1952 (3) TMI 35 - HC - Income Tax

Summary

Issues Involved:
1. Ultra vires nature of Section 12B of the Indian Income-tax Act.
2. Maximum allowable depreciation under the second proviso to Section 10(2)(vi)(c).
3. Set-off of business loss against capital gains.
4. Computation of super-tax rebate under Section 17(7).

Detailed Analysis:

1. Ultra Vires Nature of Section 12B:
The assessee contended that the capital gains tax under Section 12B of the Indian Income-tax Act was ultra vires the Legislature. The Tribunal held that it was intra vires. The High Court had already been seized of the matter, and no arguments were addressed on this point during the reference. The question of law referred was: "Whether the provisions of Section 12B of the Indian Income-tax Act are ultra vires the Indian Legislature?" The High Court answered this in the negative, affirming the validity of Section 12B.

2. Maximum Allowable Depreciation:
The assessee claimed a depreciation of Rs. 52,985, but the Income-tax Officer allowed only Rs. 37,703, resulting in a business loss of Rs. 15,282. The key question was whether the "profits or gains chargeable for that year" under the second proviso to Section 10(2)(vi)(c) included only business profits or also capital gains. The Tribunal held that "profits or gains chargeable for that year" referred only to business profits under Section 10 and excluded income assessable under other heads. The High Court agreed, clarifying that the unabsorbed depreciation could be carried forward and set off against future business profits.

3. Set-off of Business Loss Against Capital Gains:
The High Court examined whether the business loss of Rs. 15,282 could be set off against the capital gains of Rs. 90,400. The Court interpreted the proviso to Section 10(2)(vi) to mean that unabsorbed depreciation could be carried forward and set off against any profits or gains, including those from other heads under Section 6. The Court emphasized that the scheme of the Act allowed for such set-offs to ensure that the assessee could benefit from the allowances. The High Court concluded that the Rs. 15,282 business loss could indeed be set off against the capital gains of Rs. 90,400, resulting in a net assessable income of Rs. 75,118.

4. Computation of Super-tax Rebate:
The issue was whether the super-tax rebate under Section 17(7) should be computed on the total capital gains of Rs. 90,400 or the net income of Rs. 75,118 after set-off. The High Court clarified that for the purpose of super-tax rebate, the relevant amount was the total capital gains of Rs. 90,400. The Court noted that the rebate was to be calculated on the amount of income chargeable under the head "capital gains" before any set-off under Section 24(1). Therefore, the assessee was entitled to a rebate on the full amount of Rs. 90,400.

Conclusion:
The High Court concluded that:
1. The provisions of Section 12B of the Indian Income-tax Act are intra vires.
2. The assessee could claim depreciation of Rs. 37,703, being the total of the profits and gains chargeable to tax under Section 10.
3. The business loss of Rs. 15,282 could be set off against the capital gains of Rs. 90,400.
4. The super-tax rebate should be computed on the total capital gains of Rs. 90,400, not the net income of Rs. 75,118.

The reference was answered accordingly, with no order as to the costs of the reference.