PANDHYAN INSURANCE CO. LTD. versus COMMISSIONER OF INCOME-TAX, MADRAS

Citation: [1965] 1 S.C.R. 367 · Decided: 29-09-1964 · Supreme Court of India · Bench: K. SUBBA RAO · Disposal: Appeal(s) allowed
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Judgment (excerpt)

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367 
PANDHY AN INSURANCE CO. LTD. 
v. 
COMMISSIONER OF INCOME-TAX, MADRAS 
September 29, 1964 
(K. SUBBA RAO, J. C. SHAH ANDS. M. SIKRI JJ.) 
lnco111e Tax Act (I I of 1922) Schedule, rr. 3(b) and 6-Scopc oj 
l"he appellant ( assessee) was a company carrying on the business 
of general insurance. 
It erected a substantial modern building at a 
cost of about Rs. 12.00.000 towards the end of 1952. 
For the account-
ing year 1953 it wrote off a sum of about Rs. 1,00,000 as represent-
ing ~he depreciation with respect to 
various items. 
The Income-tax 
Officer disallowed 4/ 5 of the depreciation on the ~i:ound that only a fifth 
part of the building was utilised for the purpose of the appellant's busi-
ness and the remaining 4/ 5 part was let out. and that the rent thereon 
was exempted under s. 4(3) (xii) of the Income-tax Act. 1922. 
On 
appeal by the assesscc, the Appellate Assistant Con1missioner dismissed 
the appeal and enhanced the assessment by disallowing even the 1/5 
of the depreciation allowed by the Income Tax Officer, on the ground 
that under r. 3 (b) 
of the Schedule to the Act, the allowable deprecia-
tion was an actual depreciation of the value of the assets. On furthe1 
appeal, the Appellate Tribunal restored the order of 
the 
lncon1c·ta'\: 
Officer with respect to 115 part but as to the 4/5 part agreed with the 
Appellate Assistant 
Commissioner. 
The High 
Court, on a 
reference 
as to whether the 4/5 part of the depreciation w-as also <sllo\\.·ahlc as 
a deduction in the assessment completed under s. 10(7) unJ the rule-; 
contained in the Schedule, of the Act, held against the appellant. 
On 
appeal to the Supreme Court, 
HELD : The appeal must be allowed. 
[374C]. 
Rules 3(b) and 6 of the Schedule to the Income-tax Act, which are 
the applicable rules, should be 
read against the 
background of 
the 
\'arious provisions of the Insurance Act (4 of 1938) making 
detailed 
provision to ensure the true valuation of assets and the determination 
of the true balance of profits of an insurance business. So read. the Income 
Tax Officer can ex.elude fron1 the balance of profits, only any expenditure 
which i!I not allowable under s. 10 of the Income-tax Act. 'l'he \\'Ord 
"'expenditure" in r. 6 means disbursement and does not comprehend 
depreciation. As 
regards 
"depreciation", it 
covers 
both actual and 
notional, and the Income Tax Officer has no option but to allow it under 
r. 3 (b). 
He cannot ask the assessee to prove that there has been any 
actual depreciation. 
[370E; 372A, C; 373E, F; 374C]. 
Life Insurance Corporation of India v. Cotnmissioner of lncomc-
tax (1964) 5I l.T.R. 773, followed. 
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 816 of 
1963. 
Appeal by special leave from the judgment dated the July 4, 
1961, of the Madras High Court in case referred No. 4 of 1957. 
A. V. Viswanatha Sastri, R. Venkataraman and R. Gopala-
krishnan, for the appellant. 
368 
SUPREME COURT REPORTS 
[1965) I S.C.R. 
R. Ganapathy Iyer, R. H. Dhebar and R. N. Sachthey, for the 
A 
respondent. 
The Judgment of the Court was delivered by 
Sikri J. This is an appeal by special leave against the 
ju<.lgment of the Madras High Court in a case referred to it under 
the Indian Income Tax Act, 1922, hereinafter referred to a~ the 
B 
Act, answering the question of law against the a~essec. 
The 
question referred is : 
"Whether four-fifth of the sum of Rs. 1,21,245 
written off in the books of the assessee as depreciation 
for the calendar year 1953 is allowable as a deduction 
C 
in the assessment completed under section I 0 ( 7) and the 
rules contained in the schedule of the Income-tax Act." 
The fac1s relevant for answering the question are as follows. 
The asscssce is a public limited company carrying on the business 
of general insurance. It erecte<.1 a modem substantial building with 
D 
lifts and air-conditioning at a cost of Rs. 12,08.252 and got it 
ready for occupation from December 1, 1952. In its books for 
the calendar year 1953. the previous year for assessment year 
1954-55. it wrote off Rs. 1.21.245 a< depreciation as follows : 
Bu1r~11ng_, 
.\ir conJ1tioning plan: 
Lifts 
Transformer~ 
I nrernal T clcphonc 
Rate 
~Per Ct'-Ol) 
10 
15 
" 
15 
15 
Amount 
(in rupees) 
1.06,940 
2,973 
6,214 
1,442 
3,676 
TOT"-L 
1,21.245 
It was common ground before 
the 
Income-tax 
Appellate 
Tribunal that one-fifth of the building could be considered as 
occupied for its own purposes and t
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