1965 (9) TMI 11 - HC - Income Tax

Whether the unabsorbed depreciation of the past years should be added to the depreciation of the current year and the aggregate should be set off only against the business income of the assessment year 1960-61 or the income from all other sources - Held , no

Issues Involved
1. Whether the unabsorbed depreciation of past years should be added to the depreciation of the current year and set off only against the business income of the assessment year 1960-61 or the income from all other sources.

Detailed Analysis

Issue 1: Set-Off of Unabsorbed Depreciation
Background:
The assessee, a private limited company, filed a return admitting income under property and business heads. It sought to deduct part of the unabsorbed depreciation from the property income, which the Income-tax Officer and the Appellate Assistant Commissioner disallowed. The Tribunal, however, allowed the set-off against all heads of income. The question referred was whether unabsorbed depreciation should be set off only against business income or all sources of income.

Revenue's Contention:
The revenue argued that unabsorbed depreciation carried forward under proviso (b) to section 10(2)(vi) should only be deducted from business profits and not from other heads of income. They relied on the language of the proviso and section 24(2)(b).

Assessee's Contention:
The assessee contended that the proviso to section 10(2)(vi) does not restrict the set-off of unabsorbed depreciation to business income alone and should be allowed against income from all heads under section 24.

Court's Analysis:
The court examined the scheme of the Income-tax Act, specifically sections 3, 4, 6, 10, and 24. It noted that the total income is the aggregate of income under various heads, and allowances under section 10(2) are to be deducted to compute business income. Depreciation under section 10(2)(vi) is treated similarly to other allowances.

Proviso Interpretation:
The court found no indication in proviso (b) to section 10(2)(vi) that unabsorbed depreciation should be treated differently from current year depreciation. The proviso's purpose is to add unabsorbed depreciation to the following year's depreciation and treat it as part of that year's allowance. This treatment aligns with section 24, which allows set-off of losses against other heads of income.

Precedents and Supporting Judgments:
The court referred to several judgments supporting the view that unabsorbed depreciation can be set off against other heads of income:
- Suppan Chettiar & Co. v. Commissioner of Income-tax: Held that unabsorbed depreciation could be set off against profits from other businesses.
- Ambika Silk Mills Co. Ltd. v. Commissioner of Income-tax: Confirmed that unabsorbed depreciation could be set off against capital gains.
- Lakshmichand Jaiporia Spinning & Weaving Mills, In re: Supported the set-off of unabsorbed depreciation against other heads of income.
- Jaipuria China Clay Mines (Private) Ltd. v. Commissioner of Income-tax: Allowed unabsorbed depreciation to be set off against total income.
- Commissioner of Income-tax v. Girdharlal Harivallabhadas Mills Co. Ltd.: Unabsorbed depreciation could be set off against income from other heads.

Dissenting View:
The court noted a dissenting view in Commissioner of Income-tax v. Nagi Reddy, where it was held that unabsorbed depreciation could not be treated as a loss under section 24. However, the court disagreed with this view, adhering to the precedent set by Suppan Chettiar & Co.

Conclusion:
The court concluded that unabsorbed depreciation from past years should be added to the current year's depreciation and set off against income from all heads, not just business income.

Judgment:
The question was answered in favor of the assessee, allowing the set-off of unabsorbed depreciation against all sources of income.

Costs:
The assessee was awarded costs, with counsel's fee set at Rs. 250.

Final Answer:
Question answered in favor of the assessee.

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