1990 (3) TMI 63 - HC - Income Tax

Carry Forward And Set Off Casus Omissus Depreciation Registered Firm Unabsorbed Depreciation

Summary

Issues Involved:
1. Interpretation of Section 32(2) of the Income-tax Act, 1961 regarding unabsorbed depreciation.
2. Applicability of Section 75 of the Income-tax Act, 1961 in relation to carrying forward unabsorbed depreciation by a registered firm.

Summary:

Issue 1: Interpretation of Section 32(2) of the Income-tax Act, 1961 regarding unabsorbed depreciation

The court was required to interpret whether unabsorbed depreciation of a registered firm allocated to partners, if not wholly set-off, should be brought back for computation of the firm's total income in subsequent years as if it were the firm's unabsorbed depreciation. The Income-tax Officer and the Appellate Assistant Commissioner, relying on decisions from the Gujarat, Allahabad, and Delhi High Courts, held that once unabsorbed depreciation is allocated to the partners, it cannot be carried forward by the firm. The Tribunal, however, followed the Gauhati High Court's decision in CIT v. Singh Transport Co. [1980] 123 ITR 698, which favored the assessee, allowing the firm to carry forward the unabsorbed depreciation.

Issue 2: Applicability of Section 75 of the Income-tax Act, 1961 in relation to carrying forward unabsorbed depreciation by a registered firm

The Gujarat High Court in CIT v. Garden Silk Weaving Factory [1975] 101 ITR 658 held that once the allocation of unabsorbed depreciation is made to the partners, there remains nothing in the hands of the firm to carry forward. This view was supported by several High Courts. Conversely, the Andhra Pradesh High Court in CIT v. Srinivasa Sugar Factory [1988] 174 ITR 178 (AP) held that unabsorbed depreciation can be carried forward by the firm as Section 32(2) does not reference Section 75, indicating legislative intent to treat unabsorbed depreciation differently from business losses.

Court's Decision:

The court favored the Andhra Pradesh High Court's view, stating that depreciation, being a notional loss related to an asset, can be carried forward by the firm even if it is partly absorbed by the partners. The absence of any restriction in Section 32(2) regarding the carrying forward of depreciation by the firm indicates legislative intent to allow such carry forward without limitation of time. The court emphasized the principle of "casus omissus," which prevents reading into a statute what is not expressed, thus rejecting the Gujarat High Court's interpretation that imports limitations from Section 75 into Section 32(2).

Conclusion:

The court answered the reference in the affirmative, favoring the assessee and allowing the registered firm to carry forward unabsorbed depreciation. The court left the parties to bear their own costs due to the differing opinions across various High Courts.