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Issues Involved:
1. Whether the income from leasing out the factory could be set off against the business losses from the manufacture of textiles under section 24(2) of the Income-tax Act. 2. Whether the assessee is entitled to claim depreciation from previous years as part of the depreciation allowance of the year of account under section 10(2)(vi). Issue 1: Set-off of Income Against Business Losses The primary issue revolves around whether the sum of Rs. 73,800 realized by the assessee by leasing out the factory could be set off against losses from the business of manufacturing textiles brought forward from the preceding year under section 24(2) of the Income-tax Act. The Tribunal held in favor of the assessee, concluding that the income derived from letting out the plant and machinery was income from carrying on business. The Tribunal relied on the precedent set by the Supreme Court in Commissioner of Excess Profits Tax v. Shri Laxmi Silk Mills Ltd., which established that if an asset is a commercial asset, the income from it, whether used by the assessee or a lessee, is considered business income. The High Court agreed with the Tribunal's finding, emphasizing that whether a business is carried on and whether the assets are business assets are questions of fact to be decided by the Tribunal based on the evidence. The Court found that there was sufficient evidence to support the Tribunal's conclusion that the assets were business assets and the income was business income, thus allowing the set-off under section 24(2). Issue 2: Claim of Depreciation Allowance The second issue pertains to whether the assessee could claim unclaimed depreciation from previous years as part of the depreciation allowance of the year of account under section 10(2)(vi). The Tribunal did not address this issue substantively because it held that the income in question was business income. However, if the income was assessable under section 12, the proviso to section 10(2)(vi) would apply, allowing the unclaimed depreciation to be added to the allowance for the following year. The High Court did not need to decide on this issue since it resolved the first issue in favor of the assessee, rendering the second issue moot. Conclusion: The High Court answered the primary question in the affirmative, allowing the sum of Rs. 73,800 and Rs. 3,84,000 realized by the assessee by leasing out the factory to be set off against the losses from the business of manufacturing textiles under section 24(2) of the Income-tax Act. Consequently, the second question regarding the depreciation allowance did not arise. The Commissioner was ordered to pay the costs, and the reference was answered accordingly.
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