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TMI Blog1950 (5) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... as Laxmichand Jaiporia Spinning and Weaving Mills. In the previous year ended Kartik Vadi 14, 1998, relevant to the assessment year 1942-43, its income from property was computed at ₹ 2,897 and its income from other sources was computed at ₹ 360. Its income from the mills without providing for depreciation under Section 10(2)(vi) of the Indian Income- tax Act amounted to ₹ 8,228. The depreciation allowance permissible to the assessee for the year of account amounted to ₹ 23,990. The assessee has also to its credit unabsorbed balance of the depreciation allowance brought forward from the preceding year amounting to ₹ 27,012. According to the assessee its income should have been computed as follows:- Business profit: ₹ 8,228. Less: Depreciation (Rs. 23,990 depreciation on account of the year of account and ₹ 27,012 on account of the unabsorbed balance of depreciation allowance): ₹ 51,002. Total business loss: ₹ 42,774. The Income-tax Officer having allowed, under Section 24(1) of the Act, a set-off against the income from property and other sources amounting to ₹ 3,257 (2,897 plus 360), the net loss amounting to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocation. (v) Income from other sources. (vi) Capital gains. Under Section 10(2)(vi) the method of computing is given in respect of depreciation of buildings, machinery, plant, etc., and in proviso (b) to this section it is said:- Where full effect cannot be given to any such allowance in any year not being a year which ended prior to 1st day of April 1939, owing to there being no profits or gains chargeable for that year, or owing to the profits or gains chargeable being less than the allowance, then subject to the provisions of clause (b) of the proviso to sub-section (2) of Section 24, the allowance or part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following year and deemed to be part of that allowance, or if there is no such allowance for that year, be deemed to be the allowance for that year, and so on for succeeding years. There was some dispute as to whether the words subject to the provisions of clause (b) of the proviso to sub-section (2) of Section 24 were correct or the reference was to clause (a). On looking at the original Act XXIII of 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c. and what is to happen if full effect cannot be given in any one year to the allowance allowed under the head depreciation; losses in respect of any buildings sold, discarded or demolished; and several other heads which it is not necessary for me to enumerate, Section 12 defines other sources within clause (v) of Section 6. Section 16 gives the exemptions and exclusions in determining the total income and sub-section (1)(b) of this section says that the income of a partner of a firm shall be his total income plus the income or loss of the firm of which he is a partner. Section 22 deals with the return of income which may show a loss but if the return is one of profit, it is followed by assessment. Section 23 deals with assessment and sub-section (5)(a), proviso (1) says: Provided that if such share of any partner is a loss it shall be set off against his other income or carried forward and set off in accordance with the provisions of Section 24. Section 23 deals with assessment and Section 24 provides for set-off for all losses in computing correct income. It runs as follows:- Set-off of loss in computing aggregate income.-- (1) Where any assessee sustains a loss of profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit or income which he may have made in any manner whatsoever, and the second part of the second proviso allows this loss, in the case of a registered firm, where any loss cannot be so set off against the income of the firm to be apportioned between the partners of the firm who alone are entitled to have the amount of the loss set off under this section. The submission of the counsel for the Commissioner that sub- section (2) and proviso (b) of that sub-section have to be read in such a manner that depreciation should no longer be included in the words loss of profits occurring in that sub-section appears to me to be without any force. It is true that there can be provisos which can be destructive of the section itself. But this is not one of those provisos, because the object of this proviso is only to give preference to ordinary losses incurred by an assessee in regard to set-off over the loss which comes under clause (b) of the proviso to sub-section (2)(vi) of Section 10. In his speech in West Derby Union v. Metropolitan Life Assurance Society [1897] A.C. 647, at p. 652, Lord Waston said: But I am perfectly clear that if the language of the enacting part of the statute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presents his profits or gains under the head business. If the net result of this calculation shows a loss such loss may under Section 24 be set off against the profits or gains derived by the assessee from other heads of income in that year (per Tek Chand, J., at p. 458). Interpreting proviso (b) of clause (vi) of Section 10(2), the learned Judge said: Reading the proviso in its plain meaning and interpreting it according to well settled canons of construction of fiscal statutes, I have no hesitation in holding that the 'profits or gains' referred to above are profits or gains generally from whatsoever source derived and are not confined to profits or gains of the particular business alone in which the buildings and machinery were used. I have no doubt that the provision for carrying over the unabsorbed depreciation allowance to the succeeding years is not the exclusive remedy allowed to the assessee and cannot be interpreted as debarring him from claiming the benefit of the earlier part of the sub-section. A Full Bench of the Madras High Court in Suppan Chettiar Co. v. Commissioner of Income-tax, Madras [1930] I.L.R. 53 Mad. 702; 4 I.T.C. 211, held that where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eneral principles on which profits or gains of a business are computed are utilised to ascertain the result of the year's working and the calculation shows that there has been a loss, that is a loss of profits or gains. Now, clause (vi)(b) of Section 10(2) does not enunciate a general proposition regarding the calculation of the result of a year's business. It is applicable only when there is in reality no profits or gains, and it is not used for calculation of loss. The general principle is that the diminution of value of buildings, machinery, plant and furniture should be taken into account in calculating the result of the year's working ; for the sake of convenience a certain percentage of the original cost is taken to represent the diminution in value during the year. Dealing with another aspect of proviso (b) in regard to depreciation the learned Judges said:-- Even if there is no profit in the business I consider that effect can be given to the allowance, if the assessee (or where the assessee is a firm, all the individuals who constitute the firm) can benefit by that allowance by virtue of the provisions of Section 24. A perusal of these authorities and a ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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