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Issues involved: Interpretation of tax laws regarding set off of unabsorbed depreciation and development rebate in the assessment year.
Summary: The High Court of Madras delivered a judgment in response to a reference under section 256(1) of the Income Tax Act regarding the set off of unabsorbed depreciation and development rebate. The case involved a registered firm with 12 partners, where the firm showed a loss in the assessment year 1970-71. The Income Tax Officer disallowed the adjustment of the firm's loss against its income, leading to subsequent appeals by the assessee. The Tribunal allowed the set off of unabsorbed depreciation and development rebate against the firm's income, which was the subject of the reference. Regarding unabsorbed depreciation, the Tribunal's decision was supported by previous judgments indicating that unabsorbed depreciation should be apportioned among partners and adjusted against other income. If partners' income is insufficient to absorb depreciation, the unabsorbed amount should be brought back into the firm's assessment, as per section 32(2) of the Act. The Tribunal correctly directed the set off of unabsorbed depreciation in the present case against the firm's profits due to partners having no other income for adjustment. In contrast, the treatment of development rebate differs from depreciation. Section 33(2) specifies that development rebate should reduce total income to nil without partner apportionment, unlike depreciation provisions. The Tribunal's decision to set off development rebate against the firm's profits aligns with the statutory language of section 33(2), which focuses on firm-level considerations. The Court upheld the Tribunal's decision on development rebate set off, emphasizing the conditional nature of development rebate and its distinct treatment from depreciation. The Court rejected arguments equating depreciation and development rebate treatment, highlighting the specific conditions and purposes of development rebate under section 33(2). The judgment affirmed the Tribunal's actions regarding the set off of development rebate against the firm's profits, without delving into priority issues. The question posed in the reference was answered affirmatively in favor of the assessee, who was awarded costs and counsel's fee. Judges: V. Balasubramanyam, V. Sethuraman
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