi) and section 10(2) (xiv) under the 1922 Act
..
or under Section 32 (i) (ii) and 35(2) (iv) of the 1961 Act - qua the same
expenditure. The use of the words "in respect of the same previous year"
D in clause (d) of the proviso to Section 10(2) (xiv) of the 1922 Act and
Section 35 (2) (iv) of the 1961 Acl: is not a contra-indication which permits
a disallowance of depreciation only in the previous years in which the
other allowance is actually allowed. The purpose of the words above
referred to is totally different. That the two allowances cannot be and are
not intended to be granted in respect of the same asset or expenditure, can
E be easily seen from the limitation imposed by these words. Where the
capital asset is orie of the nature specified, the assessee can get only one
of the two allowances in question but not both. For determining which of
the two allowances should be granted - that which the assessee chooses or
that which the assessing officer might prefer, it is necessary for the statute
F to define this and this is what has been done by the rider in clause (d) of
the proviso to Section 10(2) (xiv) of the 1922 Act Section 35(2) (iv) of the
1961 Act. It mandates that the asssessee should, in such a case, be
granted the special allowance for scientific research and not the routine
and annual one for depreciation.. Clause (d) of the proviso lo Section
10(2) (xiv) of the 1922 Act and Section 30(2)(iv) of the 1961 Act thus fall
G into place as an appropriate and necessary provision. The provision
contained in clause (e) of the proviso to Sectirn 10(2) (xiv) of the 1922 Act,
re-enacted in Explanation to Section 43(1) of the 1961 Act, also reinforces
this line of approach. Therefore, 1it is not correct to say that the allowan-
ces under the two provisions are by nature unconnected with, and indpen-
H dent of, each other. (171-D-H; 172·A-E]
ESCORTS LTD. v. U.O.l. 157

1.2. Under the provisions of the statute as they stood earlier, the A
assessees could not have claimed continued grant of depreciation after the
expiry oflive previous years before the 1968 amendment and after the expiry
of the first year after the 1968 amendment, even though the entire cost of the
capital asset in question had been allowed to be writen off completely against
the business profits of those five previous years or one previous year as the
case may be. It is impossible to conceive of the legislature having envisaged B
a double deduction in respect of the same expenditure even though it is true
that the two heads of deduction do not completely overlap and there is some
difference in the rationale of the two deductions under consideration. The
last few words of the English statute, viz., "assets for any year of assessment
during any part of which they were used by the person carrying on the trade C
for scientific research related to the trade" show that there is really no
difference between the English and Indian Acts; the former also in terms
prohibits depreciation only so long as the assets are used for scientific
research. (169-F-H; 171-8,C]

1.3. In the circumstances, it is clear that, even before the 1980- D
amendment, the Act did not permit a deduction for depreciation in respect
of the cost of a capital asset acquired for purposes of scientific research
to the extent such cost has been written off under Section 10(2) (xiv) of the
1922 Act/35(1) & .(2) of the 1961 Act. Prior to 1968, such assets qualified
for an allowance of one-fifth of the cost of the asset in five previous years
starting with that of its acquisition and during these years the assessee E
could not get any depreciation in relation thereto. In respect of assets
acquired in previous year relevant to assessment year 1968-69 and there-
after, their cost was written off in the previous year of acquisition and no
depreciation would be allowed in that year. This is clear from the statute.
Equally, it is not envisaged, that depreciation could be allowed on them F
thereafter and also that it could be allowed starting with the original cost
of the asset despite its user for scientific research and the allowances
made under the 'scientific research' clause. There was no difficulty at all
in the interpretation of the provisions. The mere fact that a baseless
claim was raised by some over-enthusiastic assessees who sought a double G
allowance or that such claim may perhaps have been accepted by some
authorities is not sufficient to attribute any ambiguity or doubt as to the
true scope of the provisions as they stood earlier. [173-E-H; 174-A]

C.I. T. v. Inl!ian Telephone Industries Ltd., (1980) 126 I.T.R. 528 and
C.l.T. v. Hico Products, (1991) 187 l.T.R. 517, overruled. H
158 Slll'REME COURT REPORTS [1992) SUPP. 2 S.C.R.

A Lohia Machines Limited v. Union of India, (1985) 152 l.T.R. 308 S.C.;
Alkali & Chemical Corporation of India Ltd, v. C./. T., (1986) 161 l.T.R. 820
Cal.; C.l.T v. Indian Explosives Ltd., (1992) 192 I.T.R. 144 Cal.; t.J.T. v.
lntemational lnstmments P. Ltd.. (1983) 144 I.T.R. 936 Kar. and Warner
Hindustan Ltd. v. C.l.T., (1988) 171 l.T.R. 224 A.P., referred to.

B 1.4. The assessees may ha,·e some possible case only if the earlier
statutory provisions can be said to have been unambiguously in favour of
the assessee and the 1980 amendment had radically altered the provisions
to cast a new and substantial burden on the assessee with retrospective
effect but there is no ambiguity. The 1980 amendment has effected no
C change at all in the provisions except to set out m~re clearly and categori-
cally what the provision said even earlier. Thus, even without the amend-
ment, the assessees cannot claim the depreciation allowanct in question.
Even if it is assumed that there was an ambiguity or doubt as lo inter-
pretation, that was retrospectively clarified by the legislature. Therefore,
the validity of the amendment cannot be challenged. This is indeed
D beyond all doubt. [174-C-G]

Rai Ramkrishna v. State of Bihar, [1964] 1 S.C.R. 897;Asst. Commis-
sioner of Urban Land Tax v. Buckingham & Camatic Co. Ltd., [1970] 1
S.C.R. 268; Krishnamurthi & Co. v. State of Madras, [1973] 2 S.C.R. 54; Hira
E Lal Rattan Lal v. Sales Tax Officer and Anr., (1973) 31S.T.C.178 and Shiv
Dutt Rai Fateh Chand v. Union of India, (1984) 148 l.T.R. 644, referred to.

Per Jeevai Reddy, J. (Concurring)

F provided for in clear . and express langnage,
. .
1.1. A double deduction cannot be a matter of inference; it must be
regard having to its serious
impact on the i:ovenues of the State. If the Legislature/Parliamsnt want1'd to
provide for more than iOO% deduction they would have said so; as they done
in cases where they have provided for what is called 11weighted deduction",
vide Section 35(8) of the Act of 1961. It is not possible to agree that while
introducing clause (xiv) in sub-section (2) of Section 10 of the 1922 Act
G consequent on the introduction of Section 20(4) in the U.K. Finance Act,
1944, the Indian Legislature as also the Parliament made a conscious
departure from the English Amendment with the idea of providing an
additional incentive over and above the deduction on account of deprecia-
tion, to induce the lndian_assessees to invest more in scientific research.
H [177-E-H]
ESCORTS LTD.'" U.0.1. 159

1.2. The underlying reason in clause (iv) or Section 35(2) or Act of A
1961 providing that during the years or )·ear in \l'hich the assessee avails
or the deduction under Section 35(1) (iv), he should not avail of the
deduction on account or depreciation provided by clauses (i), (ii) and (iii)
or sub· section (1) and sub-section (lA) or Section 32 is to ensure that the
assessee does not get double deduction for example, \Vhere the asset was
acquired prior to April 1, 1957, the deduction under Section 35(1) (iv)
B
would be allowed in five consecutive years. If during the very five previous
years, depreciation under the aforementioned provisions is also allowed,
the assessee would obtain, at the end or five years, a double depreciation
i.e., 100% under Section 35 and almost 100% under Section 32. (In many
cases, the rate of depreciation under Section 32 is 20% or even higher). If C
such a course was barred by clause (iv) during the initial five years, it
would not be reasonable to say that same thing can be achieved by
claiming the deduction after the expiry of five years. If both the deduc·
lions are in the alternative, as indicated by clause (iv), they must be
understood as being in the alternative and not consecutive. It would be a D
rather curious thing to say (in the case of an asset acquired prior to April
1, 1967) that Parliament barred claim for depreciation under Section 32
even in the first year when only 20% of the cost of the asset is allowed as
deduction under Section 35(1) (iv), it barred it in the second, third and
fourth years, when the deduction had reached 40, 60 and 80 per cent but
permitted it be claimed after the fifth year, by which year the entire 100% E
cost was allowed as a deduction. No express provision was necessary to
-! say what is so obvious. The position after April 1. 1967 is no different.
That the aforesaid view is the correct one is indicated by Explanation (I)
to clause (1) of Section 43 [the corresponding provision in the 1922 Act
being sub-clause (e) of clause (xiv) of Section 10(2) of 1922 Act]. F
[177-H; 178-A-E]

1.3. The amendment of Section 35(2) in 1980 is merely clarificatory
in nature. It makes explicit what was implicit in tht!' provisions. Question
of its constitutionality, therefore, does not arise. Though purporting to be G
retrospective, it does not take away any rights which had legally vested in
the assessees. [180-B]

Commissioner of Income Tax v. Hico Products Pvt. Ltd, (1991) 187
l.T.R. 517, overruled. H
160 SUPREME COURT REPORTS [1992) SUPP. 2 S.C.R.

A 1.4. None of the assessments relating to any ofthe assessment years in
question has become final. They are pending at one or the other stage and in
one or the other forum. Since the amendment under challenge merely makes
explicit which was implicit in the unamended clause, there is no question of
any right vesting in the assessee and its being taken away:[180-H; 181-A]

B ORIGINAL JURISDICTION: Writ Petition No. 90 of 1981 etc. etc.

(Under Article 32 of the Constitution of India).

Dr. Devi Prasad Pal, Dinesh Vyas, P.H. Parekh, B.N. Aggarwal, A.S.
Rao, Ravinder Narain, S. Ganesh, A.K. Verma, Amrita Mitra, Ms. Priya
c Hingorani, S. Sukumaran, Ms. Amrita Mitra, Ms. S.Bagga, Krishan Kumar,
Bhaskar Pradhan, Ms. Poonam Madan, Ms. Gauri Advani, S. Pathak, B.
Lal. B.P. Aggarwal, Ms. Geetanjali Mohan, P.K. Mukherjee and S.C. Patel
for the Petitioners.

D S.C. Manchanda, B.B. Ahuja, Manoj Arora, S. Rajappa and Ms. A.
Subhashini for the Respondents.

The Judgment of the Court was delivered by

RANGANATHAN, J. The seeds of the present controversy were sown
E as early as in 1946. It is unfortunate that this matter should be coming up
before this Court for its consideration nearly five decades later, though it
must be pointed out that the issue in its present form is the outcome of an
amendment made by the Finance (No.2) Act, 1980 (hereinafter referred to
as 'the 1980 Act') to the Income Tax Act, 1961 (hereinafter referred to as
F 'the 1961 Act'). It is also a curious co-incidence that the 1980 Act effected
two amendments in the 1961 Act with retrospective effect and the validity
of both these provisions have been challenged before the courts. The first
was the controversy with regard to the retrospective amendment of s.80-J
which was settled by this Court by its decision in Lohia Machines Limited
G v. Union of India, (1985) 152 I.T.R. 308 (SC). It is the second amendment
to the provisions contained in section 35(2) of the 1961 Act that has given
rise to the present controversy between the parties.

The question is really one of interpretation -of two important
provisions relating to the computation of business income for purposes of
H income tax. We may start with the provisions of the Indian Income Tax
ESCORTS LTD. v. U.0.1. [RANGANATHAN, J.J 161

Act, 1922 (hereinafter referred to as the '1922 Act'). The computation of A
business income for pilrposes of income "tax was ·dc;;~e in accordance with
the provisions of section 10 of the said Act. .In the proces~ of making such
. computation, the Act provided for two important deductions (among
others), in respect of. the capital assets employed in the business. The first
w.as the deduction under clause (vi) of Section 10(2) of an allowance in
respect of the depreciation of building, machinery, plant or furniture being
B
the ·property of the assessee and us~ for th.e purposes of the business: at
a prescribed percentage of the written down value of such assets. This ·
allowance is calculated, in respect of the year of acquisition of the property,
at a percentage of its actual cost to the assessee and in subsequent years
a
at graduated scale. on the basis of the actual cost less the depreciation c
allowances granted in the preceding years. In strict principle, this is an
allqwanee of capital n~ture but it is now well settled that the allowance of
depreciation has to be taken into account in order to. ascertain the true
profits of ~ business and, therefore.; an· assessee ~s permitted -~o de_duct, in
the computation of the business income year after year, the prescribed D
percentage of the value of the a~sets used for the purposes of-business ..
The second allowance was not .there in ·the 1922 Act originally and was .
introduced by the Income-tax (Amendment) Act, 1946. The introduction
11
was of certain allo\vances in respect of expenditure on. sc.ientific research
related to ~he business", _an exp_ression which wa's _·defined in a~ faii:iy ·
coniprehensive manner by .the statute. · Three types Of alloWance_s were E
permitted in respect of this category of expe~diture of which we are here
· concerned with only one. This provision wa; contained in Clause (xiv)' of
S.10(2) which permitted: a deduction.

1
'in respect. of any expenditure of a 'capital n~tur-e on scien· ·p
·tific research related to the business, an allowance for each
of the five c.ons~cutivc previous year.s beg~nning with the ·
year in which the expenditure.was incurred, or where the
expenditure W<:tS incurred prior to the Commencement of
the business, for each of the five consecutive previous yet;trs
beginning with the year in which the business was com- G
· menced, equal to one-fifth of such expenditure:

Provided that no allowance shall be made for any
expenditure incurred niore than three years ·before the
commencement of the business: · H
162 SUPREME COURT REPORTS IJ.992] SUPP. 2 S.C.R.

A Provided further that -

xxx xxx xxx

( d) where a deduction is allowed for any previous year
under this clause in respect of expenditure represented
B
wholly or pa~tly by any asset, no deduction shall be allowed
under claus~ (vi) or clause (vii) for the same previous year
in respect of that asset;

(e) where an asset is u:;ed in the business after it ceases to
c be used for scientific research related to that business, and
a claim for an allowance under clause (vi) or clause (vii) is
made in respect of that asset, the actual cost to the assessee
of the asset shall be treated as reduced by the amount of
any deductions allowed under this clause;"
D
A cursory and conjoint reading of section 10(2) (vi) and section 10(2) (xiv)
suggests that where an ossessee incurs expenditure of a capital nature on
scientific research related to the business and the expenditure results in
the acquisition of an asset, the assessee can claim, under clause (vi), a
deduction of the specified percentage of the written down value of the asset
E and under clause (xiv) he can ask for a deduction, in five consecutive years,
of the expenditure he has incurred on the acquisition of the asset. For this
purpose, we are assuming that an asset used for scientific research related
to the business is also ipso facto an asset used for the purpose of business.
There has been some debate before us as to whether this is always so but
F we need not enter into that controversy for the purposes of the present
case.

It will at once be seen that, if these two provis10ns are applied
simultaneously, it would result in granting an assessee a double allowance
in respect of the same expenditure - one of the entire amount over a period
G of 5 years and the other a percentage of the expenditure over a number
of consecutive years at a graded scale as already mentioned. The question
at once leaps to the mind as to whether it could have been the intention
of the legislature to permit both these deductions simultaneously to an
assessee. The provisions of clauses (d) and (e) of the proviso to S.10(2)
H (xiv) contain a clue to answer this question. More about it later.
ESCORTS LTD. v. U.0.1. [RANGANATHAN, J.] 163

We next turn to the provisions of 1961 Act. The topic of deprecia- A
tion is dealt with by section 32. Section 32(1) (ii) provides for depreciation.
As under the 1922 A~t, it is allowed at a percentage of the written down
value of certain capital assets employed. in the bussiness. The topic of
scientific research expenditure is dealt with by section 35..Section 35(1)
provides for the deduction of four types of expenditure on scientific . B
research and what we are concerned with is the deduction provided under
section 35(1) (iv), which is to the following effect :

(iv) in respect of any expenditure of a capital nature on
scientific research related to the business carried on by the
assessee, Buch deduction as may be admissible under the· c
provisions of sub-sedion (2)."

Sub-section (2) provides that, for the purposes of clause (iv) of sub-section
(1), one-fifth of the capital expenditure incurred in any previous year shall
be deducted for that previous year; and the balance of the expenditure shall
be deducted in equal instalments in each of the four immediately succeed-
ing previotis years. T~ere is an explanation whi~h is not relevant· for our
present purposes. Reading S.35(2) further, it pro.vides in clauses (iv) .and .
(v) as follows : ·

"(iv) where a deduction is allowed for any previou< year E
u~der this section in respect .of exp~nditurc repreSented
wholly or partly by an asset, no deduction shall be allowed
under clauses {i), (ii) and (iii) of sub-section (1) of'section ·
32 for the same previous year in.respect of that asset;

(v) where the asset mentioned itl clause (ii) is used in the F
business after it ceases to be used· for scientific research
related to that business, depreciation shall be. admissible
under clauses (i), (ii) and (iii) of sub-section (1) of section
32.11

Reference must also be.made to Explanation 1 to s. 43(1) in.this G
context. It read as follows at the relevant time :

"Explanation : Where an asset is used in business a~ter it
ceases to be Used for scientific r~search related to that
business and a deduction has to. be m.ade under clause (i), H
164 SUPREME COURT REPORTS [1992] SUPP. 2 S.C.R.

A clause (ii) or clause (iii) of sub-section (1) or sub-section
(lA) of section 32 in respect of that asset, the actual cost
of the asset to the assessee, as reduced by the amount of
.. any deduction allowed under clause (iv) of sub-section (1)
of section 35 or under any corresponding provision of the
Indian Income-tax Act, 1922 (11of1922).'
B
From the above it will be seen that the pro\isions of Section 32( 1)
(ii) and Section 35(2) (i) (iv) and (v) read with Explanation 1 to s.43(1)
virtually repeat the provisions contained in Section 10(2) (vi) and 10(2)(xiv)
of the 1922 Act, so that the question earlier posed still loomed in the
C background of 1%1 Act.
In 1968 there was an amendment in the provisions of Section 35(2).
The sub-section was amended to read as follows :

'(2) For the purposes of clause (iv) of sub-section (1),--
D (i) in a case where such capital expenditure is incurred
before the 1st day of April, 1%7, one-fifth of the capital
expenditure inc•irred in any previous year shall be
deducted for that previous year; and the balance of the
expencliture shall be deducted in equal instalments for each
E of the four immediately succeeding previous years;

(i-a) in a case ':"here such capital expenditure is incurred
after the 31st day of March, 1%7, the whole of such capital
expenditure incurred in any previous year shall be
deducted for that previous year.'
F
The effect of this amendment was only to provi<•' that the entire amount
of capital expenditure incurred in relation to scientific research was al-
lowed as a dedection in one year instead of being spread over a period of
five years as was the position earlier. This amendment does not touch the
G controversy in issue before us and it bas no solution to offer to our present
difficulty. .

The provisions of Section 10(2) (vi) and (xiv) of the old Act had been
administered between 1946 and 1%2 and the provisions of Section 32 and
35 of the 1%1 Act have been administered since 1%2. The question
.H whether an assessee can simnltaneously claim an allowance or deduction
ESCORTS LTD. v. U.O.l. [RANGANATHAN, J.] 165

in respect of the same expenditure once under Section 32 and again in A
Section 35 must have cropped up in some cases and it does appear that
such a doubll3 claim was put forward in some cases. The contention on
behalf of the assessees was that the allowances in respect of depreciation
on the one hand and in respect of capital expenditure on scientific research
on the other are two totally different and independent heads of allowances.
One is a notional allowance to provide for the wear and tear of a capital
B
asset employed in the business as the years roll by; the other is an allowance
for actual expenditure of a capital nature granted, on the eve of our
country's independence, in order to give fillip to new industrial innovations
and the development of indigenous kil,O)V-~Ow and techniques by proper
planning on research and development by·,various business houses. It is c
therefore suggested that there is nothing absurd in construing the statutes
act as providing cumulatively for both types of deductions in respect of the
same capital asset. The only limitations on this right are the two placed
by the statute itself. The first limitation, contained in clause ( d) of the
proviso to Section 10(2) (xiv) and s.35(2) (iv) is that both the deductions D
cannot be claimed "for the same previous year" in respect of the same
capital asset. The second limitation is found in clause ( e) of the proviso
to Section 10(2) (xiv) and s.35(2) (v) which say that if a capital asset used
for scientific research ceases to be so used but is thereafter brought into a
business for use therein, the actual cost for purposes of granting deprecia-
tion in respect of the asset thereafter should be taken as the amount of its E
original cost reduced by the amount of deductions allowed under Section
10(2) (xiv) or s.35(2). In other words, the contention of the assessee was
and is that both the types of allowances are permissible under the statute
except to the extent limited by clauses (d) and (e) of the proviso to Section
10(2) (xiv) of the 1922 Act and reproduced in clauses (iv) and (v) of
F
Section 35(2) of the 1961 Act.

Before us it is claimed on behalf of the assessee that this interpreta-
tion of the statutory provisions is very clear, patent and unambiguous. It
is alleged that despite this, some Income-tax Officers started disallowing
the claim of depreciation in respect of such capital assets even in previous G
years during which no deduction was claimed or allowed under Section
10(2) (xiv) or Section 35(2), contrary to the clear language of clause (d) of
s.10(2) (xiv) and s.35(2) (iv). These orders were reversed on appeal either
by the Appellate Commissioner or by the Tribunal. It was suggested that
these decisions were almost unanimously in favour of the assessee but the H
166 SUPREME COURT REPORTS [1992] SUPP. 2 S.C.R.

A department persisted in pursuing the matter upto the stage of the High
. Court. Only one reference on this topic came up before the High Courts
and is reflected in the decision of the Karnataka High Court, reported as
CIT v. Indian Telephone Industries Ltd., (1980) 126 I.T.R. 528. This was a
referenc~ of the year 1977 made at the instance of the Commissioner of
Incorne Tax and the Commissioner of Income Tax lost this reference. The
B High Court re-affirmed the position contended for ·by the assessee as the
one and only possible interpretation of the statutory provisions. It is,
therefore, contended that there was, and could have been, no doubt that
an assessee was entitled to claim depreciation allowance in respect of such
assets in respect of previous years other than those in which an allowance
c had been allowed under the other head. We shall revert later to this aspect
of the matter.

At this stage, th_e Finance (No.2) Act, 1980 intervened .. It amended
section 35(2) (iv) to read as follows :

D "(iv) where a deduction is allowed for any previous year
under this section in resped of expenditure represented
wholly or partly by an asset, no deduction shall be allowed
under clauses (i), (ii) ar,d (iii) of sub-section (1) of section
32 for the same or any other previous year in respect of that
asset. 11
E
(Emphasis added)

The Finance Act made this amendment retrospeotive w.e.f. 1.4.62, that is,
the date of the commencement of the 1961 ·Act. This amendment is
F undoubtedly far-reaching in its effect. It will result in completion of the
pending assessments of several years on the footing of the new provision.
It will also involve re-opening or rectification of completed assessments of
earlier years, to the extent ·pern1issible under the provisions of sections 148
and 154, in cases where assessees had been granted "double allowance"
accepting their contention at the time of the original assessments. The
G effect will be not for one assessment year but for a number of assessment
years in succession. Painting a very grim picture of the consequences of
giving full retrospective effect to the amendment, the assessees say that it
will impose unexpected and impossible burden on them over the years,
jeopardise their solvency and lay them open to action by creditors and
H financial institutions. Such an onerous burden, it is said, is unreasonable
ESCORTS LTD. v. U.0.1. [RANGANATHAN, J.J 167

and oppressive and the provision imposing such burden violates the fun- A
damental rights of the assessees under Articles 14 and 19(1) (g) of the
Constitution of India. It is on this plea that, even though assessments and
appeals are pending in several of these cases, the petitioners chose to
approach this Court by way of writ petitions under Article 32 of the
Constitution. These are mostly writ petitions of the year 1981 and are now
coming up for hearing after a period of 10 years.
B

Learned counsel for the assessees do not contest the competence of
the legislature to enact the impugned provision, nor do they dispute the
right of the legislature to give retrospe.ctive effect to statutory provisions.
The contention only is that retrospective provisions may be permissible C
even in taxing statutes in certain special circumstances such as in the case
of provisions clarifying the impact of a statute, provisions curing defective
legislations in the light of the judicial decisions and the like. They, how-
ever, say that if the legislature chooses to impose a totally new burden,
- which was not at all in contemplation earlier and proceeds to give full
retrospective effect thereto, such an attempt should be struck down as D
unreasonable and discriminatory. The principal questions, therefore, for
our consideration are :

(1) Were the earlier statutory provisions capable of only
one interpretation, namely, that placed by the assessees or E
was there any ambiguity in relation thereto ?

(2) If there was some doubt or ambiguity about the earlier
legislation, and the 1980 Act clarified the position by a
retrospective amendment, would it offend the provisions
of the Constitution ? F

(3) If, on the other hand, the earlier provision was very
clear and capable of only one interpretation, as placed by
the assessee, was the legislature within its rights in amend-
ing the provision retrospectively w.e.f. 1.4.62 and thus im-
posing an unreasonable tax burden on the assessees ?
G

Taking up the first of the three questions, it has to be considered
from two angles, one factual and the other, legal. An attempt was made
on behalf of the petitioners to project an image as if the interpretation
sought to be placed by the department on pre-1980 provisions to disallow H
168 SUPREME COURT REPORTS [1992] SUPP. 2 S.C.R.

A depreciation on such assets was so far-fetche.d that it never received the
approval of the higher appellate authorities. It was suggested that the
appeals by assessees against the disallowance invariablysucceeded and it
was the Department t_hat had to move the High Court on reference, the
first of which references came up before the Karnataka High Court in
C.l. T. v. Indian Telephone Industries (1980)126 l.T.R. 548 and was
B answered against the: Department. On the basis of such allegations the
petitioners attempted to.make out that the Department's interpretation was
patently untenable _and that the 1980 amendment is not in _the nature of a
statutory clarification of an ambiguity but a totally new and fresh imposi-
tion sought to be unjustifiably given retrospective effect.
c
But, as Shri B.B. Ahuja has pointed out on the basis of the averments
of the petitioner in one of the cases, viz., W.P.I 153/81, the impression
sought to be created by the petitioners does not accord with the correct
facts. The position in the case is available only as it stood at the time when
D the writ petition and the counter affidavit were filed and subsequent
developments are not known. Nevertheless, the picture that emerges is
this. In that case, the Income-lax Officer (I.T.O.) is said to have allowed
depreciation on assets used for ~1Cientific research, for the assessment year
1969-70, though this is denied by the department. The claim was perhaps
disallowed by the I.T.O. for the assessment year 1970-71, but it was allowed
E by the Allahabad Bench of the Income-tax Appellate Tribunal (I.T.A.T.)
by its order dated 30.8.76. For the assessment year 1971-72, the I.T.O.
disallowed the depreciation. The Appellate Assistant Commissioner
(A.A.C.) allowed it. The department appealed to the Delhi Bench of the
I.T.A.T. which accepted the department's plea by its order dated 13.8.79
F placing reliance on the decision of a Special Bench of the l.T.A.T. It has
been stated that the assessee filed an application for reference to the High
Court which was pending when the writ petition was filed. For the assess-
ment years 1972-73 to 1974-75, the assessments are pending as a stay order
had been obtained for reasons which are not known. For the assessment
-
years 1975-76 and 1976-77, the assessee claimed depreciation on a number
G of items of scientific research assets. The l.T.O. "allowed" the claims
subject to the' rider that 11 there is no provision to give deduction of more
than 100% of the expenditure by way of depreciation". The assessec
appealed to Commissioner of Income-tax (Appeals) who disallowed the
claim. For 1977-78, the I.T.O. disallowed the claim and the C.I.T. dis-
H missed the assessee's appeals. For assessment years 1978-79 to 1980-81,
ESCORTS LTD. v. U.O.l. [RANGANATHAN, J.] 169

the assessme~ts are stated to be pending. The above facts are sµfficient A
t'o show that,. atleast after 1.4.1968, - there is no inform:ition before µs as
to the position between 1.4.1946 and 31.3.1968 - the Department has been
putting forward its objections on the issue and that the same was the
subject matter of controversy at various appellate stages, some decided in
favour of, and some against, the assessce. A Special Bench of the l.T.A.T. B
had indeed decided the issue against the asscssee. lo this backgruµnd, it
is not correct to say that the position was crystal clear ancl that, sav<' for a
few ITOs who took a biassed view, the a_uthoritics were all agreed that the
Department's stand was untenable. Some of the reported decisions also
show that there was a live controversy and that n:ferences have been mac.!e
to the High Court both at the instances of the ass<:ssees f&ee Alkali 4'c C
Chemical Corporation of India Ltd. v. C./. T., (1986) 161 I.TR, 820 (Cal.),
and C.I. T. v. Indian Explosives Ltd., (1992) 192 l.T.R. 144 (Cal.)}, as well
as at the instance ·of the Revenue !see, C./. T. v. fnten1qfio11ql b1st111111e1,ts
P. Ltd., (1983) 144 LT.R. 936 (Kar.); C.I. T. v. Mahin4ra Sit!fered Products
Ltd. (1986) 161 l.T.R. 692 '(Born.) and Wamer Hindustq11 Ltd. v. CIT, p
(1988) 171 l.T.R. 224 (A.P.)]. The petitioner's contention that, 11n<ler the
pre-amended provisions, deprecialion on such assets was reco~nls!!Q ~H
round as dearly allowable is therefore rejected. We have dealt with this
aspect only to meet an aspect that was urged. What is really important is ·
the true and correct interpretation of those provisioris, not wh;:ii tiPm~on.e
thought of it then and to this aspecl we shall now turn. E
The second aspect of the first of the three qµcstions posed earlier
for our consideration is the legal or interprct!llional aspc!Ol of the
provisions as they stood prior to the 1980 Amendment. Under the
provisions of the statute as they stood earlier, could the assessees have F
claimed continued grant of depreciation after the qpiry of five previous
years before the 1968' amendment and after the expiry of th~ !\rst year after
the 1968 amendment, even though the entire cost cf the capital asset in
question had been allowed to be written off completely against the business
profits of those five previous years or one previous year as the case may
be> We think th~ answer to this question must emphatically he in the G
negative. In our view, it is impossible to conceive of the lc11isl;irnrE' having
envisaged a <louble deduction in respect of the same cxprncliJµre, l'Ven
though it is true that the two heads of decluction <lo not compl;:t!'ly overlap
and there is some difference in the r~tion~)~ of ~h~ Jwo cJ~Qµ~!!\Jns uncJ9r
consideration. On behalf of the i\SSessees n:lianq: is place!-! on !Jg: follow- H
170 SUPREME COURT REPORTS [1992] SUPP. 2 S.C.R.

A ing circumstances to support a contention that the statute did not intend
one deduction to preclude the other :

(i) It is pointed out that s.10(2) (xiv) of the 1922 Act, was inserted
in 1946 consequent on the insertion of a corresponding provision in the
United Kingdom. That provision, viz. s.20(4) of the U .K. Finance Act, 1944
B read thus :

"(4) Where a deduction is allowed for any year under this
or the last. preceding section in respect of expenditure
represented wholly or partly by any assets, no deduction
c shall be allowed under any provisions of the Income-tax
Act other than this part of this Act in respect of wear and
tear, obsolescence, depreciation or exceptional deprecia-
tion of these assets for any year of assessment during any
part of which they are used by the person carrying on the trade
for scientific research related to the trade."
D
(emphasis supplied)

The Indian provision, it is said, has made a deliberate departure from the
said provision and limited the bar of depreciation only to those previous
E years during which a deduction is allowed under S.10(2) (xiv);

(ii) When the Income-tax Bill, 1961 was under the consideration of ·
the Law Commission, the provisions of S.10(2) (vi) and (xiv) were carefully
reviewed. But changes were made and the provisions of the new Act in
this regard were drafted in pari materia with those of the old Act;
F
(iii) The language .used in clause ( d) of the proviso to S.10(2) (xiv)
and S.35(2) (iv) again is significantly different from the language used in
various other provisions of the Act which, in like contexts of possible
double allowances, emphatically rule out deductions in respect of the same
G expense or exemptions in respect of the same income under two different
provisions for the same or even any other assessment year : See, for
example, Sections 20(2) 35B(2), 35C(2), 35CC(4), 35CCA(3), 35CCB(3),
35D(b),35E(8), 80GGA(4), 80HH(9A), 80HHA(7) and 80HHB(5); and

(iv) When the relevant provisions say that depreciation shall not be
H allowed in certain previous years, it permits a disallowance only in those
ESCORTS LTD. v. U.0.1. [RANGANATHAN, J.] 171

previous years and means, by necessary implication, that it sh.all be allowed A
in other years, if otherwise eligible on the language of the provision for
depreciation.

There is an apparent plausibility about these arguments, particularly
in the context of the alleged departure in the language used by S.10(2)(xiv) B
from that employed in S.20 of the U.K. Finance Act, 1944. We may,
however, point out that the last few underlined words of the English statute
show that there is really no difference between the English and Indian
Acts; the former also in terms prohibits depreciation only so long as the
assets are used fof scientific research. In our opinion, the other provisions
of the Act to which reference has been made - some of which were inserted C
after the present controversy started - are not helpful and we have to
construe the real scope of the provisions with whi£h we are concerned. We
think that all misconception will vanish and all the provisions will fall into
place, if we bear in mind a fundamental, through unwritten, axiom that .no
legislature could have at all intended a double deduction in regard to the D
same business outgoing, and if it is intended it will be clearly expressed.
in other wordS, in the absence of clear statutory indication to the contrary,
the statute should not be read so as to permit an assessee two deductions-
both under S.10(2} (vi) and S.10(2} (xiv) under the 1922 Act or under
S.32(1}(ii) and 35(2)(iv) of the 1922 Act - qua the same expenditure. ls
then the use of the words "in respect of the same previous year" in clause E
(d} of the proviso to S.10(2) (xiv) of the 1922 Act and S. 35(2) (iv) of the
1961 Act a contra-indication which permits a disallowance of depreciation
only in the previous years in which the other allowance is actually allowed.
We think the answer is an emphatic 'no' and that the purpose of the words
above referred lo is totally different. If, as contended for by the assessees, F
there can be no objection in principle to allowances bdng ma\le under both
the provisions as their nature and purpose arc Q.iffcrent; th~n the· inter.diet
disallowing a double deduction will be meaningless even in respect of the
previous years for which deduction is allowed qnder S.l0(2} (i;iv) /S.35 in
respect of the same asset. If that were the correct principle, the assessee G
should logically be entitled to deduction by way of depreciation for g/l
previous years including those for which allowance hqs ber11 grgntf4 un4er
the provision relating to scie11tific reseqrch. The statµte dq~s not permit this.
The re.striction irnposcd would. therefore, be illogical and unjustified on
the basis suggested by the assessees. On the other hand, if we accept the
principle we have outlined ·eqrlier vtz. that, there is a basic le¢sl"-iiv~ }-I
172 SUPRFJv!E C:OURT REPORTS 11992] SUPP. 2 S.C.R.

A scheme, unspoken bul clearly underlying the Acl, that two allowances
cannot be, and are not intended to be, granted in respect of the same asset
or expenditure, one will easily see the necessity for the limitation imposed
by the quoted words. For, in this view, where the capital asset is one of the
nature specified, the assessee can get only one of the two allowances in
B question but not both. Then the question would arise and might create a
difficulty : in thal event, which of the two allowance should the assessee
be granted - thal which the assessee chooses or that which the assessing
officer might prefer? It is necessary for the statute to define this and this
is what has been done by the rider in clause (d) of the proviso to S.10 (2)
(xiv)/S.35(2) (iv). It mandates that the assessee should, in such a case, be
c granted the special allowance for scientific research and not the routine
and annual one for depreciation. Clause (d) of the proviso to S.10(2) (xiv)
and S.30(2) (iv) thus fall into place as an appropriate and necessary
provision. The provision contained in clause (e) of the proviso to S.10(2)
(xiv) of the 1922 Act, re-enacted in Explanation, to S.43 (1) of the 1961
D Act, also reinforces this line of approach. It provides that the extent of
capital expenditure written off under the second of the above headings
(whether i•. be 100% under the post-1968 provision or 20%, 40%, 60%,
80% or 100% under the pre-1968 provision) has to be pro-tanto deducted
in ascertaining the actual cost for purposes of depreciation. This provision
E militates, in our view, a~ainst the petitioners, contention that the allowances
under the two provisions are by nature unconnected with, and independent
of, each other. Its effect is this. Suppose a person uses an asset for scientific
research for sometime and then brings it into his business for other use
later, he would be thereafter entitled to depreciation thereon only on the
actual cost less deduction allowed under S.10 (2) (xiv)/S.35. However, if
F the asset continues to be used in scientific research related to the business,
he would be entitled to get depreciation on its full cost after the first few
previous years during whkh allowance is granted under those provisions.
This seems to be anomalous but Shri Ganesh says that there is no anomaly
because this is a provision intended lo act as a disincentive to persons who
G purport to purchase assets for scientific research but withdraw it from such
use soon after. Granted that this is so, still the deduction of the allowances
given on scientific research ass~ts for computjng depreciation is consistent
only with the principle stated by us that they are deductions basically of
the same nature intended to enable the assessee to write off certain items
H of capital expenditure against his business profits. Wr; may add that the
ESCORTS LTD. v. U.0.1. [RANGAN/\THAN, l[ 173

report of the Chocksi Committee, on the basis of which the 1980-arnend- A
ment was effected only echoed the same view when it said in para 3.29 of its
report :

"3.29 Our attention has also been drawn to certain
anomalous situations !n the matter of allowance of
depreciation. In certain cases where a full deduction has
B
been allowed in relation to a capital asset under other
sections (as for example, section 35 which permits a deduc-
tion in respect of capital expenditure for scientific re-
search), the taxpayers have contended that such deduction
is independent of the allowance by way of depreciation. In c
our view, the intention of the legislature is not to allow a
double deduction (of 200%) in respect of the same asset,
once under section 35 and, again, by way of depreciation
under section 32. If aLd to the extent that there is any
anomaly or contrary view possible on a construction of
D
section 35, we recommend that the .law should be clarified
to provide that no depreciation under section 32 shall be
allowable in respect of capital expenditure for scientific
research qualifying for deduction under section 35."

For the reasons discussed above, we arc of the view that, even before E
the 1980-amendment, the Act did not permit a deduction for depreciation
in respect of the cost of a capital asset acquired for purposes of scientific
research to the extent such cost has been written off under S.10(2) (xiv)/35
(1) & (2). Prior to 1968, such assets qualified for an allowance of one-fifth
of the cost of the asset in five previous years starting with that of its F
acquisition and during these years the assessee could not get any deprecia-
tion in relation thereto. In respect of assets acquired in previous ye·ar
relevant to assessment year 1968-69 and thereafter, their cost was written

'
off in the previous year of acquisition and no depreciation could be allowed
in that year. This is clear from the statute. Equally, it is not envisaged,
and indeed, it would be meaningless to say, that depreciation could be G
allowed on them thereafter with a further absurdity that it could be allowed
starting with the original cost of the asset despite. its user for scien~ific
research and the allowances made under the 'scientific research' clause.
In our view, there was· no difficulty at all in the interpretation of the
provisions. The mere fact that a baseless claim was raised by some H
174 SUPREME COURT REPORTS fl992J SUPP. 2 S.C.R.

A over-enthusiastic assessees who sought a double allowance or that such
claim m3y perhaps have been accepted by some authorities is not sufficient
to attribute any ambiguity or doubt as to the true scope of the provisions
as they stood earlier. We are, for the reasons discussed ~bove, unable to
approve of the cryptic view expressed by the Karnataka High Court in
B C.l. T. v. Indian Telephone Industries Ltd., (1980) 126 I.T.R. 548 or the view
taken by the Bombay High Court in C.I. T. v. Hico Products, (1991) 187
1.T.R. 517.

In view of the answer given by us to the first question posed by us,
there is no need to answer the second and third questions since, even
C without the amendment, the assessees cannot claim the depreciation al-
lowance in question. The second question can arise only if it is assumed
that there was an ambiguity or doubt as to interpretation that was
retrospectively clarified by the legislature. But it is common ground before
us that, even on this hypothesis, the validity of the amendment cannot be ·
D challenged. This is indeed beyond all doubt : See. Rai Ramkrishna v. State
of Bihar, [1964] 1 S.C.R. 897; Asst. Commissioner of Urban Land Tax v.
Buckingham & Camatic Co. Ltd., [1970] l S.C.R. 268; Krishnamurthi & Co.
v. State of Madras, [1973) 2 S.C.R. 54; Hira Lal Rattan Lal v. Sales Tax
Officer and Another, (1973) 3l'S.T.C. 178 and Shiv Dutt Rui Fateh Chand
v. Union of India, (1984) 148 l.T.R. 644. Even the Bombay decision in
E C.l.T. v. Hico Products, (1991) 187 I.T.R. 517 on which the assessees
heavily rely, concedes, in our opinion rightly, this position. The assessees
may have some possible case only if the earlier statutory provisions can be
said to have been unambiguously in favour of the assessee and the 1980
amendment had radically altered the provisions to cast a new and substan-
tial burden on the assessee with retrospective effect. It is this third
F
alternative, reflected by the third question posed by us, that was success-
fully urged before the High Court by the assessees. But we are unable to
accept this argument or conclusion. In our view, the first question has to.
be answered by saying that the pre-1980 provisions were capable of only
one interpretation but that was as urged on behalf of the Revenue. The
G 1980-amendment has effected no change at all in the provision except to
set out more clearly and categorically what the provision said even earlier.
In this view, the second and third questions earlier posed do not arise.

For the reasons discussed above, these Wrif Petitions are dismissed.
H We, however, make no order as to costs.
ESCORTS LTD.,._ U.0.1. llEEVAN REDDY. J.] 175

B.P JEEVAN REDDY, J. I agree with my learned brother Ran- A
ganathan, J. that these writ petitions should fall. Having regard to the
nature and significance· of the question raised herein, however) I felt
impelled to say a few words.

The challenge in this batch of writ petitions is to the retrospective
operation given to the amended clause (iv) of sub-section (2) of Section 35 B
of Income Tax Act, 1961, by the Finance (No.2) Act, 1980. The said
Finance Act added the words "or any other" in the said clause and gave it
retrospective effect from April 1, 1962. As amended, clause (iv) reads as
follows :

"(iv) - where a deduction is allowed for any previous year
c
under this section in respect of expenditure represented
wholly or partly by an asset, no deduction shall be allowed
under clause (ii) or sub-section (I) of section 32 for the
same or any other previous year in respect of that asset."
D
Learned Counsel for the petitioners-assessees contended that the
retrospective effect given to the said amendment has the effect of taking
away the rights vested in the assessees by the unamended provisions,
making them liable to pay huge amounts by way of tax. Such payment, if
enforced, has the effect of debilitating the assessees, industries beyond E
recall. It is submitted that the retrospectivity given to the said amendment.
is violative of the petitioners fundamental rights guaranteed by Articles
19(1) (g) and 14 besides the guarantee in Article 300A.

In the year 1946, clause (xiv) among other clauses was introduced in
sub-section (2) of Section 10 ·of the Indian Income-tax Act, 1922. It F
provided, for the first time, that even expenditure of a capital nature laid
out on scientific research related to the business of the assessee shall be
allowed to be deducted. The deduction was hundred per cent spread over
a period of five consecutive previous years commencing from the previous
year on which the expenditure was incurred. Sub-cla_use (d) of clause (xiv)
provided at the same time that "where a deduction is allowed for any G
previous year under this clause in respect of expenditure represented
wholly or partly by any asset, no deduction shall be allowed under clause
(vi) or clause (vii) fo.- the same previous year in respect of that asset." The
effect of sub-clause ( d) was that if an assessee claimed and was allowed a
deduction in respect of expenditure of a capital nature on scientific re- H
176 SUPREME COURT REPORTS [1992] SUPP. 2 S.C.R.

A search, - and where such expenditure took the shape of an asset, which in
the normal course would be entitled to deduction on account of deprecia-
tion under clauses (vi) and (vii) of Section 10(2) - no depreciation would
be allowed in respect of that asset in those respective previous years. In
other words, during the period of five previous years the assessee wa,. ·
allowed the deduction under clause (xiv) of sub-section (2) of section 10,
B claim for depreciation under clauses (vi) an/or (vii) of the same sub-section
was excluded.

In the Income-tax Act, 1961, a similar provision was made in section
35. Clause (iv) of sub-section (1) of section 35 provided for deduction of
C expenditure of a capital nature incurred. on scientific research related to
the business carried on by the assessee. Sub-section (2) of Section 35 set
out the manner in which and the terms subject to which the deduction was
to be allowed. As enacted in 1961, sub-section (2) provided, - as was done
by clause (xiv) of Section 10(2) of the 1922 Act - that the said deduction ·
D shall be allowed in equal measure in five consecutive previous years,
com111eneing from the previous year in which the expenditure was incurred.
In the year 1967, however, sub-section (2) was amended, providing for full
deduction of the expenditure in the very· previous year in which such
expenditure was incurred. Clause (iv) of sub-section (2), however,
remained unchanged. Clause (iv) declares that where a deduction is
E allowed for any previous year under the said section in respect of expen'
diture represented wholly or partly by an asset, no deduction shall be
allowed under Clauses (i), (ii) and (iii) of sub-section (1).or under sub-sec-
tion (lA) of section 32 for the same previous year in respect of that asset.
Thus, the position obtaining under the 1922 Act and the previous Act is
F the same, with the difference that if such expenditure is incurred after April
1, 1967, hundred per cent deduction was granted in the very· previous year
in which the asset (representing the capital expenditure of the nature
mentioned in clause (iv) of sub-section (1) of Section 35) is acquired.

The Revenue says that the deduction provided by Section 35(1) (iv)
G is in ihe alternative to the deduction provided by clauses (i), (ii) and (iii)
of sub-section (1) and sub-section (lA) of Section 32. ff one is availed of,
the other is not available, not only during the year or years in which the
deduction under Section 35(1) (iv) is availed of, but permanently. The
reason,.according to them, is obvious: if both are allowed to be availed of,
H it amounts to grant of200% deduction viz., 100% under Section35 (1) (iv)
ESCORTS LTD. v. U.0.1. [JEEVAN REDDY, J.] 177

and another 100% under sub-sections (1) and (lA) of Section 32. This is A
totally outside the contemplation of the Act, they say. On the other hand,
the case of the asssessees is that the bar created by clause (iv) of sub-sec-
tion (2) applies only to that previous year or those previous years during
which the said expenditure is allowed as a deduction. That is the express
language of the clause. The bar docs not extend beyond the year or years
in which the deduction under Section 35(1) (iv) is availed. There is no
B
reason - more so in a trucing enactment - to extend the said bar beyond the
limit prescribed by the statute. They say, if the intention of the Parliament
was to bar the claim of depreciation in respect of such asset for all time to
come, nothing was easier than to say so in clear words, as was done by
sub-section (4) of section 20 of U.K. Finance Act, 1944. It is pointed out C
that clause (xiv) of sub-section (2) of section 10 was introduced in the
Indian Income-tax Act within two years of the introduction of a similar
provision in the English Act, evidently inspired by the Amendment in the
English Act. But while incorporating the said provision, a conscious
departure was made by the Indian Legislature, say the assessees. Having D
regard to the scant investment in scientific research in India, it is submitted,
the legislature must have thought it necessary to provide an additional
inducement over and above the deduction on account of depreciation.
Considerations of equity have no place in the interpretation of a trucing
enactments, they say further.
E
I find it difficult to agree with the reasoning of the assessees. Ac-
ceding to it would amount to placing an unreasonable interpretation upon
the relevant provisions and to negating the intention of Parliament. I find
it difficult to agree that the Indian Legislature - as also the Parliament -
made a conscious departure from the English Amendment with the idea F
of providing an additional benefit to induce the Indian assessees to invest
more in scientific research. 1 find the argument rather convoluted. If the
intention of the Legislature/Parliament was to provide more than 100%
deduction, they would have said so, as they have done in cases where they
provided for what is called 'weighted deduction'. (For example, See
Section 35(B) of 1961 Act). A double deduction cannot be a matter of G
inference, it must be provided for in clear and express language: regard
having to its unusual nature and its serious impact on the Revenues of the
State. Now, what does clause (iv) of Section 35(2) say? It says that during
the years or the year in which the assessee avails of the deduction under
Section 35(1) (iv) he shall not avail of the deduction on account of H
178 SUPREME COURT REPORTS [1992] SUPP. 2 S.C.R.

A depreciation provided by clauses (i), (ii) and (iii) of sub-section (1) and
sub-section (IA) of Section 32. What could be the underlying reason? It
is obviously to ensure that the assessee doesn't get double deduction. Take
a case where ti1e asset was acquired prior to April 1, 1957. The deduction
under Section 35(1) (iv) would be allowed in five consecutive years. If
during the very five previous years, depreciation under the aforementioned
B provisions is also allowed, the assessee would obtain, at the end of five
years, a double depreciation i.e., 100% under Section 35 and almost 100%
under Section 32. (It .may be noted that in many cases, the rate of
depreciation under Section 32 is 20% or even higher). If such a course
was barred by clause (iv) during the initial five years, would it be
c reasonable to say that same thing can be achieved by claiming the deduc-
tion after the expiry of five years? If both the deductions are in the
alternative, as indicated by clause (iv), they must be understood as being in
the alternative and not consecutive. It would be a rather curious thing to say
(in the case of an asset acquired prior to April 1, 1967) that Parliament
D barred claim for depreciation under Section 32 even in the first year when
only 20% of the cost of the asset is allowed as deduction under Section
35(1) (iv), it barred it in the second, third and fourth years, when· the
deduction has reached 40, 60 and 80 per cent, but permitted it be claimed
after the fifth year, by which year the entire 100% cost was allowed as a
deduction. No express provision was necessary to say v.:hat is so obvious.
E The position after April 1, 1967 is no different.

That the aforesaid view is the correct one is indicated by Explanation
(1) to clause (1) of section 43 [the corresponding provision in the 1922
Act being sub-clause (e) of clause (xiv) of Section 10(2)]. Clause (1) of
F section 43 defines the expression 'actual cost'. Explanation (1) appended
to the definition says Where an asset is used in the business after it ceases
11

to be used for scientific research related to that business and a deduction
has to be made under clause (ii) of sub-section (1) of section 32 in respect
of that asset, the actual cost of the asset to the assessee shall be the actual
cost to the assessee as reduced by the amount of any deduction allowed
G under clause (iv) of sub-section (1) of section 35 or under any correspond-
ing provision of the Indian Income-tax Act, 1922 (11 of 1922)." Now what
does this mean? Take a case where the asset of a like nature acquired prior
to April 1, 1967 is diverted to other purposes after the expiry of two
previous years; the 'actual cost' of the asset to the assessee in such a case
H would be 60% of the original cost. And if it is diverted after five years, it
ESCORTS LTD. v. U.0.1. [lEEVi\N REDDY. J.J 179

would be nil which means that the assessce cannot claim any depreciation A
on it at all. Counsel for the assessee explains this provision to say that it
was meant to prevent diversion of such an asSct from scientific research to
asscssee's business purposes. The explanation does not stand scrutiny. The
fallacy in the explanation can be demonstrated by laking the very same
illustration, where the asset is acquired prior lo April l, 1967. Suppose,
B
such an asset is diverted after first two previous years, its 'actual cost' to
the assessee would be 60% of the original cost, which alone would qualify
for deduction under Section 32(1) and (lA). The remaining 40% would
not This 40% goes without earning any depreciation. Why is it so, if the
assessees are right in saying what they do. According to their reasoning,
this 40% too should qualify for depreciation. The fallacy in their argument c
would become clearer, if the diversion is at the end of the fifth year.

That the Parliament never intended lo provide for a double dedue-
tion is also the opinion of the Direct Tax Law Committee. In its interim
report, (December, 1977) the Committee (popularly known as 'Choksi D
Committee') had this to say in para 3.29 of its report :

"3.29. - Our attention has also been drawn lo certain
anomalous situations in the matter of allowance of
depreciation. In certain cases where a full deduction has
been allowed in relation to a capital asset under other E
sections (as for example, section 35 which permits a
deduction in respect of capital expenditure for scientific
research), the tax payers have contended that such deduc-
tion is independent of the allowance by way of deprecia-
tion. In our view, the intention of the legislature is not to F
allow a double deduction (of 20%) in respect of the same
a~scl, once under section 35 and, again, by way of
depreciation under section 32. If and to the extent that
there is any anomaly or contrary view possible on a con-
struction of section 35, we recommend that the law should
be clarified to provide that no depreciation under section G
32 shall be allowable in respect of capital expenditure for
scientific research qualifying for deduction under section
35."

It is evidently on the basis of this recommendation that clause (iv) of H
180 SUPREME COURT REPORTS [1992] SUPP. 2 S.C.R.

A sub-section (2) of section 35 was amended to make express what was
implicit in it. The amend1nent introduced the words "or any other" in the
said clause. After amendment, clause (iv) of section 35 (2) reads as follows:
"where a deduction is allowed for any previous year under this section in
respect pf expenditure represented wholly or partly by an asset, no deduc-
tion shall be allowed under clause (ii) of sub-section (1) of section 32 for
B the same or any other previous year in respect of that asset." In our opinion
the said amendment is merely clarificatory in nature. It makes explicit what
was implicit in the provisions. Question of its constitutionality, therefore,
does not arise. Though purporting to be retrospective, it does not take away
any rights which had legally vested in the assessees.
c
The Bombay High Court has struck down the said amendment of
clause (iv) in Commissioner of Income Tax v. Hico Products Pvt. Ltd., 187
l.T.R. 517. The approach of the Bombay High Court is at variance with
ours. It has practically accepted the line of reasoning put forward by the
assessees which has not commonded to us. Among other reasons, the High
D Court was impressed by the difference in the language employed in Section
l0(2)(xiv)(d) and the one employed in Section 20 (4) of the U.K.Finance
Act, which reads as follows :

"(4) Where a deduction is allowed for any year under this
E or the last preceding section in respect of expenditure
represen~ed wholly or partly by any assets, no deduction
shall be allowed under any prm1sions of the Income-tax
Act other than this part of this Act in respect of wear and
I.ear, absolescence, depreciation or exceptional deprecia-
tion of these assets for any year of assessment during any
F part of which they are used by the person carrying on the
trade for scientific research related to the trade."

rt is apparent that the scheme and structure of the English provision
is different than ours, as has been demonstrated by my learned brother
G Ranganathan, J.

So far as the arguments of taking away of vested rights is concerned,
it is evident from the facts stated in the writ petition 1153/81 · which was
treated as representative of the facts and contentions in all the writ
petitions and with reference to which facts were arguments addressed -
H itself that none of the assessments relating to any of the assessment years
....
>
ESCORTS LTD. 1·. U.O.l. [JEEVAN REDDY, J.J 181

concerned herein has become final. They arc pending at one or the other A
stage and in one or the other forum. I need not dilate upon this aspect
inasmuch as the im~ugned amendment n1erely makes explicit what was
implicit in the unamended clause, as explained hereinabove. In such a
situation, the argument of any right vesting in the assessees is misplaced.

The v.Tit petitions accordingly fail and are dismissed. B
No costs.

N.P.V. Petitions dismissed.