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Issues:
1. Whether depreciation on buildings and machinery can be set off against gains and profits accrued to the owner from other sources such as rental income? 2. Interpretation of sections 6, 10, and 24(1) of the Income-tax Act. Analysis: The case involved an assessee who had income from rent, oilman's stores business, and an ice factory business. The assessee claimed to set off losses from the ice factory against profits from rent. The Income-tax Officer allowed the set off for the oilman's stores but disallowed it for the ice factory, specifically the depreciation of buildings and machinery. The matter went through appeals, and the Commissioner held that depreciation could only be set off if there were actual profits from the specific business in question. The Commissioner referred the question to the High Court, seeking clarification on whether depreciation can be set off against gains from other sources. The interpretation of sections 6, 10, and 24(1) of the Income-tax Act was crucial. Section 6 outlines the heads of income chargeable to tax, and section 24(1) allows for the set off of losses under one head against income from another. Section 10 deals with computing profits under the business head. It was established that if an assessee runs multiple businesses, the profits or losses from all businesses are aggregated. Losses can be set off against profits from other sources in the same year. The contention arose regarding the treatment of depreciation allowances under section 10(2). The Government Advocate argued that depreciation allowances should only be considered if there are profits in the specific business. However, the Court disagreed, stating that the Act does not differentiate among various allowances. The Court emphasized that unless the statute explicitly states otherwise, depreciation allowances can be claimed regardless of profits in the particular business in that year. The Court analyzed proviso (b) to clause (vi) of section 10(2), which addresses situations where allowances cannot be fully utilized due to lack of profits. The Government Advocate's interpretation was rejected, and the Court held that the phrase "no profits or gains" refers to profits or gains generally, not limited to the specific business. Therefore, the Court ruled that depreciation on buildings and machinery can be set off against gains and profits from other sources, such as rental income. In conclusion, the Court answered the reference question affirmatively, allowing the set off of depreciation against gains from other sources. Each party was directed to bear their own costs for the proceedings. The judgment was delayed for consultation with a Full Bench decision from the Madras High Court, which was found to be irrelevant to the current case.
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