1994 (3) TMI 14 - HC - Income Tax

Income From Other Sources Income Tax Act Legal Fiction Set Off Unabsorbed Depreciation Wholly And Exclusively

Summary

Issues:
1. Allowability of entire expenditure for assessment years 1974-75 and 1975-76.
2. Entitlement to set off carried forward unabsorbed depreciation against interest income.

Analysis:
Issue 1:
The case involved questions regarding the allowance of expenditure for the assessment years 1974-75 and 1975-76. The assessee, a company in liquidation, claimed deductions for certain expenses against interest income. The Income-tax Officer allowed only a portion of the claimed deductions. The Commissioner (Appeals) estimated a deduction of 20% of the interest income. The Tribunal allowed deductions for some items but disallowed others, stating that there was no evidence to prove the expenses were incurred exclusively for earning interest income. The High Court concurred with the Tribunal's decision, holding that the disallowed items were not expended solely for earning interest income. Therefore, the court answered question No. 1 in the negative against the assessee and in favor of the Revenue.

Issue 2:
The second issue pertained to the set off of unabsorbed depreciation against interest income. The Income-tax Officer rejected the claim, but the Commissioner (Appeals) allowed it. However, the Tribunal ruled that since the assessee had ceased its business in 1967, it was not entitled to set off unabsorbed depreciation against interest income. The High Court referred to a previous judgment and held that unabsorbed depreciation should be allowed to be carried forward and set off against assessable income of a subsequent year, even if the business in which it arose ceased to exist. Citing relevant legal provisions and precedents, the court answered question No. 2 in the affirmative, favoring the assessee and ruling against the Revenue.

The judgment concluded by disposing of the reference with no order as to costs.