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Issues Involved:
1. Whether the unabsorbed depreciation allowance of Rs. 12,505 can be treated as a loss of profits under the head 'business' and apportioned among the partners under proviso 2 to Section 24(1) of the Income-tax Act. Detailed Analysis: Issue 1: Unabsorbed Depreciation Allowance as Business Loss Background: The assessee, a registered firm, had its income computed from various sources, including property and business. The business income before depreciation was Rs. 8,228, while the allowable depreciation for the year was Rs. 23,990, and unabsorbed depreciation from previous years was Rs. 27,012. The assessee claimed a total business loss of Rs. 42,774 after accounting for depreciation. The Income-tax Officer set off Rs. 3,257 against other incomes, leaving a net loss of Rs. 39,517, which the assessee wanted to apportion among the partners for individual set-off under Section 24(1) proviso 2. The department contended that the unabsorbed depreciation should be carried forward and not set off against other incomes. Tribunal's Decision: The Tribunal held that the assessee could not take into account the Rs. 27,012 unabsorbed depreciation from previous years for set-off under Section 24(1). It determined that the loss for the year was Rs. 12,505, which should be apportioned among the partners for individual assessment set-off. Legal Provisions: - Section 10(2)(vi): Provides for depreciation allowance and states that if full effect cannot be given to the allowance due to insufficient profits, the unabsorbed depreciation shall be carried forward. - Section 24(1): Allows set-off of losses against income from other heads. - Proviso to Section 24(1): Specifies that in the case of a registered firm, any loss not set off against the firm's income shall be apportioned among the partners. - Section 24(2): Details the carry-forward of business losses, including the priority of setting off ordinary losses over depreciation. Court's Analysis: The court examined the scheme of the Income-tax Act, emphasizing that the Act aims to compute the total income from all sources, allowing for various deductions and set-offs. The court disagreed with the Commissioner's argument that depreciation should not be included in "loss of profits" for set-off purposes. It noted that the Act provides for the computation of total income and losses, including depreciation, and allows for set-off against other incomes. Precedents: - Karam Ilahi Muhammad Shafi v. Commissioner of Income-tax, Delhi: The Lahore High Court held that losses from multiple businesses could be aggregated and set off against other incomes. - Suppan Chettiar & Co. v. Commissioner of Income-tax, Madras: The Madras High Court allowed excess depreciation to be set off against profits from other sources. - Ballarpur Collieries v. Commissioner of Income-tax, Central Provinces: The Nagpur High Court held that depreciation could increase business losses for set-off against other incomes. Conclusion: The court concluded that the unabsorbed depreciation allowance of Rs. 12,505 could be treated as a business loss and apportioned among the partners under proviso 2 to Section 24(1). The answer to the referred question was in the affirmative, allowing the assessee to apportion the loss among the partners for individual set-off. Costs: The court awarded costs to the assessee, with a counsel fee of Rs. 250. Reference Answered: The reference was answered in the affirmative, supporting the assessee's contention.
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