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TMI Blog1965 (9) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... s loss and unabsorbed depreciation amounting to Rs. 2,12,903 and Rs. 1,77,906 respectively. The assessee sought to deduct part of the unabsorbed depreciation under the head of business from the profits referable to property for the accounting year. This the Income-tax Officer declined to allow and with him the Appellate Assistant Commissioner of Income-tax concurred. This is upon the view they took of the scope of proviso (b) to section 10(2)(vi) and proviso (b) to section 24(2). They thought that the deeming of brought-forward depreciation as depreciation of the year had to be done only after set off of brought-forward losses of prior years. On a further appeal by the assessee, the Tribunal disagreed with that view and was of opinion that depreciation carried forward should be allowed against the income from all heads. The Tribunal, however, at the instance of the revenue, has under section 66(1) of the Indian Income-tax Act referred to us the following question for decision : " 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 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s sub-section most of which are in the nature of expenditure in connection with the business or properties or other things used in the business or for the purpose of it, like rent paid for premises, expenditure in connection with repairs, interest paid on loans, depreciation of buildings, plant or furniture used for the purpose of the business, profession or vocation. Clause (vi) of sub-section (2) of section 10 relates to depreciation of buildings, machinery, plant or furniture. It has three provisos of which proviso (b), which comes in for construction, reads : " 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 in any year not being a year which ended prior to the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rniture under clause (vi) stands on the same footing and is of the same nature as the rest of the allowances permitted by sub-section (2) of section 10. This is also reflected in sub-section (1) of section 24 which allows depreciation under clause (vi) to be deducted like the other allowances in that sub-section from the profits or gains under the other heads under section 6. Does the proviso make any difference to this position ? Mr. Balasubrahmanyan for the revenue contends, and forcibly, that it does. He relies on the language employed by the proviso and submits that it is only consistent with the view that when once the profits under the head of business are insufficient to absorb the depreciation, the unabsorbed depreciation which is to be added to the amount of the allowance for depreciation for the following year and deemed part of depreciation for the following year cannot be treated as a business loss. But for the proviso, according to him, the position would be different. For, then the depreciation under clause (vi) will be indistinguishable in the context from the allowance contemplated by the rest of the provisions of sub-section (2) of section 10. Where there is unabso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciation of any particular year to the depreciation for the following year, it does not think of other heads of income, profits or gains. The proviso does not say that it is not concerned with the question that such unabsorbed depreciation in any particular year under the head of business cannot or should not be set off against income, profits or gains under other heads of income. A proviso cannot be read as withdrawing the very substance of the main provision or of a substantive provision. The main provision, which is clause (vi) in sub-section (2) of section 10, allows deduction of depreciation. Proviso (b), as we read it, does not say anything to the contrary, but only directs that, if there is any depreciation left unabsorbed by the " profits or gains chargeable for that year ", the direction in respect of the addition and the deeming in respect of it should take effect. Those words " profits or gains chargeable for the year " obviously are confined to the profits or gains chargeable for that year under the head of business. The words " full effect cannot be given " in the proviso should be understood in that context. We are also of the view that there is nothing in proviso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hink, therefore, that upon the terms of the section an assessee is precluded from adding the whole charge for depreciation to his other business charges, even though the result is to show a loss, and then claiming under section 24 to set off the loss against profit from other sources. Nor have we been shown that there is anything in the nature of this allowance for depreciation to render such a course inadmissible. " We are aware that as the proviso stood then, it did not say that the adding of the unabsorbed depreciation was subject to section 24(2), proviso (b). But this can make, in our opinion, no difference to the construction of the proviso. Mr. Balasubrahmanyan for the revenue contends that on facts this was not a case of actual set off of unabsorbed depreciation of any particular year being added to the depreciation for the following year and the same treated as part of it and allowed set off against other heads of profits, gains or income. That is perfectly true. But the learned judges in that case were concerned with the construction of the proviso and the question they answered was whether or not unabsorbed depreciation under the head of business could be treated as lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f that particular business and that set-off would be permissible to the assessee for a period of six years only. After six years the right to set-off would come to an end. But in the case of depreciation and to the extent that the loss was caused by depreciation being not fully absorbed there would be no limit to the carrying forward of that depreciation and that depreciation can be set off at any time so long as the business showed a profit in the future. Any difficulties of construction apart, the scheme that we are suggesting is a consistent scheme which fits in with the other provisions of the Act." The High Courts of Punjab, Calcutta and Gujarat have taken much the same view in Lakshmichand Jaiporia Spinning Weaving Mills, In re, in Jaipuria China Clay Mines (Private) Ltd. v. Commissioner of Income-tax and in Commissioner of Income-tax v. Girdharlal Harivallabhadas Mills Co. Ltd. The Punjab High Court pointed out that the object of proviso (b) to sub-section (2) of section 24 was merely to give preference to ordinary losses incurred by an assessee in regard to set-off over the loss which comes under clause (b) of section 10(2)(vi) and that the proviso in section 10(2)(vi) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax and expressed itself in the same manner as the Gujarat High Court. But in Commissioner of Income-tax v. Nagi Reddy Jagadisan and Srinivasan JJ. dissented from Ambika Silk Mills Co. Ltd. v. Commissioner of Income-tax. The learned judges were of the view that the deemed depreciation under proviso (b) to section 10(2)(vi) could not be regarded as a loss to which section 24 could be applied. With respect, we are not able to share their view. In fact, we feel that we are bound by the view taken by the three learned judges of this court in Suppan Chettiar and Co. v. Commissioner of Income-tax. As we said, the precise question as to whether the deemed depreciation under the proviso could be regarded as a loss was answered by the three learned judges in the affirmative. We do not think that this view expressed by them in that case was merely an obiter, but formed the basis for their decision. In view of this, we think that no useful purpose will be served by referring the matter to a Full Bench as Suppan Chettiar and Co. v. Commissioner of Income-tax will also be binding on such a Full Bench. If we may say so with respect, the weight of authority in the High Court is all in fa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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