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Issues Involved:
1. Whether the assessee company is entitled to set off the loss of Rs. 5,19,590 incurred in the year 1948-49 against the profits made in the assessment year 1950-51. 2. Whether the assessee company is entitled to carry forward the unabsorbed depreciation from the years 1948-49 and 1949-50 into the assessment year 1950-51. Detailed Analysis: Issue 1: Set-off of Losses The primary issue revolves around the assessee company's claim to set off a loss of Rs. 5,19,590 incurred in the year 1948-49 against the profits made in the assessment year 1950-51. The assessee company argued that under the Income-tax Act of 1950-51, it should be allowed to set off this loss, irrespective of the different tax laws that were applicable in 1948-49 when Indore was an Indian State with distinct tax provisions. The court examined section 24(1) of the Income-tax Act, which allows for the set-off of a loss under one head against profits under other heads, with a proviso that losses incurred in an Indian State cannot be set off against profits made outside that State. The court noted that in 1948-49, profits made in an Indian State were exempt from tax unless brought into British India, and thus losses from such profits could not be set off against other heads. Further, section 24(2) allows for the carry forward of unabsorbed losses for six years, provided these losses could initially be set off under section 24(1). Since the losses in question could not be set off under section 24(1) in 1948-49, they could not be carried forward under section 24(2) either. The court concluded that the condition precedent to applying section 24(2) is that the losses must be such that they could have been set off under section 24(1), which was not the case here. Therefore, the Tribunal's rejection of the assessee company's claim was upheld. The court also referred to clause 3 of the Removal of Difficulties Order, 1950, which allows for the set-off of losses if the State law permitted such a carry-forward. Since Indore's law did not permit the carry-forward of the loss, the assessee's claim did not fall under clause 3. The court concluded that the integration of Indian States did not grant a new right to carry forward losses that were not permissible under the original State law. Issue 2: Carry Forward of Unabsorbed Depreciation The second issue concerns whether the assessee company could carry forward unabsorbed depreciation from the years 1948-49 and 1949-50 into the assessment year 1950-51. The relevant provision is clause 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, which states that all depreciation allowed under any laws or rules of a Part B State shall be taken into account in computing the aggregate depreciation allowance and the written down value under section 10 of the Income-tax Act. The Department contended that this provision only applied to sub-clause (c) of the proviso to section 10(2)(vi) and not to sub-clause (b), which deals with the carry-forward of unabsorbed depreciation. The court disagreed, stating that the application of sub-clause (c) necessarily requires the consideration of sub-clause (b) to determine the aggregate depreciation. Therefore, the assessee was entitled to carry forward the unabsorbed depreciation. The court further supported its view by referring to the explanation to clause 2 of the Order, which clarifies that the expression "all depreciation actually allowed" includes depreciation carried forward under the laws or rules of a Part B State. Thus, the Tribunal's decision to allow the carry-forward of unabsorbed depreciation was upheld. Conclusion: The court answered the first question in the negative, denying the assessee company's claim to set off the loss of Rs. 5,19,590 against the profits of 1950-51. The second question was answered in the affirmative, allowing the carry-forward of unabsorbed depreciation from the years 1948-49 and 1949-50 into the assessment year 1950-51.
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