1941 (3) TMI 23 - HC - Income Tax

Summary

Issues Involved:
1. Assessment of income for the year of succession under Section 26(2) of the Indian Income-tax Act.
2. Computation of depreciation allowance on assets acquired from the Bengal Iron Company.
3. Entitlement to the benefit of unabsorbed depreciation allowance of the Bengal Iron Company.

Issue-wise Detailed Analysis:

1. Assessment of Income for the Year of Succession
The primary issue was whether the income of the business up to the date of succession should be assessed separately or as if it had been carried on by the successor throughout the year. The court concluded that the assessment made by the Assistant Appellate Commissioner was correct. The Indian Iron and Steel Company was assessed for the year of the transfer in two parts: (1) for the period from April 1, 1936, to December 2, 1936, in respect of the Bengal Iron Company's business, and (2) from December 3, 1936, to March 31, 1937, for the combined concerns. The assessment was made on the successor as if it had been carrying on the business throughout the previous year, and as if it had received the whole of the profits for that year.

2. Computation of Depreciation Allowance on Acquired Assets
The court examined whether the Indian Iron and Steel Company was entitled to compute the depreciation allowance on the original cost of the assets to the Bengal Iron Company. The court held that the depreciation allowances for the period since December 2, 1936, should be based on the cost of the plant, etc., to the Indian Iron and Steel Company. For the period from April 1, 1936, to December 2, 1936, the allowances were based on the original cost of such plant, etc., to the Bengal Iron Company. This follows from Section 26(2) of the Act and the decision in the case of Commissioner of Income-tax, Bombay v. The Mazagaon Dock Ltd. The court answered this question in the negative, indicating that the Indian Iron and Steel Company was not entitled to compute the depreciation allowance on the original cost of the assets to the Bengal Iron Company for the entire year.

3. Entitlement to Benefit of Unabsorbed Depreciation Allowance
The most significant issue was whether the Indian Iron and Steel Company was entitled to the benefit of the unabsorbed depreciation allowance of Rs. 85,45,150 of the Bengal Iron Company. The court held that the unabsorbed depreciation allowance is a statutory privilege personal to the assessee so long as he carries on his business. When he ceases to carry on his business, the permission to deduct ceases; it is not a right that passes to his successor under the Income-tax Act, nor is it a right that can be transferred by agreement. The court emphasized that the depreciation allowance is based on the cost of the assets to the assessee and is a deduction permitted against the profits he may make when carrying on his business. The court answered this question in the negative, indicating that the Indian Iron and Steel Company was not entitled to the benefit of the unabsorbed depreciation allowance of the Bengal Iron Company.

Conclusion:
The court upheld the assessment made by the Assistant Appellate Commissioner of Income-tax, concluding that the Indian Iron and Steel Company was not entitled to compute depreciation on the original cost of the assets to the Bengal Iron Company for the entire year and was not entitled to the benefit of the unabsorbed depreciation allowance of the Bengal Iron Company. The judgment emphasized the personal nature of the depreciation allowance and its non-transferability under the Indian Income-tax Act.