1980 (3) TMI 34 - HC - Income Tax

Summary

Issues Involved:
1. Set off of unabsorbed depreciation.
2. Assessment of forfeited security deposits as trading receipts.

Summary:

Issue 1: Set off of unabsorbed depreciation

The first question referred to the High Court consists of two parts: the unabsorbed depreciation carried forward from preceding assessment years and the depreciation claimed in the assessment year 1966-67.

- Depreciation for the assessment year 1966-67: The assessee's claim for depreciation of Rs. 13,427 was disallowed as the assets were not used for business purposes during the relevant year. The Tribunal's decision was upheld, and the learned counsel for the assessee conceded this point.

- Unabsorbed depreciation from previous years: The Tribunal held that unabsorbed depreciation could not be set off as the business was not carried on, and the assets were sold in the preceding year. However, the High Court disagreed, citing s. 32(2) of the I.T. Act, which allows unabsorbed depreciation to be added to the depreciation allowance for the following year without requiring the business to continue. The High Court referred to various precedents, including CIT v. Warangal Industries P. Ltd. [1977] 110 ITR 756 (AP), and concluded that unabsorbed depreciation could be set off against any income in subsequent years. Thus, the first part of the first question was answered in favor of the assessee.

Issue 2: Assessment of forfeited security deposits as trading receipts

The second question was whether the security deposits forfeited in the year of account could be assessed as trading receipts. The learned counsel for the assessee chose not to press for a decision on this question, given the favorable outcome of the first issue. Therefore, the High Court did not provide an opinion on this matter.

Conclusion: The High Court ruled in favor of the assessee on the issue of unabsorbed depreciation, allowing it to be set off against any income in subsequent years. The second issue regarding forfeited security deposits was not addressed as it was not pressed by the assessee. There was no order as to costs.