1967 (1) TMI 11 - HC - Income Tax

Whether the first respondent was correct in his view that depreciation was allowable under section 24(2) - Held, no - petition is allowed - order of the first respondent is set aside

Summary

Issues:
1. Validity of the order considering the return null and void.
2. Interpretation of provisions regarding carrying forward of depreciation allowance.
3. Application of Section 22(2A) in relation to carrying forward losses.
4. Treatment of the return under Section 22(3).

Detailed Analysis:
1. The petitioner, a company, filed a return for the assessment year 1957-58 showing a loss due to claimed depreciation and development rebate. The first respondent considered the return null and void, citing it was not filed within the assessment year and invoking Section 22(2A) of the Income-tax Act, 1922. The petitioner sought to quash the order and requested set off of prior year losses. The court found the first respondent's view unsustainable, stating that the return was valid under Section 22(3) as it was filed voluntarily in response to a notice and within the prescribed timeframe. The court held that the first respondent's reliance on Section 22(2A) was misplaced, and the return was not null and void.

2. The court examined the issue of carrying forward depreciation allowance and distinguished it from the provisions of Section 24(2). It referenced previous judgments to establish that the set-off of unabsorbed depreciation is governed by Section 10(2)(vi) and not Section 24(2). The court clarified that Section 24(2) pertains to losses other than those due to depreciation and does not encompass the carry forward of depreciation. Therefore, the first respondent's belief that depreciation fell under Section 24(2) was deemed incorrect.

3. Regarding the application of Section 22(2A), the court outlined the conditions that must be met for its invocation, including the requirement that the loss would ordinarily be carried forward under Section 24(2). Since depreciation was not covered by Section 24(2), compliance with Section 22(2A) was not necessary for the set-off of carried-forward unabsorbed depreciation. The court emphasized that the first respondent's decision was flawed in linking the depreciation allowance to Section 24(2) and upheld the petitioner's argument in this regard.

4. The court addressed the treatment of the return under Section 22(3) and rejected the revenue's argument that the return was invalid. It cited precedents to support the view that a return filed voluntarily in response to a notice, even if showing income below the taxable limit, is valid and cannot be disregarded. The court emphasized that the first respondent had the jurisdiction to handle the return lawfully and declined to speculate on his future actions. Ultimately, the court allowed the petition, set aside the first respondent's order, and granted costs to the petitioner.