9911796707
TMI Blog1990 (12) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... ll Poonamchand, and the balance depreciation of Rs. 2,58,594 was carried forward under section 32(2) read with section 72(2) of the Income-tax Act for the assessment year 1982-83. The assessee claimed carry forward and set off of unabsorbed depreciation during the year under appeal. The Income-tax Officer did not allow the claim of the assessee on the ground that Shree Mahadeo Jute Mills Co. did not carry on any business during the year under appeal. Being dissatisfied, the assessee went in appeal to the Commissioner of Income-tax (Appeals) who allowed the claim of the assessee. The Tribunal, following the decision of this court in the case of CIT v. Kishanlal and Sons (Udyog) Pvt. Ltd. [1985] 154 ITR 735, upheld the findings of the Commissioner of Income-tax (Appeals). At the hearing before us, Mr. Sunil Mitra, learned advocate for the Revenue; argued that the decision of this court requires reconsideration in view of the decisions rendered by the Bombay and Madras High Courts on an identical question. We have not been able to persuade ourselves to accept this contention of Mr. Mitra. In CIT v. Kishanlal and Sons (Udyog) Pvt. Ltd. [1985] 154 ITR 735, the question was wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave the effect of dispensing with the substantive condition in section 32(1) prescribed as a condition for deductibility, namely, that the building, machinery, plant and furniture in respect of the unabsorbed depreciation allowance are used for the purposes of the business or profession. In coming to the said conclusion, the Madras High Court relied, inter alia, on the decision of the Bombay High Court in Hindustan Chemical Works Ltd. [1980] 124 ITR 561 and the decisions in CIT v. Dutt's Trust [1942] 10 ITR 477 (Mad) and Sahu Rubbers (P.) Ltd. v. CIT [1963] 48 ITR 464 (Bom) were followed. Although the Madras High Court in East Asiatic Co. (India) P. Ltd. [1986] 161 ITR 135 referred to the decision of the Bombay High Court in Estate and Finance Ltd. [1978] 111 ITR 119, the said decision was not followed for the reasons given by the Madras High Court as follows (at page 147): "The question as to whether the proviso was a substantive provision of law or not made no difference to the view expressed by the Division Bench that the decision in Dutt's Trust's case [1942] 10 ITR 477 (Mad) laid down the correct law. In Sahu Rubbers Pvt. Ltd.'s case [1963] 48 ITR 464 (Bom), the Division B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limited to make the unabsorbed carried forward depreciation partake of the same character as current depreciation in the following year so that it is available unlike unabsorbed carried forward business loss for being set off against the other income of that year. This view taken in the context of proviso (b) to section 10(2)(vi) of the 1922 Act would also govern the scope of the fiction in section 32(2) of the 1961 Act and with this decision of the Supreme Court, it would be difficult to carry the fiction beyond what according to the Supreme Court was the limit to which such fiction can be carried. Therefore, with great respect to the learned judges who delivered the decision in Estate and Finance Ltd.'s case [1978] 111 ITR 119 (Bom), we are reluctant to follow that decision and we are inclined to follow the decision in Sahu Rubbers (P) Ltd.'s case [1963] 48 ITR 464 (Bom), which in our view, was rightly followed by this court in Tube Suppliers Ltd.'s case [1985] 152 ITR 694 (Mad). There are two other decisions which have been referred to us by learned counsel for the assessee. Those decisions are : CIT v. Virmani Industries (P) Ltd. [1974] 97 ITR 461 (All) and CIT v. Kishanlal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on only exists in the person who continues to derive profits in respect of the business concerned. A similar conclusion was also reached by Kania J. who delivered a separate but concurring judgment; according to him, on this question the answer was as stated by Beaumont C. J., and that the right to claim depreciation could not be regarded as a personal right of the party who had parted with the ownership of the property in respect of which depreciation is to be assumed. Undoubtedly, these conclusions have been arrived at by the Division Bench. But a perusal of the judgment in David Sassoon's case [1940] 8 ITR 7 (Bom) does not indicate the process of reasoning by which the two judges concerned arrived at their respective conclusions. According to them, a plain reading of the provisions concerned compelled them to the conclusions which have been indicated and set out earlier. As we shall see later on, there is no warrant for the assumption that the wording is plain and admits of only one conclusion. It will be difficult, therefore, to accept this decision in In re. David Sassoon and Co. Ltd. [1940] 8 ITR 7 (Bom) as binding authority. Indeed, it has not been Mr. Joshi's contention t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up in trading in them. The rubber factory was restarted towards the end of April, 1950, but manufacturing was not carried on beyond a year or two. Trading in cement and in other commodities, however, was pushed on vigorously. In respect of the assessment year 1956-57, the assessee claimed for the allowance of the carried forward depreciation of earlier years ; but this was not conceded because the shoe manufacturing business in respect of which the depreciation had been calculated and had been allowed earlier was closed during the entire previous year. Before the Division Bench of the Bombay High Court, it was contended by the learned advocate appearing on behalf of the assessee that on a proper construction of proviso (b) to clause (vi) of sub-section (2) of section 10 of the Indian Income-tax Act, 1922, the assessee was entitled to set off the aforesaid unabsorbed depreciation against the profits and gains of the business for the two assessment years in question although it was not carrying on the business of manufacturing and sale of rubber shoes in those two years. This contention was not accepted by the Division Bench. Mr. Joshi has invited us to follow this very decision and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the provision for relief had to be considered to be substantive provision to be read with part of Chapter IV of the Act dealing with deductions and assessment and not as a proviso. In our view, if the Division Bench had wanted to consider the statutory provision irrespective of the question whether the provision was enacted as a proviso or as an independent substantive provision, they could have repelled this submission of Mr. Ramaswamy by stating that even if regarded as an independent substantive provision, the scheme of the Act would suggest that such unabsorbed depreciation could not be claimed in the year of assessment unless the business in respect of which it has arisen earlier was being carried on in that year. This has not been held and, on the other hand, we find repeated pronouncements (as indicated earlier) which seem to suggest that such relief as claimed by the assessee could not be allowed because the statutory provision was enacted as a proviso for calculating depreciation for the relevant year. The chain of arguments which appealed to the Bench and enunciated that decision in Sahu Rubbers' case [1963] 48 ITR 464 (Bom) seems to be that, in the first place, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when enacting the provision regarding carry forward and set off of unabsorbed depreciation under section 32(2) of the Income-tax Act, 1961, the Legislature could have imposed a condition that unabsorbed depreciation could be set off against the profits of a subsequent year only if the business in relation to which depreciation was allowed continued to exist in such year. The absence of such a restriction had to be construed in favour of the assessee. Where two interpretations were possible, the court should take the interpretation that is favourable to the assessee bearing in mind that a taxing statute is being construed. Therefore, under the provisions of section 32(2), for the purpose of setting off unabsorbed depreciation carried forward from a preceding year, it was not necessary that the business in respect of which the depreciation allowance was originally worked out should remain in existence in such succeeding year. It dealt with some other aspect with which we are not presently concerned." Thus it appears to us that the Supreme Court impliedly affirmed and approved the decision of the Bombay High Court in Estate and Finance Ltd. 's case [1978] 111 ITR 119. We may also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Ambica Silk Mills Company v. CIT [1952] 22 ITR 58, wherein it was held that when the profits and gains of business are insufficient to cover depreciation allowance under section 10(2)(vi) of the Indian Income-tax Act, 1922, the excess depreciation can be set off against the capital gains for that year. Similarly, the Supreme Court in that case also considered and approved the case of CIT v. Ravi Industries Ltd. [1963] 49 ITR 145 (Bom), wherein it was observed that the unabsorbed depreciation does not lose its character when it is carried forward to the following year. Such unabsorbed depreciation of the following year which is carried forward to the current year under the proviso (b) to section 10(2)(vi) can be set off unlike other business losses against income under other heads." Then, the Gujarat High Court proceeded to hold (at p. 781) : "This illustration of the partners given by the Supreme Court in the aforesaid case is good not only for the purpose of giving effect to the unabsorbed depreciation by giving set off against income, profits and gains under other heads, but also it would be useful to consider the legal fiction introduced in sub-section (2) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arried forward business losses and it is decided that it cannot have priority over the current year's depreciation in giving set off while computing the total income of an assessee of particular year. Thus it is clear that in the subsequent case also, the Supreme Court has not doubted the decision in Jaipuria China Clay Mines (P.) Ltd. [1966] 59 ITR 555 (SC)." The Gujarat High Court has also considered the decision of the Supreme Court in CIT v. Mother India Refrigeration Industries (P) Ltd. [1985] 155 ITR 711, and observed as follows (headnote) : "The avowed purpose of the legal fiction created by the deeming provision contained in proviso (b) to section 10(2)(vi) of the Indian Income-tax Act, 1922, and in section 32(2) of the Income-tax Act, 1961, is to make the unabsorbed carried forward depreciation partake of the same character as the current depreciation in the following year so that it is available, unlike unabsorbed carried forward business loss, for being set off against other heads of income of that year. Such being the purpose for which the legal fiction is created, the fiction cannot be extended beyond its legitimate field and will have to be confined to that purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see purchased and which was used for the business. Even if the business is not carried on, there will be wear and tear of the machinery and plant and it will, in the normal course, also depreciate in value and until the assessee sells all the assets, the assessee cannot recover the cost of such asset in the form of depreciation allowance. The condition is that the asset originally purchased on which depreciation was allowed must be in existence to be eligible for depreciation. But, in case of loss which may arise in the course of carrying on the business, unless the business is in existence, this loss cannot be allowed. It has nothing to do with any asset of the business. Having regard to the views expressed by this court in CIT v. Kishanlal and Sons (Udyog) Pvt. Ltd. [1985] 154 ITR 735 ; the Gujarat High Court in Deepak Textile Industries Ltd. [1987] 168 ITR 773 and the Bombay High Court in Estate and Finance Ltd. [1978] 111 ITR 119, we are of the opinion that the decision of the Madras High Court in East Asiatic Co. (India) P. Ltd. [1986] 161 ITR 135 and the decision of the Bombay High Court in Hindusthan Chemical Works Ltd. [1980] 124 ITR 561 do not correctly lay down the corr ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
