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TMI Blog1985 (6) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... ried forward as it had been excluded from s. 32(2). He held further that on an asset which ceases to exist in an accounting year, the allowance thereon must be restricted to such year only. On appeal, the AAC upheld the decision of the ITO. He held that an assessee could claim deduction for unabsorbed depreciation only on an asset still in use. Where the asset was no longer in use, depreciation thereon, not absorbed was not intended to be allowed as deduction to be carried forward. Being aggrieved, the assessee went up on further appeal before the Income-tax Appellate Tribunal. It was contended before the Tribunal that the loss to the assessee on the sale of the said assets had to be taken into account under s. 29 of the Act in computing the assessee's profits and gains of business and the provisions of s. 32 were required to be given effect to in their entirety. As a business loss, the same could be carried forward under s. 72 of the Act. It was contended on behalf of the Revenue that as s. 32(2) of the Act contained special provisions for carrying forward of unabsorbed depreciation allowance, the general provisions of s. 72 could not be invoked to carry forward such unabsor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of unabsorbed depreciation allowances. In view of the special provisions of s. 32, the assessee was not entitled to invoke the general provisions of s. 72. It was submitted further that the Legislature deliberately excluded the depreciation allowance provided under s. 32(1)(iii) from s. 32(2) which indicated that it was not the intention of the Legislature that the allowance under s. 32(1)(iii) would be carried forward. Learned advocate for the assessee contended to the contrary. He submitted that the allowance provided under s. 32(1)(iii) of the Act was not strictly speaking a depreciation. In the earlier Act, it was not placed under the head " Depreciation ". The allowance granted under s. 32(1)(iii) of the present Act which corresponded with s. 10(2)(vii) of the Indian I.T. Act, 1922, was not a depreciation allowance but was a balancing allowance. Where an asset was sold at a profit, the surplus was added to the profit of the business. If the sale or destruction of an asset resulted in loss, the same ought to be treated as a business loss. In support of the respective contentions, the following decisions were cited at the Bar : (a) Raghunath Prasad v. CIT [1955] 28 ITR 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss, or that he must pay tax on the small profit that he might have made, and bear the loss in addition (c) CIT v. Jaipuria China Clay Mines (P) Ltd. [1966] 59 ITR 555 (SC). In this case, the Supreme Court considered s. 10(2)(vi) and s. 24(2) of the Indian I.T. Act, 1922, and observed as follows (p. 561): "'The unabsorbed depreciation allowance is carried forward under proviso (b) to section 10(2)(vi) and the method of carrying it forward is to add it to the amount of the allowance or depreciation in the following year and deeming it to be part of that allowance; the effect of deeming it to be part of that allowance is that it falls in the following year within clause (vi) and has to be deducted as allowance. If the legislature had not enacted proviso (b) to section 24(2), the result would have been that depreciation allowance would have been deducted first out of the profits and gains in preference to any losses which might have been carried forward under section 24, but as losses can be carried forward only for six years under section 24(2), the assessee would in certain circumstances have in his books losses which he would not be able to set off. It seems to us that the legi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount by which the written down value thereof exceeds the amount for which the......... machinery or plant, as the case may be, is actually sold or its scrap value : Provided that such amount is actually written off in the books of the assessee: Provided further that where the amount for which any such building machinery or plant is sold, whether during the continuance of the business or after the cessation thereof, exceeds the written down value, so much of the excess as does not exceed the difference between the original cost and the written down value shall be deemed to be profits of the previous year in which the sale took place." Income-tax Act, 1961 : Section 29.-Income from Profits and gains of business or Profession, how computed.-The income referred to in section 28 shall be computed in accordance with the provisions contained in ss. 30 to 43A. Section 32.-In respect of depreciation of...... machinery, plant ......... owned by the assessee and used for the purposes of the business......... the following deductions shall, subject to the provisions of section 34, be allowed ......... (iii) In the case of any......... machinery, plant......... which is sold, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment year; and (ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on ......... (3) No loss (other than the loss referred to in the proviso to sub-section (1) of this section) shall be carried forward under this section for more than eight assessment years immediately succeeding the assessment year for which the loss was first computed." The contention of the assessee that the allowance provided under section 32(1)(iii) is not strictly speaking a depreciation allowance is of substance. In the earlier Act, this allowance did not come under the head " Depreciation ". In the later Act, however, the general heading of section 32 is " Depreciation". The said allowance, in our view, can be correctly described as a balancing allowance to be given effect to in computing the business income of an assessee. This is specifically provided in s. 29 of the present Act. The allowances on account of depreciation as provided in clauses (i), (ii), (iv), (v) and (vi) of s. 32(1) have to be taken into account in computing the profits and gains of a business, but the special and specific prov ..... X X X X Extracts X X X X X X X X Extracts X X X X
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