1962 (9) TMI 56 - HC - Income Tax

Summary

Issues Involved:
1. Set-off of unabsorbed depreciation against income under other heads.

Detailed Analysis:

Issue 1: Set-off of Unabsorbed Depreciation Against Income Under Other Heads

The primary question addressed in this judgment is whether unabsorbed depreciation from a previous year, deemed part of the current year's depreciation allowance under proviso (b) to section 10(2)(vi) of the Indian Income-tax Act, 1922, can be set off against income under heads other than "Business, profession or vocation."

The assessee, a limited company, had unabsorbed depreciation of Rs. 2,01,271 carried forward from the previous year and current year depreciation of Rs. 75,594. The business income for the year was Rs. 24,054, and property income was Rs. 23,162. The Income-tax Officer allowed the set-off of only the business income against the unabsorbed depreciation, resulting in a nil business income and a taxable property income of Rs. 23,162. The unabsorbed depreciation to be carried forward was Rs. 1,77,217.

The Appellate Assistant Commissioner, however, allowed the set-off of both business and property income against the unabsorbed depreciation, resulting in a total income of nil and unabsorbed depreciation of Rs. 1,54,055 to be carried forward. The department's appeal to the Tribunal was dismissed, and the Tribunal upheld the decision of the Appellate Assistant Commissioner.

The department contended that unabsorbed depreciation should be treated like carried forward business losses under section 24(2) and could not be set off against income from other heads. They argued that unabsorbed depreciation, being a business loss, should only be set off against business income.

The court examined the provisions of section 10(2)(vi), proviso (b), and section 24(2). Under section 10, depreciation allowance is first adjusted against the profits and gains of the business. If the depreciation exceeds the profits, it can be set off against profits from other businesses or vocations. If a surplus remains, it can be set off against income from other heads under section 24(1). The unabsorbed depreciation is carried forward to the next year and added to the depreciation allowance for that year, subject to the priority of setting off carried forward business losses under section 24(2).

The court held that unabsorbed depreciation retains its character as depreciation allowance when carried forward and is available for set-off against income from other heads. The court rejected the department's argument that unabsorbed depreciation should be treated as a carried forward business loss, noting that the statute treats depreciation allowance differently from business losses. The priority given to carried forward losses under section 24(2) does not change the nature of unabsorbed depreciation.

The court concluded that unabsorbed depreciation, when carried forward, becomes part of the depreciation allowance for the following year and can be set off against income from other heads. The court referred to previous judgments supporting this view, including Ambika Silk Mills Co. Ltd. v. Commissioner of Income-tax and Aluminium Corporation of India Ltd. v. Commissioner of Income-tax.

The court answered the question in the affirmative, holding that unabsorbed depreciation can be set off against income under other heads. The Commissioner was directed to pay the costs of the assessee.