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Issues:
1. Whether unabsorbed development rebate should be given preference over unabsorbed depreciation losses in allowing setoff against the current year's income? Analysis: The case involved a reference under section 256(1) of the Income-tax Act, 1961, for the assessment year 1967-68. The Income-tax Officer found the assessee's income to be Rs. 11,33,617 after adjusting for unabsorbed depreciation and development rebate. The officer set off unabsorbed depreciation to make the income nil, while carrying forward the unabsorbed development rebate. The assessee appealed against the refusal to grant the development rebate, arguing that it should take precedence over depreciation. However, the Appellate Assistant Commissioner and the Tribunal upheld the priority of unabsorbed depreciation over development rebate. The Tribunal referred the question to the High Court regarding the preference between the two for setoff against current year's income. The High Court noted that the law is settled in favor of unabsorbed depreciation taking precedence over unabsorbed development rebate. Citing the Kerala High Court's decision in Calicut Modern Spinning and Weaving Mills Ltd. v. CIT, the court emphasized that business loss and depreciation must be set off before considering the development rebate. The court also referenced decisions from other High Courts and legal treatises supporting this view. Therefore, the High Court concluded that unabsorbed depreciation losses must first be set off against the current year's income, with any remaining balance allowing for the development rebate. The High Court highlighted that no court decision has contradicted the precedence of unabsorbed depreciation over development rebate as established by the Kerala, Mysore, Gujarat, and Madras High Courts. As no representation was made on behalf of the assessee, it was inferred that the party might not be interested in pursuing the reference further. Consequently, the High Court answered the question in the negative, favoring the Revenue and rejecting the assessee's claim. The court directed the transmission of the judgment to the Income-tax Appellate Tribunal as per the provisions of the Income-tax Act, 1961.
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