Holding

Section 43(6) of the Income‑Tax Act, 1961 requires the actual cost of an asset to be determined afresh for each assessment year, even for assets acquired before the previous year, and the provision is not retrospective.

Summary

The Supreme Court considered whether, for assessment year 1962-63 and later, the actual cost of service line assets acquired before the previous year must be recomputed under Section 43(6) of the Income‑Tax Act, 1961. The appellants, several electric supply companies, argued that the actual cost determined under the earlier 1922 Act should remain unchanged, while the Revenue contended that the 1961 Act required a fresh determination each year, irrespective of the asset's acquisition date. The Court examined the language of Section 43(6), the definition of "actual cost" in Section 43(1), and the legislative history, concluding that the statute mandates a yearly recomputation of actual cost for all assets. It held that the provision is not retrospective and does not infringe any vested right, and that the Revenue's interpretation is correct. Consequently, the appeals were dismissed.

Issues considered

The correct method of computing depreciation for assets acquired before the previous year under Section 43(6) of the Income‑Tax Act, 1961.
Whether Section 43(6) operates retrospectively to alter the actual cost previously determined under the 1922 Act.
Whether the phrase "has been met" in the definition of actual cost limits its application to assets acquired in the previous year only.
Whether the Revenue's interpretation leads to absurdities or violations of vested rights.

Legislation cited

Income Tax Act, 1922s. 10(5)(a), s. 43(5)
Income Tax Act, 1961s. 10(2)(vi), s. 32(1)(iii), s. 34(3), s. 41(2), s. 43(1), s. 43(6)
Income-tax Amendment Act, 1953

Subjects

depreciationactual costwritten down valueIncome Tax Act 1961retrospective legislationstatutory interpretationservice lineselectric supply companiestax assessmentSection 43

Judgment

, \

SAHARANPUR ELECTRIC SUPPLY CO. LID. ETC. ETC. A
v.
COMMISSIONER OF INCOME-TAX ETC. ETC.

JANUARY 15, 1992

[S. RANGANATHAN AND N. D. OJHA, JJ.] B
Income Tax Act, 1961 : Section 43-Depreciation on service lines for
Assessment Year 1962-63-Computation of-Written down value-Determi-
nation of ·

Interpretation of Statutes-Retrospective interpretation of a statute- C
When arises.

Under the Indian Income-tax Act, 1922, while computing the
income from business, an assessee was entitled to an allowance of
depreciation at a percentage of the actual cost to the assessee or the
written down value of the relevant asset owned by him, and used for the D
.. purposes of business. This Act was replaced by the Income-tax Act, 1961 •
Under both the Acts, 'written down value' was defined with reference to
'actual cost'. Initially between 1922 and 1952, the expression 'actual
cost' was defined to mean just the actual cost of the asset to the assessee.
However, consequent on the decision of some of the High Courts that in
ascertaining the actual cost of an asset to the assessee, it was immaterial E
that someone else had recouped the assessee, wholly, or in part, towards
such cost, the 1922 Act was amended by the Income-tax Amendment Act
of 1953, with effect from 1.4.1952, nullifying the effect of the aforesaid
decision, and permitting only a limited exclusion. The Income-tax Act,
1961, however, directed the exclusion in the computation of the actual
cost, of all amounts reimbursed to the assessee by any person what- F
~,
soever.

The appellants in the appeals before this Court were all electric
supply undertakings in various parts of the country. They had installed
service connections during the relevant previous year to the assessment
year 1962-63. A part of the expenditure incurred in connection with the G
installation of these lines was recovered by the companies from consum-
ers of electricity. They claimed that the depreciation to be allowed for
the assessment year 1962-63 and thereafter on the service connections
installed in the previous years should be based only on the actual cost
and written down value determined earlier, and there was no justifica-
tion in disturbing the sa~e. However, the Revenue was of the view that H
117
118 SUPREME COURT REPORTS (1992] 1 S. C. R.

A though the assets had been acquired in earlier previous years, the
statutory mandate,of Section 43(6) (b) was that the actual cost should be
determined afresh for each assessment year and this, for assesssment
year 1962-63 onwards, could only be in accordance with the definition
contained in the 1961 Act. Accordingly, it ignored the written down
value of the assets as per the earlier record, computed the actual cost of
B the service lines by excluding therefrom the contributions of consumers,
but gave credit thereafter for all depreciation allowed in respect thereof
(on the basis of the higher actual cost as then determined) in all the
earlier years.
On appeal by the assessees, the concerned High Courts upheld the
C view of the Revenue and held that the actual cost of all assets for
purposes of assessment year 1962-63 and onwards, whatever might have
been the date of acquisition of the assets, had to be COl,!Jputed in
accordance with the new formula laid down by the Income-tax Act,
1961.
D In the appeals before this Court, on behalf of the assessee compa-
nies it was contended that the interpretation of the Revenue approved by
various High Courts, would result in absurdities and anomalies, that the
figure of the actual cost ascertained in respect of any asset in any of the
earlier previous years could not be altered in a subsequent year~ that
both the 1922 Act as well as the 1961 Act envisaged a continuance of' the
E figure of actual cost once arrived a_t in respect of any plant or machinery,
throughout the life-time of such plant or machinery, that for the assess-
ment year 1962-63, the question of determination of actual cost could
arise only in respect of assets acquired during the relevant previous year
under clause (a) of s.43(5), and so far as the assets which had been
acquired in earlier previous years were concerned, depreciation had to
F be calculated on the basis of the written down value, and since the
written down value in respect of these assets had already been ascer-
tained for the assessment year 1961-62, all that bad to be done further,
to find out the written down value for the assessment year 1962-63, was r
to deduct therefrom the depreciation allowed for the assessment year
1961-62. It was further contended that though the actual cost as
G determined for the earlier years was not sacrosanct or untouchable and
there may be circumstances in which it may have to be modified in the
light of subsequent events, and changes in actual cost could be taken
into account for purposes of the definition in s.43 (1) read with sub. sec.
(6), in certain situations, the actual cost could not be altered merely
because a subsequent legislation provided for a different formula for as-
H certainment of actual cost, and that formula could not be retrospec-
ELECTRIC SUPPLY CO. v. C.l.T. 119

tively made applicable to assets which had been acquired much earlier A
and the actual cost of which had already been determined in accordance
with the earlier prevalent law, that the legislation could not be given
retrospective effect so as to affect existing rights, unless the legislation
stated so expressly or by necessary implication, that there was an
indication in the language of Section 43(6) itself to show that it was
available to be invoked only in respect of assets which bad been B
acquired in earlier years, and that if the intention had been that the
actual cost of assets which had been acquired earlier to the previous
year should also be covered, the legislature would have used the words
"as had been met" that the Revenue's interpretation may lead to the
computation of a negative written down value and consequent difficulties
in applying various other statutory provisions, and that it was also in- C
compatible with the terms of Explanations 2, 4 and 6 to Section 43(6),
and would also lead to difficulties in the calculation of assessable profits
... under Section 41(2) or the allowance under Section 32(i)(iii).

Dismissing the appeals, this Court,
D
HELD : 1.1 Though, in substance, depreciation on an asset for any
..- assessment year is calculated on its written down value which is normally
carried forward from an earlier assessment year, the phraseology of the
Income Tax Act, 1961 does not bear out that the actual cost of the asset
has to be determined only once, viz., in the previous year of its acquisi-
tion. S.43(6) of the Income-tax Act, 1961 specifically deals with two E
categories of assets: (i) those acquired during the relevant previous year
and (ii) those acquired earlier to that. Even in respect of the latter class
of assets, the Act envisages a computation of the actual cost of the asset
and the deduction therefrom of all depreciation allowed in earlier years
in respect of that asset. Thus, the first step, statutorily prescribed, for the
determination of the written down value of any asset for any year, is for F
the Assessing Officer to determine its actual cost. This is a mandatory
step which the Officer cannot be prevented from taking merely because
the actual cost of the asset has already been determined in one or more
earlier years, though it may be true that in ninety nine (and perhaps
even more) percent of the cases, the result (barring mistakes and some
special situations) will just be the equivalent of the written down value G
taken for the immediately preceding assessment year less the deprecia-
tion allowed for that year. [129B-E]

1.2 In the light of t~e clear language of the statute, it is not possible
to accept that in the instant case, the Income Tax Officer had no
justification to compute first the actual cost of an asset which had been H
120 SUPREME COURT REPORTS (1992] 1 S. C.R.

A acquired before the previous year. Besides, whatever its validity over the
period of continuous operation of the same Act (of 1922 or 1961) it can
have no application for the assessment year 1962-63. There is no provi-
sion in the 1961 Act which permits or compels the adoption or continu-
ance of the figure of actual cost and written down value determined
under the provisions of the earlier statute which has been repealed by
B the 1961 Act. Therefore, it cannot be accepted that the figure of actual
cost ascertained in respect of any asset in any of the earlier previous
years could not be altered in a subsequent year. [129F-G, 128F-G]
Maharana Mills v. I.T.O .. (1959] 36 I.T.R. 350; Habib Hussein v.
CJ.T., [1963) 48 1.T.R. 859 (Born.), relied on.
c Karnani Industrial Bank v. CJ.T., [1954) 25 I.T.R. 550, referred to.

2.1 The definition of the expression "actual cost" in S.43(1)
envisages the computation of the actual cost of each asset, for every
assessment year, not only in respect of assets acquired during the
D previous year but also in respect of assets acquired during the previous
year. This naturally has to be done with reference to the factual or legal
position that may prevail during the relevant previous year and can be
taken into account for the relevant assessment year. The section does not
say that the computation of the actual cost of the asset has to be based
only on the facts or law as they stood at the time of acquisition of the
E asset and as could have been taken into account for the assessment year
relevant to the pre,·ious year of acquisition. Once it is conceded that the
figure oi actual cost can require modifications it is not possible to confine
such modifications to only three situations viz., (a) subsequent factual
occurrences, which called for a modification of the figure of actual cost
as at the time of acquisition determined earlier; (b) discovery of arith-
F metical errors in the earlier computation of the actual cost or written
down value of any asset; and (c) redetermination of the original actual
cost necessitated by a specifically retrospective statutory provision. [131B-
D, 130B-C]

2.3 Where subsequent information - factual or legal reveals that
G the actual cost determined originally was wrong, there can be no doubt
that the original figure of actual cost has to be altered, if need be, and,
if possible, by reopening the earlier assessments and, if that be not be
possible, at least for the future. [131E]

Maharana Mills v. I.T.O., [1959] 36 I.T.R. 350, referred to.
H 2;4 There are clearly situations in which the actual cost does get·
ELECTRIC SUPPLY CO. v. C.l.T. 121

altered prospectively and not retrospectively. One such instance is A
where the cost of an asset increases or decreases on account of a
fluctuation in the value of the currency. Another situation would be
where, subsequent to the acquisition of the asset, substantial capital
expenditure has been incurred thereon (not amounting to the addition of
a separate asset on which depreciation etc. could be independently
a11owed). Such expenditure is added, under the rules, in practice to the B
actual cost and allowance given thereon subsequently. Therefore, it
cannot be accepted that the actual cost cannot be determined year after
year on the factual or legal position applicable for the relevant previous
year and that the actual cost once determined cannot be altered except
in the aforesaid three situations, where the original figure itself requires
a modification. [133A, C-E] C
Habib Hussain v. CJ.T. (1963] 48 I.T.R. 859 (Born.) referred to.

3.1 The rule as to the prospective application of statutes is well-
settled. A retrospective operation is not to be given to a statute as to
impair an existing right or obligation otherwise than as regards a D
matter of procedure, unless that effect cannot be avoided without doing
violence to the language of the enactment. If the enactment is expressed
in language ·which is fairly capable of either interpretation, it ought to be
construed as prospective only. [133G, 134B-C]

Craies on Statute Law (7th Edition) page 389; Maxwell on lnterpre- E
tation of Statutes (12th Ed.) pp. 215-219; Principles of Interpretation of
Statutes by G.P. Singh (Fourth Ed.) p. 81, referred to.

3.2 The instant case is not at all a case of retrospective operation
of the statute. It is not the case of the revenue that the actual cost as
determined in the assessment year 1962-63 should be applied to revise
the computations for earlier years. All that the department says is that,
F
though in respect of these particular assets the assessee might have
obtained depreciation for earlier assessment years on the basis of a
higher figure, that will no longer be available in future and that the
figure of actual cost should be taken not as was originally calculated but
only at a lower figure for the assessment years 1962-63 and onwards. It G
is just the case of a provision, a part of the requisites for the operation
of which is drawn from a time antecedent to its passing. [134G, 135A-B]

3.3 The interpretation of the Revenue does not operate against the
well-known principle that retrospective operation-assuming that the
provision has a retrospective effect-should not be presumed where H
existing or part rights are interfered with. [137 A]
122 SUPREME COURT REPORTS [1992] 1 S. C.R.

A 4.1 There is no doubt or ambiguity about the provision. It is clear
and explicit, that the actual cost has to be determined, in each assessment
year, even of assets acquired before the commencement of the previous
year relevant to the assessment year. Not only is this intention plain and
clear, it does not create any injustice or hardship; on the contrary, it is
only reasonable and just. The object .,f the provision dealing with the
B grant of depreciation is, generally speaking, to enable an assessee to get
the capital expenditure incurred by him in acquiring the asset written off
to his profits over the years though it is true that, in certain situations,
the statute specifically relaxes this rigidity. In earlier years, he had been
obtaining depreciation on a particular footing. But the language used
lent itself to an interpretation that he could get a deduction even in
C respect of expenditure he did not incur. There is no doubt about the \
correctness of this interpretation. [137B-C)

4.2 Where a person purchases an asset, it may be correct to say
that the cost of the asset does not change because a part of the cost is met
by some one else. But the legislature had to decide whether an assessee
D should be allowed to claim an allowance of depreciation in respect of the
asset on the artificial basis of the cost of the asset rather than what he
has actually spent to acquire that asset and whether the wording of the
original provision as interpreted by courts, had not conferred an undue
advantage or benefit on the assessee. This was not considered by the
legislature to be equitable and, therefore, it was altered by legislation. It
E accords with reason that the provision should be interpreted to say that,
at least after the amendment, the assessee should not be allowed depre-
ciation on the basis of the earlier figure of actual cost. It is, therefore,
incorrect to describe this provision as creating any undue hardship or
injustice or inconvenience to an assessee. [137D-F)

F Govind Das v. I.T.O. [1976) 103 I.T.R. 123 at p.132, distinguished.
5.1 When an assessee acquires an asset, he does not acquire a right
to obtain depreciation thereon equal to the actual cost of the asset as
originally determined for tax purposes. The effect of clause (c) of the
proviso to Section 10(2) (vi) of the 1922 Act and Section 34(3) of the 1961
G Act is that, while allowing depreciation in respect of any asset, the officer
should be careful to see that the aggregate of the depreciation allowed to
the assessee in respect of that asset do~ not exceed the actual cost of the
asset. In other words, as and when the provision is applied for each and
every assessment year and the depreciation on any asset is ~alculated, it
should be ensured that the depreciation allowed does not exceed the
H actual cost of the asset. The 'actual cost' referred to is not the actual cost
as originally determined at the time of the acquisition. [136B-D)
ELECTRIC SUPPLY CO. v. C.I.T. 123

-r 5.2 Thus, in the instant cases, while examining whether a particu- A
lar asset is entitled to any depreciation for the assessment year 1962-63,
the officer will find that it has already secured depreciation much more
than the actual cost of the asset as determined by him and will grant no
further depreciation in respect thereof. It is no doubt true that in past
years the asset had become eligible to amounts of depreciation the
aggregate of which exceeds the actual cost as presently determined and, B
ifthat depreciation is deducted from the actual cost subsequently arrived
at, a negative figure may result. But such a situation will arise even in
the category of cases in which the revision of actual cost is permissible.
[136E)

5.3 In the instant case, there was no negative written down value in C
earlier years and, equally, there will be none in the year of revision as
the effect of the proviso is not to produce a negative written down value
J>Ut only to preclude further grant of depreciation on the asset in future.
Read thus a limitation on the maximum amount of depreciation that an
assessee can claim in respect of a particular asset, there is no question of
arriving at a negative written down value. [136G) D
5.4 The use of the words "has been met' is very appropriate and
proper in the present context once the mechanics of the provision are
understood. It is incontrovertible that, under S. 43(1) read with S. 43(6)
the officer has to determine the actual cost for all assets, new and old,
and the definition in S. 43(1) only requires that, at the time of doing so, E
he has to examine whether the actual cost has been fully laid out by the
assessee or has been met by some one else in whole or in part. The words
"has been met" squarely fit into this reading of the section and the use
of the words ''has been met" does not restrict the definition in S. 43(1)
to assets acquired in the previous year. [138D-E)
F
.~ .. Carson v. Carson and Stoyek, [1964)1 All Englan~ Law Reports 681,
referred to.

5.5 The proviso to clause (c) really places a limitation on the depre-
ciation deductible at any point of time and, hence, there can never be a
negative written down value. Explanations 2 and 4 to Section 43(6) fall G
in line with the interpretation favoured by the Revenue once it is
understood that the reference to "depreciation actually allowed" should
be read subject to the limitation of clause (c) of proviso to S. 10(2) (vi).
Explanation 6 offers no difficulty as the relationship as "parent" and
"subsidiary" between the companies involved in the transfer for the
purposes of this clause has to be determined as at the time of the transfer H
124 SUPREME COURT REPORTS [1992] 1 S. C.R.

A of the asset and will not be a wobbling or fluctuating one. [138G-H,
139A]

5.6 There is no difficulty or anomaly resulting from the Revenue's
interpretation in the calculation of assessable profits under Section 41(2)
or the allowances under Section 32(1)(iii). [139B, E]
B Birmingham Corporation v. Barnes [1935) 3 I.T.R. Supp. 26 (HL),
referred to. ·

Riverside (Bhatpara) Electric Supply Co. Ltd. v. CJ.T., [1977) 109
I.T.R. 399 (Cal.); CIT v. South Madras Electric Supply Corporation Ltd..
[1977) 109 I.T.R. 426 (Mad.); CIT v. Saharanpur Electric Supply Co. Ltd.,
C [1977) 109 I.T.R. 545 (All); CIT v. Bassein Electric Supply Co. Ltd., [1979)
118 I.T.R. 884 (Born); Rohtak & Hissar Districts Electric Supply Co. (P)
Ltd., v. CIT, [1980) p8 I.T.R. 52 (Del.); Ambala Electric Supply Co. Ltd.,
v. CIT, [1983) 139 I.T.R. 9Z5 (Punj); CIT v. Bombay Suburban Electricity
Co. Ltd., v. CIT, [1983) I.T.R. 298 (Born); British Insulated Cal/endars
Cables Ltd., v. CIT, [1983) 142 I.T.R. 300 (Born.); CIT v. Panvel Taluka
D Electrical Development Co. Ltd., [19S3] Taxation 71(1)-14 (Born.); Ranchi
Electric Supply Co. Ltd., v. CIT [1984) 150 I.T.R. 95 (Pat.); CIT v.
Lonawalla Khandal/a Electric Supply Co. Ltd., [1985) 22 Taxrnan 77
(Born.); CIT v. Calcutta Electric Supply Corporation Ltd., [1987) 166 I.T .R.
797 (Cal); CIT v. Bassein Electric Supply Co. Ltd., [1989) 177 I.T.R. 482 ..
_

E (Ker.); CIT v. Calcutta Electric Supply Corporation Ltd., [1989) 179 I.T.R.
580 (Cal) and Ahmedabad Electricity Co. Ltd. v. CIT [1991) 190 I.T.R. 413
(Born.), approved.

CIVIL APPELLA1E JURISDICTION: Civil Appeal No. 1861of1977
Etc. Etc.
F From the-Order dated 27.8.1976 of the Allahabad High Court in l.T.R.
No. 271 of 1973. +
Dr. Debi Prasad Pal, S.D. Dastur, T.A. Ramachandran, D.P. Mukher-
-,
jee, Ms. Priya Hingorani, C.N. Mistry, Mrs. A.K. Verma, D.N. Misra, V.
Dholakia, R. Ayyam Perumal, P J. Pardiwala, Dushyant Dave, R.N. Kar-
G anjawala; Ms. Manik Karanjawala, Ms. V.S. Rekha, Sajai Singh, Ms. Janaki
Ramachandran, Kailash Pd. Gupta and H.K. Dutt for the Appellants.

Dr. V. Gauri Shankar, S.C. Manchanda, Ms. A. Subhashini and S.
Rajappa for the Respondents.

H The Judgment of the Court was delivered by
ELECTRIC SUPPLY CO. v. C.I.T. [RANGANATHAN, J.] 125

RANGANATHAN, J. The appellants are all electric supply undertak- A
ings situated in various parts of the country. All the appeals relate to the
assessment year 1962-63 or later. They raise a common question regarding
the computation of depreciation on· service lines installed by the assessees, a
part of the expenditure incurred in connection with the installation of which
is recovered by the assessees from consumers of electricity.
B
Depreciation, under the Income-tax Act, is computed as a percentage of
the "written down value" of the asset in question. The Income-tax Act, 1961
came into force on 1.4.1962. S. 43(6) of the Act defines "written down
value" thus :

'Written down value' means-
c
"(a) in the case of assets acquired in the previous year, the actual
cost to the assessee;

{b) in the case of assets acquired before the previous year, the
actual cost to the assessee less all depreciation actually allowed
to him under this Act, or under the Indian Income-tax Act, D
1922(11 of 1922), or any Actrepealed by that Act, or under any
executive orders issued when the Indian Income-tax Act, 1886 (2
of 1886), was in force."

The Act also defines the expression 'actual cost' in Section 43(1). It
reads thus : E
"Actual cost" means the actual cost of the assets to the assessee,
reduced by that portion of the cost thereof, if any, as has been
met directly or indirectly by any other person or authority :

It will be seen from the main paragraph of sub-section (1) of Section F
43 that it does not really define what is meant by the actual cost of an asset
to the assessee; it only contains a gloss that, whatever the expression may
mean, that figure has to be reduced by that portion of it, if any, as has been
met directly or indirectly by any other person or authority. The question
before us arises partly due to this circumstance and partly due to the earlier
legislative history of these provisions. G
Under Section 10(2)(vi) read with Section 10(5) of the Indian Income-
tax Act, 1922, an· assessee was entitled to an allowance of depreciation at a
percentage of the actual cost to the assessee or the written down value of the
relevant asset owned by him and used for the purposes of business. It is
common ground that the service lines constitute machjnery or plant on which H
126 SUPREME COURT REPORTS [1992] 1 S. C.R.

A the assessees are entitled to depreciation: Also, as under the present Act, so
under that Act, 'written down value' was defined with reference to 'actual
cost'. Initially, between 1922 and 1952, the expresssion 'actual cost' was
defined to mean just 'the actual cost of the asset to the assessee'. As already
mentioned, a part of the cost of the asset in the present case viz. service lines
is met by the consumers with the result that, though the company might have
B incurred a particular amount as expenditure towards the installation of the
service lines, 'the actual cost' to it, of the service lines, could, in a loose
sense, be said to be the amount of expenditure incurred by it in this behalf
less the amount recovered from the consumers in respect thereof. The
Income-tax Department tried to adopt this layman's approach and restrict the
depreciation on the service lines on the basis of their cost less the amount
C recovered from consumers. The Bombay High Court in CJ.T v. Poona
Electric Supply Company Ltd., [1946] 14 ITR 622 and in CJ.T v. Bombay
Suburban Electric Supply Co. (P) Ltd., [1977] 106 ITR 752, the Kerala High
Court in Cl.T v. Cochin Electric Co. Ltd., [1965] 57 ITR 82, the Punjab High
Court in CJ.T v. Ambala'Cantt. Electric Supply Co. Ltd., [1971] 82 ITR 217
and the Patna High Court in CJ.T v. Ranchi Electric Supply Co. Ltd. [1954]
D 26 ITR 89 disapproved of this line of reasoning. Relying on the decision of
the House of Lords in Birmingham Corporation v. Barnes, [1935] 3 I.T.R.
Supp. 26(HL), they held that, in ascertaining the actual cost of an asset to the
assessee, it was immaterial that someone else has recouped the assessee,
wholly or in part, towards such cost. This general principle is well settled by
these decisions and is also not in issue before us now.
E
The 1922 Act was amended by the Income-tax Amendment Act, 1953
w.e.f. 1.4.1952 in this respect. This amendment introduced an Explanation to
the definition of 'actual cost'- to nullify the effect of the above decision.
Though, at the stage of the Bill, the proposal was to exclude from the concept
of actual cost, any moneys reimbursed to the assessee in this regard by any
F outside source vide [1952] 21 ITR (SC) 40, the amendment, as finally
effected, permitted only a limited exclusion. The Explanation read as
follows :

"For the purposes of this sub-section,, the expression 'actual cost'
means the actual cost of the assets to the assessee reduced by that
G portion of the cost thereof, if any, as has been met directly or
indirectly by Government or by any public or local author-
ity......"

When enacting the Income-tax Act, 1961, however, the legi~lature
revived the earlier proposal of 1953 and the present Act directs the exclusion,
H in the computation of the actual cost, of all amounts reimbursed to the
assessee by any person whatsoever.
ELECTRIC SUPPLY CO. v. C.I.T. [RANGANATHAN, J.] 127

Now the question which arises before us, in relation to the assessment A
"-1
year 1962-63, is this. The appellant companies had installed service connec-
tions during the relevant previous year. So far as these are concerned, there
is no dispute that depreciation has to be allowed on them with reference to
their 'actual cost' as defined in S. 43(1) i.e. by excluding contributions or
reimbursements from consumers. But the appellants have also to be granted
depreciation on service connections installed in earlier previous years and it B
is only in respect of such assets that the present controversy arises. The
depreciation on those assets, under Section 43(6) of the 1961 Act, has to be
computed with reference to their written down value, th.at is, their 'actual
cost' less all depreciation allowed in respect thereof under the 1922 Act till
the assessment year 196_1-62. Since those assets had been acquired by the
assessees in previous years relevant to the assessment year 1961-62 or earlier c
assessment years, their actual cost had been duly ascertained for the previous
year of acquisition in accordance with the provisions of Section 10(5)(a) of
the Indian Income-tax Act, 1922. If the assets had been acquired earlier than
the previous year relevant to the assessment year 1952-53, the actual cost of
the assets to the assessee would perhaps have been taken without any
deductions whatever in respect of the contributions made by other persons D
towards the cost of the asset. In the case of such of those assets as had been
acquired during the previous years relevant to the assessment years 1952-53
to 1961-62, the actual cost would have been determined in accordance with
the relevant law as it stood at that time viz. by taking their actual cost and
deducting therefrom contributions made by the Government or any public or
local authority to enable the assessee to acquire the assets. The assessees' E
contention is that there is no justification for disturbing the written down
value as so determined and that the depreciation for the assessment year
1962-63 and thereafter should be based only on the actual cost and written
down value so determined earlier. They plead for the undisturbed continu-
ance of the earlier depreciation sheets in respect of these assets. On the other
hand, the Revenue contends that, though the assets have been acquired in
F
-Jr earlier previous years, the statutory mandate of section 43(6)(b) is that their
y actual cost should be determined afresh for each assessment year and this, for
assessment year 1962-63 onwards, can only be in accordance with the
definition contained in the 1963 Act. On this view, the Department has
ignored the written down value of these assets as per the earlier record,
G
computed the actual cost of the service lines by excluding there from the
,contributions .of consumers but given credit thereafter for all depreciation
allowed in respect thereof (on the basis of the higher actual cost as then
determined) in all the earlier years. The question is which if these contentions
is correct.
H_
All the High Courts have upheld the stand of the Revenue. They have
......
128 SUPREME COURT REPORTS [1992) 1 S. C. R.

A answered the question by holding that the actual cost of all assets for
purposes of assessment year 1962-63 and onwards, whatever might have
been the date of acquisition of the assets in question, has to be computed in
accordance with the new formula laid down by the Income-tax Act of 1961.
These decisions are: Riverside (Bhatpara) Electric Supply Co. Ltd. v. CJ.T.
(1977] 109 I.T.R. 399 (Cal); CJ.T v. South Madras Electric Supply Corpo-
B ration Ltd., [1977] 109 I.T.R. 426 (Mad); CJ.T v. Saharanpur Electric
Supply Co. Ltd., [1977] 109 I.T.R. 545 {All); CJ.T v. Bassein Electric Supply
Co. Ltd., [1979] 118 I.T.R. 884 (Born); Rohtak & Hissar Districts Electric
Supply Co. (P) Ltd., v. CJ.T., [1980] 128 I.T.R. 52 (Del); Ambala Electric t-
Supply Co. Ltd. v. C.1.T., (1983) 139 I.T.R. 925 (Punj); CJ.T v. Bombay
Suburban Electricity Co. Ltd., [1983] 142 I.T.R. 298 .(Born); British Insulated
C Callendars, Cables Ltd., v. CJ.T., {1983) 142 I.T.R. 300 (Born.); CJ.T v.
Panvel Taluka Electrical Development Co. Ltd., [1983] Taxation 71(1)-14
(Born.); Ranchi Electric Supply Co. Ltd. v. CJ.T., [1984] 150 I.T.R. 95 (Pat.);
CJ.T v. Lonawalla Khandalla Electric Supply Co. Ltd., {1985) 22 Taxman 77
(Born.); CJ.T v. Calcutta Electric Supply Corporation Ltd., [1987] 166 I.T.R.
797 (Cal); CJ.T. v. Bassein Electric Supply Co. Ltd., (1989) 177 I.T.R. 482
D (Ker.); CJ.T. v. Calcutta Electric Supply Corporation Ltd. [1989] 179 I.T.R.
580 (Cal); and Ahmedabad Electricity Co. Ltd. v. CJ.T.. [1991] 190 I.T.R. ·
413 (Born.). The appellants before us contest the correctness of this unani-
mous view of the High Courts. Indeed some of the decisions above referred
to form the subject matter of some of these appeals.

E Dr. Debi Pal, Sri Dastur and Sri Ramachandran, who appeared for the
assessees, submitted that the various High Courts have not correctly appre-
ciateo the arguments put forward before them and failed to see that the
interpretation approved by them will result in absurdities and anomalies. In
view of the consensus of views of the High Courts against them, they have
taken considerable pains to address elaborate arguments which merit serious
F consideration in these appeals.

We may, at the outset, dispose of an argument raised by Dr. Pal. His
point was that the figure of actual cost ascertained in respect of any asset in
any of the earlier previous years cannot be altered in a subsequent year.
According to him, both the 1922 Act as well as the 1961 Act envisage a
G continuance of the figure of actual cost once arrived at in respect of any plant
or machinery throughout the life-time of such plant or machinery. He says
that, for the assessment year 1962-63, the question of determination of actual
cost can arise only in respect of assets acquired during the relevant previous
year. under clause (a) of S. 43(5). So far as the assets in question are
concerned, which had been acquired in earlier previous years, depreciation
H has to be calculated on the basis of the written down value. Since the written
•
ELECTRIC SUPPLY CO. v. C.l.T. [RANGANATHAN, J.] 129

,, down value in respect of these assets had already been ascertained for the
assessment year 1961-62, all that has to be done _further, to find out the
A
written down value for the assessment year 1962-63, is to deduct therefrom
the depreciation allowed for the assessment year 1961-62.

Attractive as this argument appears, there are two difficulties in
accepting it. The first is the language of S. 43(6) and, even, its predecessor
B
S. 10(5)(a) of the 1922 Act. Though, in substance, depreciation on an asset
for any assessment year is calculated on its written down value which is
nonnally carried forward from an earlier assessment year, the phraseology of
the Act does not bear out the contention that the actual cost of the asset has
to be detennined only once viz. in the previous year of its acquisition. S.
43(6) specifically deals with two categories of assets : (i) those acquired
during the relevant previous year and (ii) those acquired earlier to that. Even
c
in respect of the latter class of assets, the Act envisages a computation of the
actual cost of the asset and the deduction therefrom of all depreciation
allowed in earlier years in respect of the asset. Thus the first step, statutorily
prescribed, for the determination of the written down value of any asset for
any year, is for the Assessing Officer to detennine its actual cost. This is a D
mandatory step which the Officer cannot be prevented from taking merely
because the actual cost of the asset has already been detennined in one or
more earlier years, though it may be true that in ninety nine (and perhaps
even more) percent of the cases, the result (barring mistakes and some special
situations) will just be the equivalent of the written down value taken for the
immediately preceding assessment year less the depreciation allowed for that E
year. This mechanics of the definition was explained by the Calcutta High
Court in Karnani Industrial Bank v. CI.T. [1954]25 I.T.R. 558, approved by
this Court in Maharana Mills v. I.T.O [1959]36 I.T.R. 350 and followed in
Habib Hussein v. CJ.T., [1963]48 I.T.R. 859 (Born.). In the light of these
decisions and the clear language of the statute, it is not possible to accept the
contention that the Income Tax Officer had no justification to compute first F
the actual cost of an asset which had been acquired before the previous year.
~
The second difficulty in the way accepting the argument of Dr. Pal is that,
r whatever its validity over the period of continuous operation of the same Act
(of 1922 or 1961), it can have no application for the assessment year 1962-
63. There is no provision in the 1961 Act which pennits or compels the
adoption or continuance of the figure of actual cost and written down value
G
detennined under the provisions of the earlier statute which has been repealed
by the 1961 Act. We, therefore, reject this contention of Dr. Pal.

Perhaps realising the above difficulty, Sri Dastur put forward a slightly
modified contention. He concedes that the actual cost as determined for the
earlier years is not sacrosanct or untouchable and that there may be circum- H
130 SUPREME COURT REPORTS (1992] 1 S. C.R.

A -stances in which it may have to be modified in the light of subsequent events.
According to learned counsel, however, changes in actual cost in three "r
situations can be taken into account for purposes of the definition in S. 43(1)
read with sub-sec. (6). These, according to him, are :,..-

(i) Subsequent factual occurrences which call for a modifica-
tion of the figure of actual cost as at the time of acquisition
B
detennined earlier;

(ii) Discovery of arithmetical errors in the earlier computation
of the actual cost or written down value of any asset; and

(iii) Redetermination of the original actual cost necessitated by
c a specifically retrospective statutory provision.

He points to instances of such modifications pennitted by judicial de-
cisions. In Karnani Industrial Bank Ltd. v. CJ.T. [1954]25 I1R 558 (Cal.) the
assessee claimed to have purchased a machinery for Rs. 3,94,000 and
obtained depreciation on that basis from assessment year 1939-40 onwards.
D In proceedings for assessment year 1946-47, the Officer discovered that the
cost of the machinery was only Rs. 2,80,000 and, since assessee had already
obtained depreciation beyond this, refused the grant of depreciation for
assessment years i946-47 and 1947-48. This was upheld by the Calcutta
High Court. In Maharana Mills (P) Ltd. v. l.T.O. [1959]36 I1R 350 (SC) the
Officer rectified the assessments of the assessee to re-work the written down
E value computed and the depreciation granted for earlier years as not being in
accordance with law. The validity of these rectifications was upheld. In
Habib Hussein v. CJ.T., [1963]48 I1R 859 (Born) the asset in question had
been acquired in the previous year relevant to the assessment year 1950-51.
The assessee had acquired the asset under an agreement dated 4.6.48. But that
agreement had been revised on 10.7.50 (after the close of the relevant
F
previous year). The assessee claimed, nevertheless, that· a sum of Rs.
3,30,000 payable by virtue of the subsequent agreement, also fonned part of
f-
the actual cost of the asset. This claim was upheld by the High Court.
According to learned counsel, this was also a case where the original figure 1
of actual cost was more precisely defined and quantified later. Counsel
G concedes that, in cases of this type the actual cost as detennined in earlier
years might need to be modified and that the assessing officer will be at
liberty to do so. He, however, contends that the actual cost cannot be altered
merely because. a subsequent legislation provides for a different fonnula for
ascertainment of actual cost; thar formula may very well apply in respect of
assets acquired in and after the previous year to which the new law will be
H applicable but it cannot be retrospectively made applicable to assets which
ELECTRIC SUPPLY CO. v. C.I.T. [RANGANATHAN, J.] 131

had been acquired much earlier and the actual cost of which had been A
determined in accordance with the earlier prevalent law, unless the statute
specifically says so. As an example, he refers to Explanation 8 to S. 43(1)
which, though inserted in 1989, provides that certain expenditure, of the
nature specified therein, "shall not be included, and shall be deemed never 10
have been included in the actual cost of such asset"
B
We are of the view that it is difficult to read any limitations into the
statutory provision in S. 43(6) as contended for by counsel. As already
explained, th~ definition envisages the computation of the actual cost of each
asset, for every assessment year, not only in respect of assets acquired during
the previous year but also in respect of assets acquired before the previous
year. This naturally has to be done with reference to the factual or ·legal
position that may prevail during the relevant previous year and can be taken
c
into account for the relevant assessment· year. The section does not say that
the computation of the actual cost of the asset has to be based only on the
facts or law as they stood at the time of acquisition of the asset and as could
have been taken into account for the assessment year relevant to the previous
year of acquisition. It is one thing to contend, as Dr. Pal did, that once the D
actua. cost as at the date of acquisition has been computed, that figure is final
and cannot be interfered with subsequently. But that contention is not
acceptable for reasons already discussed. Once it is conceded that the figure
of actual cost can require modifications it is not possible to confine such
modifications in the manner contended for by Sir, Dastur. Where subsequent
information-factual or legal reveals that the actual cost determined origi- E
nally was wrong, there c~ be no doubt that the original figure of actual cost
has to be altered, if need be, and, if possible, by reopening the earlier
assessments and, if that be not be possible, at least for the future. This is
illustrated by the situations in Karnani and Maharana Mills and this is also
the position in cases to which Explanation 8 applies. These are situations
which have a retrospective impact on the original actual cost But it is equally F
conceivable that the 'actual cost' may undergo a change which does not
relate back in fact or law and there is no reason why such change should not
be given effect to in future, irrespective of what may have happened in the
past In fact this is what happened in Habib Hussein's case. It was not a case
of the category suggested by Sri Dastur. It was a case where the figure of
original cost underwent a change by reason of a subsequent agreement and G
the High Court directed that the sum of Rs. 3,30,000 or part thereof
attributable to the acquisition of the assets "should be included in the actual
cost of these assets to the assessee in the respective year or years of account
at the commencement of which the liability to pay it or part thereof had
accrued or would accrue". That the redetermination of actual cost permitted
H
132 SUPREME COURT REPORTS (1992) 1 S. C.R.

A by the provision with which we are concerned is not restricted to cases of the 'r
limited range of retrospective change in the actual cost suggested by Sri
Dastur is also illustrated by the decision in CJ.T. v. Hides & Leather
Products P. Ltd., [1975)101 I.T.R. 61 (Guj.). In that case, "the assessee who
maintained its accounts on the mercantile system purchased a piece of
machinery from a foreign firm in 1955. No amount was paid towards the
B price thereof on the ground that there was some defect in the machinery The
liability to the foreign supplier was shown in the books of account and
balance-sheet of the assessee. But in 1960, by making appropriate entries the
assessee wrote back the amount of Rs. 30,572 being the price of machinery,
debited the amount in the account of the foreign supplier and credited the
same amount in the capital reserve account. On the question whether the
c assessee was entitled to depreciation on the actual cost computed at Rs. )..._
30,572 for the assessment years 1961-62 to 1%5-66". The High Court held
that "in view of the fact that the foreign supplier had not recovered the
amount of Rs. 30,572 and no legal steps had been taken towards its recovery
for so iong a time, it was not unreasonable to infer that the foreign supplier
had treated the liability of the assessee to itself as having ceased and in fact
D and in substance there had been a cessation of this liability. The Act of 1922
applied to the assessment year 1961-62, and as the foreign supplier was
0
neither Government nor public nor local authority, though there was cessa-
tion of liability the assessee was entitled to have the benefit of the entire
amount of Rs. 30,572 as the actual cost. Depreciation was allowable to the -l
assessee for the assessment year 1961-62 on the basis that the cost to it of the
E machinery was Rs. 30,572. The Act of 1961 applied to the assessment years
1962-63 to 1964-65 and under Section 43(1) of the Act, since there was
cessation of liability, the actual cost of the machinery to the assessees for
these assessment years should be reduced by Rs. 30,572". Sri Dastur
challenged the correctness of this decision in so far as it held that the original
F cost itself did not stand modified as a result of the subsequent development.
We are not concerned with that aspect here. All that is relevant is that this
is a decision which permits an .alteration in the figure of actual cost -J_
consequent on subsequent factual occurrences that do not relate back. It also 1
shows that the actual cost for 1961-62 could be scaled down for the
assessment year 1962-63. There are also other decisions which make it clear
G that the original cost of an asset may change after the year of installation or
erection as a result of further liabilities arising later : CJ.T. v. U.P. Hotel-
Restaurant Ltd., [1980) 123 l.T.R. 626 (All.) and Kilkotagiri Tea and Coffee
Estate Ltd. v. CJ.T., (1978) 113 I.T.R. 729 (Ker.) decided in the context of
depreciation aJJowance and CJ.T., v. Mithlesh Kumari, [1973) 92 I.T.R. 9
(Del.) and CJ.T. v. Gupta, [1979) 119 1.T.R. 372 (A.P.) decided in the
H context of the allied "cost of acquisition" for purposes of_ capital gains.
ELECTRIC SUPPLY CO. v. C.I.T. [RANGANATHAN, J.] 133

_, These apart, there are clearly situations in which the actual cost does A
get altered prospectively and not retrospectively. One such instance is where
the cost of an asset increases or decreases on account of a fluctuation in the
value of the currency. Suppose an asset was purchased in 1965 for $10,000
(equivalent to say, Rs. 1,00,000) and the price or the moneys borrowed by the
assessee in foreign currency for its payment, remained outstanding. The
evaluation of the rupee in June 1966 would result in the increase of the price B
to say, Rs. 1,20,000. It may be arguable whether this is a retrospective
enhancement in the price or not. But it would be only reasonable to say that
the actual cost has increased to Rs. 1,20,000 in June 1966 and that the
assessee should be entitled to the grant of depreciation and other allowances
at least thereafter, on the basis of the altered cost. This is what S. 43A
-"'-. provides. Another situation .would be where, subsequent to the acquisition of c
the asset, substantial capital expenditure has been incurred thereon (not
amounting to the addition of a separate asset on which depreciation etc. could
be independently allowed). Such expenditure is added, under the rules, in
practice to the actual cost and allowance given thereon subsequently, vide :
the third column in the table set out at p. 878' in Habib Hussein (1963]48
I.T.R. 859 (Born.). This is quite correct and fully accords with the Department's D
interpretation of the provision. On the· asSessee's interpretation, no such
increased allowances can at all be granted as there is no other provision
permitting the additional cost being taken into account as part of the 'actual
)-
cost' even for years subsequent to the addition or alternation. In principle,
therefore, we are unable to accept the contention that the actual cost cannot
be determined year after year on the factual or legal position applicable for E
the relevant previous year and that the actual cost once determined cannot be
altered except in the three situations outlined by counsel where the original
figure itself require a modification.

Sri Dastur, however, contends that there are three formidable reasons
why the interpretation suggested by the Department should not be accepted. F
.' We shall proceed to consider these objections :

r- 1. Legislation cannot be given retrospective effect so as to affect
existing rights unless it says so expressly or by necessary implication :
The rule as to the prospective application of statutes is well settled. It G
is sufficient here to refer to some basic rules enunciated by prominent authors
on construction of statutes. To start with, the position has been explained in
Craies on Statute Law (7th Edition) at page 389. The learned author first
discusses the meaning of the word.'retrospective' and points out: "a statute
is to be deemed to be retrospective which takes away or impairs any vested
ri~.ht acquired under existing laws, or creates a new obligation, or imposes a H
.-l
134 SUPREME COURT REPORTS [1992] 1 S. C.R.

A new duty, or attaches a new disability in respect to transactions or considera-
tions already past". But a statute "is not properly called a retrospective stablte
because a part of the requisites for its action is drawn from a time antecedent
to its passing". A little later, it is explained that while Parliament has
competence to make the provisions of an Act of Parliament retrospective.
" ......... no rule of construction is more firmly established than this - that a
B retrospective operation is not to be given to a statute so as to impair an
existing right or obligation otherwise than as regards a matter of procedure,
unless that effect cannot be avoided without doing violence to the language
of the enactment If the enactment is expressed in language which is fairly
capable of either interpretation, it ought to be construed as prospective only".
Maxwell on Interpretation of Statutes (12th Ed.) contains passage to like
C effect at page 215 to 219. We may also refer to a passage from "Principles
of Intrepretation of Statutes" by G.P. Singh (Fourth Ed.) where the learned
author warns against a departure from the ordinary meaning of the words
used in a statute merely on grounds of hardship, injustice or absurdity. At
page 81, he points out : " ......... considerations of hardship, injustice or
absurdity as avoiding a particular construction is a rule which must be
D applied with great care. 'The argument abinconvenienti' said Lord Moulton,
'is one which requires to be used with great caution'. Explaining why great
caution is necessary, Lord Moulton further observed : 'There is a danger that
it may degenerate into a mere judicial criticism of the propriety of the Act of
legislature. We have to interpret· statutes according to the language used
therein, and though occasionally the respective consequences of two rival
E interpretations may guide us in our choice in between them, it can only be
where, taking the Act as a whole and viewing it in connection with the
existing state of the law at the time of the passing of the Act, we can satisfy
ourselves that the words cannot have been used in the sense to which the
argument points'. According to Brett LJ. ·~nconvenience necessitating a
deparblre from the ordinary sense of the words should not only be great but
F should also be what he calls an "absurd inconvenience". Moreover individual
cases of hardship or injustice have no bearing for rejecting the natural con-
struction, and it is only when the natural construction leads to some general
hardship or injustice and some other construction is reasonably open that the 1
natural construction may be departed from".
G Examining the provisions with which we are concerned in the light of
the principles succinctly summarised above, it will be apparent that what we
are concerned with here is not at all a case of retrospective operation of J.he
statute. It is not the case of the revenue that the actual cost as determined in
the assessment year 1962-63 should be applied to revise the computations for
H earlier years. All that the department says is that, though in respect of these
ELECTRIC SUPPLY CO. v. C.I.T. [RANGANATHAN, J.] 135

i particular assets, the assessee might have obtained depreciation for earlier A
assessment years on the basis of a higher figure, that will no longer be
available in future and that the figure of actual cost should be taken nQt as
was originally calculated but only at a lower figure for the assessment years
1962-63 and onwards. It is just the case of a provision, a part of the requisites
for the operation of which is drawn from a time antecedent to its passing.
B
It is argued on behalf of the assessee that the provision should be
considered to be retrospective because it affects the vested or existing rights
of the assessee. This argument is based on the provisions of clause (c) of the
proviso to Section 10(2) (vi) of the 1922 Act (corresponding to section 34(3)
of the 1961 Act) which lays down that the aggregate of all deductions in
respect of depreciation made in the Act or its predecessor Acts shall "in no
case exceed the actual cost to the assessee of the building, machinery, plant,
c
furniture, structure or work, as the case may be". Mr. Dastur's argument is
that, when the asset was acquired, its actual cost had been determined in a
particular manner and that, by virtue of the above provision, the assessee
acquired a vested right to obtain depreciation thereon equal to the actual cost
as so determined. He also points out that, under the provisions of 1922 Act D
as well as 1961 Act, there are elaborate provisions to adjust the allowances
of depreciation so as to accord with reality. If, on the basis of the depreciation
already granted the written down value of the asset becomes too low and the
assessee is able to sell the asset for a higher price, the surplus is brought to
tax. On the other hand, where the depreciation allowed is inadequate and the
amount realised by the assessee on the sale, demolition or destruction of the E
asset is much less than the written down value, the assesee is allowed to write
off the difference between the written down value and the scrap value of the
asset. In other words, the Act has provided a machinery which ensures that
the assessee gets by way of depreciation allowance is correlated to reality.
According to him, this right of the assessee, whether it is described as a
vested right or an existing right, is affected by the provision with which we F
are presently concerned. To this argument, Sri Ramachandran adds the
further point that, under the provisions of Section 10(2)(vi) of the 1922 Act
and Section 33 of the 1961 Act, the amount of depreciation which cannot be
adjusted against the profits of a particular year can be carried forward, treated
as the depreciation for the subsequent year and set off against the profits of
subsequent years. He points out that the result of accepting the department's G
interpretation of Section 43(6) of the Act is that the depreciation allowed to
the assessee in the earlier years may be higher than the actual cost as arrived
at subsequently under the provisions of 1961 Act. In such an event the
written down value of the asset i.e. the actual cost minus the depreciation
allowed to the assessee will be a negative figure. The result of this, according
H
136 SUPREME COURT REPORTS [1992) 1 S. C.R.

A to counsel, will be that the carried forward unabsorbed depreciation will be
a negative figure in so far as this asset is concerned and will reduce the
amount of depreciation that will be allowable to the assessee for the same
year against the other assets and in subsequent years against other profits. In
this way, according to counsel, the construction advocated by the department
would result in affecting rights which had been available to the assessee prior
B to the amendment.

We are of the opinion that these contentions are unfounded. It is
incorrect to view the position as if, when an assessee acquires an asset, he
acquires a right to obtain depreciation thereon equal to the actual cost of the
asset as originally determined for tax purposes. The effect of clause (c) to the
C proviso to Section 10(2) (vi) of the 1922 Act and Section 34(3) of the 1961
Act is only this that, while allowing depreciation in respect of any asset the
officer should be careful to see that the aggregate of the depreciation allowed
to the assessee in respect of that asset does not exceed the actual cost of the
asset. In other words, as and when the provision is applied for each and every
assessment year and the depreciation on any asset is calculated, it should be
D ensured that the depreciation allowed does not exceed_ the actual cost of the
asset. In other words, the 'actual cost' referred to is not the actual cost as
originally determined at the time of acquisition. Thus, in the cases before us,
while examining whether a particular asset is entitled to any depreciation for
the assessment year 1962-63, the officer will find that it has already secured
depreciation much more than the actual cost of the asset as determined by
E him and will grant no further depreciation in respect thereof. It is no doubt
true that in past years the asset had become eligible to amounts of deprecia-
tion the aggregate of which exceeds the actual cost as presently determined
and, if that depreciation is deducted from the actual cost subsequently arrived
at, a negative figure may result. But such a situation will arise even in the
category of the cases in which, according to counsel, the revision of actual
F cost is permissible. Thus, even in Karnani Industrial Bank (supra) cited by
him, the assessee had obtained for earlier years depreciation for exceeding
the real cost of the asset. This is an "anomaly" which arises because the
assessee was erroneously granted higher depreciation than he deserved. But,
ev~n here, there was no negative written down value in earlier years and,
G equally, there will be none in the year of revision as the effect of the proviso
is not to produce a negative written down value but only to preclude further
grant of depreciation on the asset in future. Read thus as a limitation on the
maximum amount of depreciation that an assessee can claim in respect of a
particular asset, there is no question of arriving at a negative written down
value. We are, therefore, unable to accept the contention of counsel that the
H interpretation contended for -by the department operaties against the well
ELECTRIC SUPPLY CO. v. C.l.T. [RANGANATHAN, J.] 137

known principle that retrospective operation-assuming that the provision A
has a retrospective effect-should not bi presumed where existing or past
rights are interfered with.

Nor do we think that there is any doubt or ambiguity about the
provision. It is clear and explicit, as already pointed out, that the actual cost
has to be determined, in each assessment year, even of assets acquired before B
the commencement of the previous year relevant to the assessment year. Not·
only is this intention plain and clear, it does not create any injustice or
hardship; on the contrary, it is only reasonable and just. It should be
remembered that object of the provision dealing with the grant of deprecia-
tion is, generally speaking, to enable him to get the capital expenditure
incurred by him in acquiring the asset written off to his profits over the years c
though it is true that, in certain situations, the statute specifically relaxes this
. ,. rigidity. In earlier years, he had been obtaining depreciation on a particular
footing. But the language used lent itself to an interpretation that he could get
a deduction even in resepect of expenditure he did not incur. The correctness
of this interpretation is not in doubt. Where a person purchases an asset,_ it
may be correct to say that the cost of the asset does not change because a part D
of the cost is met by some one else. But the legislature had to decide whether ,
an assessee should be allowed to claim an allowance of depreciation in
respect of the asset on the artificial basis of the cost of the asset rather than
what he has actually spent to acquire that asset and whether the wording of
;...
the original provision, as interpreted by courts, had not conferred an undue
advantage or benefit on the assessee. This was not considered by the E
legislature to be equitable and, therefore, it was altered by legislation. It
accords with reason that the provision should be interpreted to say that, at
least after the amendment, the assessee should not be allowed depreciation on
the basis of the earlier figure of actual cost. It is, therefore, incorrect, in our
opinion, to describe this provision as creating any undue hardship or injustice
or inconvenience to an assessee. It is in this context that the passages cited F
earlier from Breu LJ and Lord Moulton become relevant. They appear to be
particularly apt to the context of the present provisions. For the above
reasons, we are unable to accept the contention addressed on behalf of the
assessee or to draw any support therefor from the observations in Govind Das
v. l.T.O., [1976)103 l.T.R. 123 at p. 132; relied upon by counsel.
G
2. The language used in the provision :

It was next suggested that there is an indication in the language of
Section 43(6) itself to show that i~ is available to be invoked only in respect
of assets which had been acquired in earlier years. Reference is made in this
context to the use of the words "as has been met" in Section 43(1) and the H
138 SUPREME COURT REPORTS (1992] 1 S. C.R.

-A use of similar language in the notes on clauses of the corresponding provision
in the Income-tax Bill, 1961 (see 1961 Act 42 ITR supp. at page 161). It is
argued that if the intention had been that the actual cost of assets which had
been acquired earlier to the previous year should also be covered, the
legislature would have used the words "as had been met". In support of this
contention, Sri Dastur referred to the :lecision in Carson v. Carson and
B Stoyek, [1964)1 All England Law Reports 681. In that case, S. 3 of the
Matrimonial Causes Act, 1963, which came into operation on July 31, 1963,
provided that "adultery which has been condoned shall not be capable of
being revived". While it was quite clear that, as a result of this provision, no
petition could rely on a course of conduct subsequent to July 31 as reviving
previous condoned adultery, the question that arose was whether the section
C had retrospective effect and whether a course of conduct before that date
could be relied upon as reviving previously condoned adultery. The question
was answered in the negative. We do not think the decision is of help in the
present context. The nature of the provisions with which we are concerned
and the mode of its operation are .totally different. The use of the words "has
been met" is very appropriate and proper in the present context once we
D understand the mechanics of the provision. As we have already explained, it
is incontrovertible that, under S. 43(1) read with S. 43(6) the officer has to
determine the actual cost for all assets, new and old, and the definition in S.
43(1) only requires that, at the time of doing so, he has to examine whether
the actual cost has been fully laid out by the assessee or has been met by
some one else in whole or in part. The words "has been met" squarely fit into
E this reading of the section and it is difficult to accept the suggestion that the
use of the words "has been met" lends support to an interpretation restricting
the definition in S. 43(1) to assets acquired in the previous year.

3. Absurdities and anomalies :

F It is contended that the Revenue's interpretation will result in absurdi-
ties and anomalies. The first of these is said to be that it may lead to the
computation of a negative written down value and consequent difficulties in
applying various other statutory provisions. We have already negatived the 1
cqntention and pointed out that the proviso to clause (c) really places a
limitation on the depreciation deductible at any point of time and, hence,
G there can never be a negative written down value as contended. The second
anomaly is said to be that the interpretation favoured by the Revenue is
incompatible with the terms of Explanations 2, 4 and 6 to S. 43 (6). We see
no such difficulty. Explanations 2 and 4 fall in line with the suggested
interpretation, once it is understood that the reference to "depreciation
actually allowed" should be read subject to the limitation of clause (c) of
H proviso to S. 10(2)(vi) [now section 34(3)). Explanation 6 offers no difficulty
ELECTRIC SUPPLY CO. v. C.l.T. [RANGANATHAN, J.] 139

as the relationship as "parent" and "subsidiary" between the companies A
involved in the transfer for the purposes of this clause has to be determined
as at the time of the transfer of the asset and will not be a wobbling or
fluctuating one as suggested by counsel for the assessee. Another difficulty
pointed out is that the interpretation put forward by the Department might
lead to difficulties in the calculation of assessable profits under section 41(2)
or the allowance under section 32(l)(iii). Sri Ramachandran illustrated the B
difficulty by giving the instance of an asset purchased for, say, Rs. 10,000
entirely with monies contributed by others. If the asset had been purchased
in 1958 and was eligible for depreciation at 10 per cent, the assessee would
have secured depreciation of Rs. 2710 in the assessment years 1959-60,
1960-61 and 1961-62. Suppose in the ·previous year relevant assessment year
1963-64, it is sold for Rs. 5000. Mr. Ramachandran points out that, according c
.. to the Department's interpretation the actual cost of the asset will be nil and,
therefore, its written down value at the end of the previous year relevant for
the assessment year 1962-63 would be nil with the result that the entire sum
of Rs. 5000 for which the asset is sold will become chargeable under section
41(2). In other words, the assessee will have to pay tax on Rs. 5,000 by way
of balancing charge though he had been allowed depreciation only to the D
extent of Rs. 2710. Again if the asset is sold for Rs. 2,500 in the previous
year relevant for assessment year 1963-64, according to the Department he
will have to pay a tax on Rs. 2,500 whereas under the old provisions he
would have got an allowance under section 32(l)(iii). But this is only a
seeming anomaly. For, the sums of Rs. 5,000 and Rs. 2,500 will be taxed not
as balancing charge but as capital gains which is quite consistent with the E
department's position that, the assessee having paid nothing for the asset, its
actual cost should be taken at nil, a stand in which there is no absurdity. We
do not, therefore, think that any difficulty or anomaly results from the
interpretation suggested.

For the reasons discussed above, we agree with the view taken by the
several High Courts and dismiss these appeals.

N.P.V. Appeal dismissed.