JUDGMENT R.K. Gulati, J.
1. These are two applications under Section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") arising out of a common order passed by the Income-tax Appellate Tribunal. These applications have been made at the instance of the Revenue and pertain to the assessment years 1987-88 and 1988-89. In these applications, the following common question has been proposed :
"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in directing to allow depreciation when the Income-tax Officer had given a clear finding in his assessment order that the income was estimated after allowing admissible depreciation ?"
2. The assessee is a contractor. The Income-tax Officer rejecting the book profits computed the income by applying a flat rate. In the assessment year 1987-88, he worked out the taxable income by applying a net rate of ten per cent. and observed :
"The assessee has claimed depreciation. The depreciation claimed by the assessee is not allowable when net rate is applied when working the income."
3. In the other year 1988-89 also a net rate of ten per cent. was applied but there are no observations to the effect as made in the assessment year 1987-88. The assessee took the matter in appeal before the Commissioner of Income-tax (Appeals) for both these years. The Commissioner upheld the rate of ten per cent. but directed that the assessee was entitled to the relief in respect of the depreciation that it had claimed. Against the appellate order, cross-appeals were filed before the Income-tax Appellate Tribunal. The appeal filed by the Revenue was dismissed and that filed by the assessee was allowed in part, inasmuch as, the net rate of profit was reduced to nine per cent. from ten per cent. The Revenue applied for a reference under Section 256(1) of the Act and its applications having been dismissed, these applications have been filed with the prayer that the Income-tax Appellate Tribunal may be directed to refer the question set out earlier for the opinion of this court for the question proposed is a question of law.
4. We have heard learned counsel for the parties and, in our opinion, these applications are liable to be rejected. The Income-tax Officer has disallowed the depreciation on the view that where the income is computed by applying the net rate, the claim to depreciation is not permissible. This was not upheld by the appellate authorities including the Income-tax Appellate Tribunal. The Income-tax Appellate Tribunal relied upon a circular of the Central Board of Direct Taxes No. 29D(xix) of 1965, F. No. 45/239/65-ITC, dated March 31, 1965. Under this circular, the Board had issued instructions that where income is proposed to be computed by applying a net rate and the assessee has furnished the prescribed particulars for the claim in respect of depreciation, the depreciation should be allowed separately and deducted out of the gross profits. The order of the Income-tax Appellate Tribunal is in conformity with the circular issued by the Central Board of Direct Taxes. No provision of the Income-tax Act was brought to our notice which makes the claim to depreciation inadmissible where the income is computed by applying the flat rate. In our opinion, the order of the Income-tax Appellate Tribunal does not give rise to any statable question of law. The question as proposed in the application proceeds on a misunderstanding of the assessment order when it is said that the Income-tax Officer had given a finding that the flat rate was being applied taking into consideration the admissible depreciation. We may also observe that the Income-tax Appellate Tribunal in determining the question about the rate to be applied had judged the same with reference to the past history of the assessee's case and found that nine per cent. flat rate should be the reasonable rate. Admittedly, in the past, nine per cent. was being applied without taking into account the claim for depreciation. Learned counsel for the Revenue relied upon a decision of this court in Saraya Engineering Works v. CIT [1987] 168 ITR 455. That case, in our opinion, is clearly distinguishable and has no application to the facts of the instant case.
5. For what has been stated above, both the applications are devoid of merit and are, accordingly, rejected with costs which we assess at a consolidated figure of Rs. 300.