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Section 32, read with section 35, of the Income-tax Act, 1961 - Depreciation - Allowance/rate of - Assessment year 1973-74 - Whether assets on which deduction had been allowed under section 35, were entitled to deduction under section 32 - Held, yes FACTS For the assessment year 1973-74, the assessee claimed depreciation allowance on plant, machinery and building which were being utilised for research purposes. The assessee, in earlier years, was duly allowed relief on these under section 35. However, the ITO disallowed the claim. On appeal, the Tribunal upheld the assessee's contention. On reference, the revenue referred to the Supreme Court's decision in the case of CIT v. Indian Telephone Industries Ltd [1991] 187 ITR 181 , in which depreciation on the cost of plant, machinery and building, etc., the cost of which was allowed in full as deduction in the earlier years, was held to be not allowable in view of subsequent amendment of section 35 with retrospective effect. HELD In the case of CIT v. Mico Products (P.) Ltd. [1991] 187 ITR 517, the Bombay High Court has held that the amendment of section 35(2)(iv) to the extent that it is retrospective is invalid in law. So far as the case of Indian Telephone Industries Ltd. (supra) cited by department was concerned, the question had come before the Supreme Court in reference proceedings arising out of the order of the income-tax authorities and that of the Tribunal The income-tax authorities and the Tribunal could not certainly consider the vires of the provisions of the Act.The Tribunal could not also refer such a question of law to the High Court for its opinion under section 256(1). In the circumstances, neither before the High Court nor before the Supreme Court the question as to whether retrospective amendment of section 35 was Ultra vires of the Act, could come up for consideration. In MICO's case before this Court this question was raised by way of a writ petition. This Court having held the provisions of the amendment to be invalid insofar as they are retrospective in operation, even though the present matter had come up in reference, this Court had to proceed on the basis that retrospective part of the…

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