1939 (10) TMI 10 - HC - Income Tax

Summary

Issues Involved:
1. Whether the assessee is entitled to set off the loss sustained in respect of part of their business under Section 24 of the Income Tax Act.
2. Whether the assessee is entitled to carry forward the amount of depreciation for the financial year 1936-37 and previous years.

Issue-Wise Detailed Analysis:

1. Set Off of Loss Under Section 24:
The primary issue was whether the assessee could set off a loss of Rs. 77,236 incurred in the New Union Mills against other profits under Section 24 of the Income Tax Act. The Income Tax Officer had refused this set-off, citing Section 26(2) of the Act, which mandates that when a business is succeeded by another person, the successor should be assessed as if they had carried on the business throughout the previous year and received the whole of the profits for that year.

The Court emphasized that the plain meaning of Section 26(2) is that the successor, not the predecessor, must be assessed if there has been a succession. This interpretation aligns with the precedent set in Bhogilal Hargovandas Patel v. Commissioner of Income Tax, Bombay, where it was held that Section 26(2) applies even if there were no profits in the previous year.

The Court rejected the reliance on the Calcutta High Court's decision in In re B. K. Paul & Co., distinguishing it on factual grounds. The Court concluded that Section 24 could only apply to the successor in cases falling under Section 26(2), thus denying the assessee the right to set off the loss.

Conclusion: The answer to whether the assessee can set off the loss under Section 24 is in the negative.

2. Carry Forward of Depreciation:
The second issue was whether the assessee could carry forward the depreciation for the financial year 1936-37 and previous years. The Court interpreted Section 10(2)(vi), proviso (b) of the Income Tax Act, concluding that the right to set off past depreciation exists only for the person who continues to derive profits from the business concerned.

The Court held that since the business (New Union Mills) had been assigned to another company, the assessee could not claim the depreciation. The right to claim depreciation is not personal and does not transfer with the business.

Conclusion: The answer to whether the assessee can carry forward the depreciation is in the negative.

Summary:
The Court held that the assessee, upon the assignment of New Union Mills to another company, could neither set off the loss incurred in the mills under Section 24 of the Income Tax Act nor carry forward the depreciation for the financial year 1936-37 and previous years. The Court emphasized the plain language of Section 26(2), which mandates that the successor, not the predecessor, must be assessed in cases of business succession, thereby denying the assessee the benefits claimed. The assessee was ordered to pay the costs of the reference.