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TMI Blog1985 (5) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... ces of the case, the Tribunal was right in holding that the unabsorbed depreciation relating to Indian business amounting to Rs. 5,16,795 having been allowed as a set off against the Pakistan income of Rs. 11,85,892 in the assessment year 1965-66 and the order allowing the set-off having become final, it could not be carried forward and allowed as a set-off against the Indian income for the assessment year 1967-68 ? " The assessee company has its head office at Delhi and branches at Delhi, Kanpur and Bombay, and also a branch at Lyallpur in Pakistan. The company was manufacturing vegetable ghee, oil cakes and also some other products. In this assessment year, some deoiled cakes were exported to Hungary under a contract. The Indian rupee w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement between India and Pakistan, the assessee was not actually required to pay any tax in India. The second question turns on whether there was a set-off of the unabsorbed depreciation against the Pakistan income by reason of this order. If we take the first question first, it can at once be said that we do not find any reason to differ from the Tribunal's view that the extra amount of Rs. 8,19,495 is business income and not a casual receipt. A reference was made by the Tribunal to the Supreme Court's decision in CIT v. Canara Bank Ltd. [1967] 63 ITR 328. In that case, the court drew a distinction between an appreciation of blocked capital and an appreciation of the stock-in-trade. The amount which was sterilised and lying idle in the Ka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 1966-67 or 1967-68. It may here be noted that in the order of the AAC, the following passage is to be found: " The appellant lastly claimed that the ITO has erred in not mentioning in the assessment order, the allowance of depreciation and the carry forward of loss to the subsequent years. The ITO has not also disallowed the appellant's claim for bringing forward the loss and depreciation from the past years. This point will accordingly be considered when the appellant has income against which the losses can be set off. " Thus, the point for decision is whether there was a set off of the loss in the assessment year 1965-66, or whether the loss was to be carried forward till it could be adjusted against some surplus income. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not assessable to tax. The court, therefore, held that the Pakistan income, i.e., the dividends in Pakistan, was not to be set off against the business loss. This was the interpretation arrived at by the court from construing the D. I. T. Agreement between India and Pakistan. That was a case in which the net loss was to be determined. Even if the whole of the Pakistan income had been set off, there would still be some loss because the Pakistan income was certainly less than the total business loss in India. But the court held that no part of the Pakistan income was to be adjusted. We find very little to distinguish the said judgment from the facts of the present case, except that here the Pakistan income is more than the Indian loss. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat in case the ITO did not allow a carry forward of the unabsorbed depreciation, this did not debar the assessee from raising the question in some subsequent year. We think that if there is any doubt about the matter, this judgment should help the assessee. On principle, there seems to be no difficulty. The assessee had unabsorbed depreciation which was standing in its accounts. Normally, this depreciation had to be set off against income. It could not be set off against the Pakistan income in Pakistan because under the Avoidance of Double Taxation Agreement, the Pakistan income had to be assessed in Pakistan and the Indian income had to be assessed in India. In other words, when the assessee was assessed in 1965-66 in India, there was a l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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