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Issues Involved:
1. Computation of depreciation allowances under Section 10 of the Indian Income-tax Act, 1922. 2. Application of Section 26(2) of the Indian Income-tax Act, 1922, in the context of business succession. 3. Treatment of unabsorbed depreciation allowances post-amalgamation. 4. Interpretation of "assessee" in the context of depreciation allowances. 5. Legal assignability of unabsorbed depreciation allowances. 6. Prematurity of the appellant's claim. Issue-wise Detailed Analysis: 1. Computation of Depreciation Allowances: The judgment revolves around the interpretation of Section 10 of the Indian Income-tax Act, 1922, specifically regarding the computation of depreciation allowances. The appellant argued for the inclusion of unabsorbed depreciation allowances from the Bengal Company in their assessment, asserting that these should be deducted from the profits of the combined businesses. The respondent, however, contended that the depreciation should be calculated based on the cost to the Indian Company post-amalgamation, and the benefit of the unabsorbed depreciation of the Bengal Company should not be carried forward. 2. Application of Section 26(2): Section 26(2) addresses the tax liability when a business is succeeded by another entity. The appellant maintained that they should be assessed as if they had been carrying on the Bengal Company's business for the entire fiscal year, thus inheriting the unabsorbed depreciation allowances. The court, however, clarified that Section 26(2) is concerned with identifying the liable party rather than the computation method. The Indian Company is liable for the entire year's profits, but this does not imply inheriting the unabsorbed depreciation of the predecessor. 3. Treatment of Unabsorbed Depreciation Allowances: The core dispute was whether the unabsorbed depreciation allowances of the Bengal Company could be transferred to the Indian Company post-amalgamation. The appellant argued for the inclusion of these allowances in their future assessments. The court, however, held that once the Bengal Company ceased operations, its unabsorbed depreciation allowances could not be carried forward for the benefit of the Indian Company. The Indian Company's depreciation must be computed based on its own costs post-transfer. 4. Interpretation of "Assessee": The appellant argued that the term "assessee" should include both the predecessor and successor in the context of depreciation allowances. The court disagreed, stating that "assessee" refers strictly to the entity liable for tax in the current context. The depreciation allowance is to be computed based on the cost to the current owner, i.e., the Indian Company, post-amalgamation. 5. Legal Assignability of Unabsorbed Depreciation Allowances: The agreement between the two companies included a clause attempting to assign the unabsorbed depreciation allowances of the Bengal Company to the Indian Company. The court noted that these allowances were unassignable in law, rendering this clause ineffective. This reinforced the decision that the Indian Company could not claim the Bengal Company's unabsorbed depreciation. 6. Prematurity of the Appellant's Claim: The respondent argued that the appellant's claim was premature, as the case was stated under Section 66(2) of the Indian Income-tax Act, which pertains to an "assessee." Given that an unabsorbed balance remained in favor of the appellant, there was no immediate assessment or assessee. The court did not find it necessary to rule on this argument but acknowledged that the appellant needed to ascertain its financial position promptly. Conclusion: The court dismissed the appeal, affirming that the Indian Company could not inherit the unabsorbed depreciation allowances of the Bengal Company. The appellant was ordered to pay the respondent's costs. The judgment clarified the interpretation of relevant sections of the Indian Income-tax Act, emphasizing the distinct treatment of depreciation allowances post-business succession.
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