1979 (1) TMI 53 - HC - Income Tax

Summary

Issues Involved:
1. Set-off of unabsorbed depreciation.
2. Interpretation of relevant sections of the I.T. Act, 1961.

Summary:

Issue 1: Set-off of unabsorbed depreciation

The primary issue was whether the unabsorbed depreciation of Rs. 3,60,000 for the year 1970-71 should be set off against the income of the assessee, a registered firm, in the year 1971-72. The Income Tax Officer (ITO) computed the total income for 1971-72 at Rs. 3,73,730 but did not allow the set-off of the unabsorbed depreciation from the previous year. The Appellate Assistant Commissioner (AAC) upheld this decision, relying on s. 75(2) of the I.T. Act, 1961. However, the Tribunal allowed the appeal of the assessee, relying on the decision of the Bombay High Court in Ballarpur Collieries Co. v. CIT [1973] 92 ITR 219, and directed the set-off of the unabsorbed depreciation.

Issue 2: Interpretation of relevant sections of the I.T. Act, 1961

The court examined the provisions of s. 182, s. 32(2), s. 72, and s. 75 of the I.T. Act, 1961. Section 182 deals with the assessment of registered firms, and s. 32(2) provides for the carry forward of unabsorbed depreciation. Section 72(2) prioritizes the set-off of business losses over unabsorbed depreciation, which can be carried forward without a time limit. Section 75 specifies that losses of a registered firm should be apportioned among the partners.

The court concluded that unabsorbed depreciation retains its identity even when allocated among partners and should be set off against future income. The court disagreed with the revenue's contention that once allocated, unabsorbed depreciation ceases to be eligible for set-off under s. 32(2). The court also referred to various judgments, including Ballarpur Collieries Co. v. CIT, K. T. Wire Products v. Union of India, and CIT v. Jaipuria China Clay Mines (P.) Ltd., to support its interpretation.

Conclusion:

The court held that the unabsorbed depreciation to the extent remaining unadjusted in the hands of the partners for 1970-71 should be set off against the income of the assessee-firm in the year 1971-72. The Tribunal was directed to investigate how much of the Rs. 3,60,000 remains unadjusted against the other income in the hands of the partners. There was no order as to costs.