1962 (10) TMI 59 - HC - Income Tax

Summary

Issues Involved:
1. Whether unabsorbed depreciation allowance of earlier years, deemed to be part of the depreciation allowance of the current year under section 10(2)(vi) of the Indian Income-tax Act, 1922, can be set off against income under other heads.

Issue-wise Detailed Analysis:

1. Unabsorbed Depreciation Allowance and Its Treatment:

The core issue revolves around the interpretation of section 10(2)(vi) of the Indian Income-tax Act, 1922, particularly the proviso that deals with unabsorbed depreciation. The assessee, a textile mill, had unabsorbed depreciation of Rs. 5,62,317 from preceding years. The Income-tax Officer allowed a set-off of this unabsorbed depreciation only to the extent of the business income for the current year, resulting in a nil business profit, and assessed the total income at Rs. 5,614 from property.

2. Appellate Assistant Commissioner's Interpretation:

The Appellate Assistant Commissioner (AAC) held that the unabsorbed depreciation from preceding years should be treated as part of the current year's depreciation allowance as per section 10(2)(vi). Consequently, the AAC determined the business income at a negative figure of Rs. 3,17,669 after setting off the unabsorbed depreciation, and allowed this negative figure to be set off against the property income, resulting in nil total income for the year.

3. Tribunal's Decision:

The Income-tax Appellate Tribunal upheld the AAC's decision, agreeing that the unabsorbed depreciation should be treated as part of the current year's depreciation allowance and could be set off against income under other heads, including property income.

4. Legal Question Referred to the High Court:

The High Court was asked to decide: "Whether the Appellate Tribunal was right in holding that the unabsorbed depreciation allowance of the earlier years deemed to be part of the depreciation allowance of the current year under section 10(2)(vi) of the Act can be set off against income under other heads?"

5. High Court's Analysis:

The High Court examined the relevant provisions of section 10 and section 24 of the Indian Income-tax Act, 1922. Section 10(2)(vi) allows for the carry forward of unabsorbed depreciation, which is deemed to be part of the depreciation allowance for the current year. The proviso to section 10(2)(vi) indicates that this carry forward is "subject to the provisions of clause (b) of the proviso to sub-section (2) of section 24."

6. Section 24 and Set-off Provisions:

Section 24(1) allows losses under any head to be set off against income under other heads, subject to certain provisos. Section 24(2) deals with the carry forward of business losses and their set-off in subsequent years. Proviso (b) to section 24(2) specifies that depreciation allowance carried forward under section 10(2)(vi) should be set off first against business income before other losses.

7. High Court's Conclusion:

The High Court concluded that the unabsorbed depreciation, deemed as part of the current year's depreciation, could be set off against income under other heads, including property income. The Court emphasized that the deeming provision in section 10(2)(vi) and the specific language of section 24(1) and (2) supported this interpretation. The Court also referred to a similar decision by the Calcutta High Court in Jaipuria China Clay Mines Private Ltd. v. Commissioner of Income-tax, which supported this conclusion.

Final Judgment:

The High Court answered the referred question in the affirmative, confirming that the unabsorbed depreciation allowance of earlier years, deemed to be part of the current year's depreciation allowance under section 10(2)(vi), can indeed be set off against income under other heads. The applicant (Commissioner of Income-tax) was directed to pay the costs of the reference to the respondent (assessee).

Question Answered in the Affirmative.