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TMI Blog1968 (12) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... carries on the business of manufacturing sugar. Under an agreement dated May 10, 1933, between the assessee and Rampur State, the income of the assessee was exempted from income-tax for a period of 15 years expiring on December 17, 1948. Under an agreement dated December 14, 1934 the erstwhile State of Rampur had agreed to grant to a separate concern to be constituted by the assessee and the Buland Sugar Company Ltd., leases of agricultural lands with adequate irrigation facilities and suitable for the cultivation of sugarcane as may be required by such separate concern. In order to take advantage of the said agreement, the assessee and the Buland Sugar Company entered into a partnership agreement dated May 5, 1935, to establish a separate concern called the agricultural company. Clause 5 of the partnership agreement dated May 5, 1935, provided that the direction and control of the agricultural company is vested in a committee consisting of two nominees of each partner, subject to the policy and directions of the two partners. Clause 8 of the aforesaid agreement required both the partners to contribute the working funds in equal shares and further provided that " the expenses as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the powers conferred by section 6 of the 1949 Act issue the Taxtion Laws (Merged States) (Removal of Difficulties) Order, 1962 (hereinafter referred to as " the 1962 Order "), and added the following Explanation after the proviso to paragraph 2 of the 1949 Order : "Explanation:-For the purpose of this paragraph, the expression ' all depreciation actually allowed under any laws or rules of a merged State means and shall be deemed always to have meant- (a) the aggregate allowance for depreciation taken into account in computing the written down value under any laws or rules in force in a merged State or carried forward under the said laws or rules, and (b) in cases where income had been exempted from tax under any laws or rules in force in a merged State or under any agreement with a Ruler, the depreciation that would have been allowed had the income not been so exempted. " The assessee was for the first time assessed under the Act for the assessment year 1949-50. The Income-tax Officer by his letter dated August 23, 1950, informed the assessee : " The dividends declared out of these profits will be taxable but the Government of India have decided that the profits of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % of the depreciation for the first shift. " The Tribunal rejected all the three submissions and dismissed the assessee's appeal. On the basis of the facts mentioned above, it has referred to us the following questions of law for our opinion : " (1) Whether, on the facts and in the circumstances of the case, we rightly held that the written down value of the sugar factory, and the plant and machinery of the dairy farm, for the purpose of the depreciation allowance was their respective original cost minus the depreciation which but for the exemption granted to the company by the then Rampur State would have been allowed to it under the Rampur Income-tax Act ? (2) Whether, on the facts and in the circumstances of the case, we rightly held that the assessee-company was not entitled to set off its share of loss in the agricultural company in the respective years against its income? (3) Whether the assessee-company is entitled to exactly 50% of the full normal depreciation as depreciation for the second shift of its sugar factory, as the factory is a seasonal one and as it worked for two shifts for the full season? " We proceed to answer the three questions seriatim. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e no assessment of income-tax was made on the assessee till the end of 1948, because of the exemption granted by the Government of the erstwhile State of Rampur. The first time that the assessee was assessed was for the year 1949-50. Even with regard to this year the Income-tax Officer " presumably acting under the instructions of the Government of India " informed the assessee by means of the letter dated August 4, 1950, the contents of which we have already reproduced above that no tax shall be levied on profits accruing up to 17th of December, 1948. Inasmuch as there was no assessment made before the year 1949-50, either under the Act or under the Rampur Income-tax laws, there could be no question of any depreciation being actually allowed to the assessee-company either by the erstwhile State of Rampur or by the Government of India. We are, therefore, of the opinion that for any period before the 17th of December, 1948, the assessee cannot be held to have been allowed any depreciation with the result that the written down value of the sugar factory and the plant and the machinery of the dairy farm on 17th of December, 1948, should be considered to be the actual cost incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is an unregistered firm and in the case of which the provisions of clause (b) of sub-section (5) of section 23 of the Act have not been resorted to, i.e., where the total income of each partner of the firm, including therein his share of its income, profits and gains of the previous year has not been determined and assessment made on the partners accordingly, any loss sustained by the firm shall be set off only against the income, profits and gains of the firm and not against the income, profits and gains of the partners or any of the partners of the firm. In the present case, the agricultural company was assessed as an unregistered firm. Its partners were not assessed separately as provided by section 23(5)(b) of the Act. The assessee, the Buland Sugar Co., and the agricultural company accepted the assessment on the unregistered firm and filed no appeal. That being the position, the second proviso to section 24(1) is clearly attracted to the instant case and for that reason the assessee-company is not entitled to have the amount of the loss sustained by the agricultural company set off against its (assessee's) income. Mr. Jagdish Swarup has relied upon the following cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 24(l), second proviso, the losses of the unregistered firm of Damji and these four partners can only be set off against the income, profits and gains of the unregistered firm, and not those of its partners. " We would, therefore, answer the second question in the affirmative, in favour of the department and against the assessee. The assessee is a seasonal factory, that is, that it does not work for the entire year, but only during the cold weather when sugarcane is available for crushing and for manufacturing sugar. The assessee ran second shift also. Its case is that during the operational season in the years under assessment it is entitled to 50% over the normal depreciation, that is normal depreciation for the first shift and the extra 50% for the second shift. Rule 8 of the Rules framer under the Act reads : " 8 .... the allowance under section 10(2)(vi) of the Act in respect of depreciation of buildings, machinery, plant or furniture shall be at percentage of the written down value or original cost, as the case may be, equal to one-twelfth the number shown in the corresponding entry in the second column of the following statement : Provided that if the buildin ..... 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