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Issues Involved:
1. Entitlement to allowance of depreciation and set-off of unabsorbed depreciation. 2. Classification of income from letting out properties. 3. Entitlement to deduction of depreciation and set-off of unabsorbed depreciation if not carrying on business. 4. Entitlement to deduction of expenses referable to holding of assets. Summary: Issue 1: Entitlement to Allowance of Depreciation and Set-off of Unabsorbed Depreciation The court examined whether the assessee was entitled to the allowance of depreciation and set-off of unabsorbed depreciation carried forward, on the footing that it was carrying on business. The Tribunal found that the assessee had ceased to carry on its business in the relevant years and had dismantled its machinery, leasing out the premises. The court upheld this finding, stating that the company had stopped its business of manufacturing chemicals due to financial stringency and had diverted its efforts to developing its Mahim property for rental income. Consequently, the court answered this question in the negative, denying the allowance of depreciation and set-off of unabsorbed depreciation. Issue 2: Classification of Income from Letting Out Properties The court considered whether the income from letting out properties was assessable as income from property or as income under business or other sources. The Tribunal had determined that the properties leased out had ceased to be assets of the business and that the income from these properties was chargeable under the head "Income from property." The court agreed, noting that the company had intended to treat the letting out of buildings as a separate and new business. Therefore, the court held that the income was assessable as income from property. Issue 3: Entitlement to Deduction of Depreciation and Set-off of Unabsorbed Depreciation if Not Carrying on Business Given the court's finding that the company had ceased to carry on business, it answered this question in the negative. The court confirmed that the company was not entitled to the deduction of depreciation and set-off of unabsorbed depreciation carried forward from the income of the material year. Issue 4: Entitlement to Deduction of Expenses Referable to Holding of Assets The court addressed whether the assessee was entitled to deduction of expenses shown in annexure 'D' which could be held to be referable to the holding of the assets. The Tribunal had allowed the deduction of such expenses, reasoning that the expenditure incurred by the assessee was referable to holding on to the assets, even if no income was earned from them. The court upheld this view, citing the decision in Ormerods (India) P. Ltd. v. CIT and its approval by the Supreme Court in CIT v. Rajendra Prasad Moody. Thus, the court answered this question in the affirmative, in favor of the assessee. Conclusion: - Question 1: In the negative and against the assessee. - Question 2: Income from letting out of property was assessable as income from property. - Question 3: In the negative and against the assessee. - Question 4: In the affirmative and in favor of the assessee. The assessee was ordered to pay the costs of the reference.
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