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TMI Blog1995 (10) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the previous year relevant to the assessment year 1956-57. The business was stopped in that year whereafter the factory was let out on hire. Ten years later, i.e., in the previous year relevant to the assessment year 1965-66, the assessee started the business of manufacture of steel pipes. For the purpose of this business, a part of the old machinery used in the manufacture of soap and oil was utilised. In the assessment proceedings relating to the assessment year 1956-57, depreciation under section 32(1)(ii) was found to be more than the profits and gains of the assessee for that assessment year. In the assessment proceedings relating to the assessment year 1965-66, the assessee claimed that the unabsorbed depreciation, to the extent it pertained to the old machinery utilised in the new business, should be brought forward and set off against the profits of the new business. This claim was rejected by the Income-tax Officer and by the Appellate Assistant Commissioner on the ground that such a set-off is permissible only where the business carried on in the subsequent assessment year is the same business which was carried on in the earlier assessment year. The Income-tax Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceeding year. Similarly, there is no limitation that the unabsorbed depreciation can be carried forward only for eight years. In view of the above understanding of section 32(2), the High Court held that the assessee was entitled to set off the unabsorbed depreciation allowance relating to the assessment year 1956-57 against the income of the assessment year 1965-66. The High Court disagreed with the view taken by the Bombay High Court in Sahu Rubbers Private Limited v. CIT [1963] 48 ITR 464. It was of the opinion that the view taken by it is supported by the decision of this court in CIT v. Jaipuria China Clay Mines (P.) Ltd [1966] 59 ITR 555. While it is not necessary to state the facts in Civil Appeal No. 2849 of 1977, it is sufficient to state that in this decision, the Bombay High Court followed the decision of the Allahabad High Court in CIT v. Virmani Industries (P.) Ltd. [1974] 97 ITR 461. It distinguished its earlier decision in Sahu Rubbers Private Limited's case [1963] 48 ITR 464 (Bom) as one rendered with reference to the proviso to section 10(2)(vi) of the Indian Income-tax Act, 1922. The court held that though the said proviso corresponds to section 32(2) of the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dation in 1952, administered through the provisions made in the Annual Finance Acts. The Finance Act of 1918, read with some changes made in 1925, dealt with this specific provision. This provision (which appeared later as section 323(2) of the U. K. Income Tax Act, 1952) was as follows : " Where full effect cannot be given to any such allowance as aforesaid in any year 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, the allowance or part of the allowance to which effect has not been given, as the case may be, shall, for the purpose of making the assessment for the following year, be added to the amount of such allowances as aforesaid for that year, and be deemed to be part of those allowances, or, if there are no such allowances for that year, be deemed to be the allowances for that year, and so on for succeeding years. " This provision was adopted almost verbatim in the Indian Income-tax Act, 1922. As in the U. K. Act, the Indian Act also did not place any limit regarding the number of years up to which unabsorbed depreciation could be claimed for set off. In 1936, an Income-tax Inqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for the purposes of the business or profession. The rates of depreciation vary. Sub-section (2) of section 32, as it stood at the relevant time, read thus : " 32. (2) Where, in the assessment of the assessee (or, if the assessee is a registered firm or an unregistered firm assessed as a registered firm, in the assessment of its partners), full effect cannot be given to any allowance under clause (i) or clause (ii) or clause (iv) or clause (v) of sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub section (2) of section 72 and sub-section (3) of section 73, 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 previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years. " (emphasis added). Section 57 provides for deductions out of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... note of the opening words of the sub-section, viz., " where, in the assessment of the assessee or if the assessee is a registered firm, in the assessment of its partners, full effect cannot be given to any such allowance. . . ." and held on that basis that the expression " profits or gains chargeable " in the said sub-section is not confined to profits and gains from business or profession but takes within its ambit all heads of income. This court was of the opinion that while amending section 10(2)(vi) of the Indian Income-tax Act, 1922, by the Amendment Act 25 of 1953, Parliament has accepted the interpretation placed upon the said expression by several High Courts to the above effect. It referred to the decisions of the Lahore High Court in Karam Ilahi Muhammad Shafi v. CIT [1929] 3 ITC 456, the Madras High Court in A. Suppan Chettiar and Co. v. CIT [1929] 4 ITC 211, the East Punjab High Court in Laxmichand Jaiporia Spg. and Wvg. Mills, In re, [1950] 18 ITR 919 and the Bombay High Court in Ambika Silk Mills Co. Ltd. v. CIT [1952] 22 ITR 58 besides the judgment of the Judicial Commissioner, Nagpur, in Ballarpur Collieries v. CIT [1929] 4 ITC 255 (Nag), interpreting the said expr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto account only if, and to the extent to which, it is not absorbed by the total income of the assessee computed under different heads and chargeable to tax for those assessment years. The court observed (at page 785) : " Now, it is well-settled, as a result of the decision of this court in CIT v. Jaipuria China Clay Mines (P.) Ltd. [1966] 59 ITR 555 (SC), that the words ' no profits or gains chargeable for that year ' are not confined to profits and gains derived from the business whose income is being computed under section 10, but they refer to the totality of the profits or gains computed under the various heads and chargeable to tax. " and added (at page 785) : " It is, therefore, clear that effect must be given to depreciation allowance first against the profits or gains of the particular business whose income is being computed under section 10 and if the profits of that business are not sufficient to absorb the depreciation allowance, the allowance to the extent to which it is not absorbed would be set off against the profits of any other business and if a part of the depreciation allowance still remains unabsorbed, it would be liable to be set off against the profits or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such allowance for that previous year, be deemed to be the allowance for the previous year " occurring in the sub-section. Yet another question which has to be answered before we can answer the question concerned in this appeal is whether it is necessary that in the following year the assessee must carry on business, i.e., some or other business, to avail of the benefit of the said sub-section ? Two views are possible in this behalf, viz., (1) since the sub-section speaks of unabsorbed depreciation being carried forward to the next year and " added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance " the sub-section necessarily contemplates existence of a business in the following year, and (2) inas much as the sub-section not only speaks of adding the unabsorbed depreciation to the depreciation allowance allowed in the following year but also says that in the absence of such allowance, the carried forward depreciation allowance shall be the allowance for that year, it means that in the following year the assessee need not carry on any business or pro fession for availing of the benefit of sub-section (2) of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n allowance so carried forward, it had to be carried forward to the next following year and so on. Only if some depreciation allowance still remained to be absorbed, it could have been set off against the total income for the assessment year 1965-66. It is true that the question which was referred to the Tribunal under section 256(1) of the Income-tax Act merely raises the question whether the unabsorbed depreciation pertaining to the assessment year 1956-57 can be carried forward and set off against the income of the accounting year relevant to the assessment year 1965-66, yet we thought it necessary to clarify the true position of law. We answer the aforesaid question in the following words : If after setting off the unabsorbed depreciation allowance relating to the assessment year 1956-57 against the income for the following assessment years, any depreciation allowance still remained unabsorbed it could have been set off against the income for the accounting period relevant to the assessment year 1965-66. In the light of the views expressed by us hereinabove, it is not necessary to go into the question raised by Dr. Gauri Shankar, learned counsel for the Revenue, with respect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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