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TMI Blog1985 (1) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... l loss of the previous years so set off from 1966-67 to 1971-72, which amounted to Rs. 24,67,658, was deducted from the net income arrived at. In the result, the net assessable income was nil. In so doing, the ITO also specifically held that the balance of the loss in respect of the earlier assessment years is allowed to be carried forward to the next year as hereunder Rs. Business loss 1971-72 2,05,950 1972-73 3,18,934 1973-74 Nil 1974-75 Nil The unabsorbed depreciation carried forward from the year 1966-67 up to 1972-73 was also allowed to be carried forward. Unabsorbed development rebate carried forward for the year 1966-67 was not allowed to be carried forward, as the time-limit therefor was over. But the unabsorbed development rebate from the years 1967-68 to 1974-75 was allowed to be carried forward. The order of assessment is Ext. P-1 dated December 24, 1976. The assessee filed a revision before the first respondent-Commissioner of Income-tax, Kerala. The main grievance of the assessee was that the company had a taxable income of Rs. 24,67,658 to be set off against the loss carried forward from the previous years, the unabsorbed development rebate for the y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee and used for the purposes of the business or profession, the following deductions shall, subject to the provisions of section 34, be allowed . ...... (2) Where, in the assessment of the assessee (or, if the assessee is registered firm or an unregistered firm assessed as a registered firm, in the assessment of its partners) full effect cannot be given to any allowance under clause (i) or clause (ii) or clause (iia) or clause (iv) or clause (v) or clause (vi) of sub-section (1) or under clause (i) of sub-section (IA) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-section (2) of section 72 and subsection (3) of section 73, 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 for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years.... 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plant installed or the immediately succeeding previous year, as the case may be. Explanation.-Where for any assessment year development rebate is to be allowed in accordance with the provisions of sub-section (2) in respect of ships acquired or machinery or plant installed in more than one previous year, and the total income of the assessee assessable for that assessment year [ the total income for this purpose being computed without making any allowance under sub-section (1) or sub-section (1A) of this section or sub-section (1) of section 33A or any deduction under Chapter VI-A or section 280-O ] is less than the aggregate of the amounts due to be allowed in respect of the assets aforesaid for that assessment year, the following procedure shall be followed, namely : (i) the allowance under clause (ii) of sub-section (2) shall be made before any allowance under clause (i) of that sub-section is made ; and (ii) where an allowance has to be made under clause (ii) of subsection (2) in respect of amounts carried forward from more than one assessment year, the amount carried forward from an earlier assessment year shall be allowed before any amount carried forward from a late ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year). Thereafter, unabsorbed loss of the previous years carried forward shall also be set off against the balance assessable income of the current year. In other words, if there is unabsorbed depreciation allowance carried forward under s. 32(2) and unabsorbed business loss under s. 72(1), in view of s. 72(2) of the Act, the business loss of the earlier years will be entitled to priority. According to the counsel for the petitioner, this may be so, in view of the specific provision contained in s. 72(2) of the Act. Says counsel, s. 72(2) of the Act, does not make any reference to s. 33(1) read with s. 33(2). Section 33(1) and (2) alone deal with the unabsorbed development rebate. The scheme of the Act will show that there is nothing either in s. 72 or anywhere else to the effect that s. 33(2) is subject to s. 72(2). On a combined reading of ss. 32(1), 32(2), 33(1), 33(2), 72(l) and 12(2) of the I.T. Act, 1961, we are unable to accept the aforesaid contention of the counsel for the petitioner. In CIT v. Gujarat State Warehousing Corporation [1976] 104 ITR I (Guj), at page 9, the court held as follows : " It is no doubt true that sub-section (2) of section 72 makes a reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent rebate allowed under s. 33 is part of the business loss allowed to be carried forward and so it should be given priority by reason of s. 72(2) over the unabsorbed depreciation allowance (s. 32(2)), the court held as follows (p. 136): " Section 33 does not actually deal with any trading loss as it is ordinarily understood. Under s. 33, Parliament has made provision by way of an incentive to businessmen who invest on new machinery or in modernising plant and equipment. In order to earn development rebate, the assessee has to satisfy certain other conditions which are provided under s. 34 of the Act, and the unabsorbed development rebate cannot be carried forward beyond 8 years as provided by the Act. In the circumstances, the unabsorbed development rebate cannot be treated as part of assessed loss which is allowed to be carried forward and given priority over the unabsorbed depreciation allowance of the Previous years." In CIT v. Coromandel Steels Ltd. [1981] 130 ITR 856, at p. 863, after referring to the decision of the Karnataka High Court in Mysore Paper Mills' case [1979] 117 ITR 132, the Madras High Court held as follows : " In that case, the competition for adjustment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses after eight years. " In Chaturvedi and Pithisaria's Income Tax Law, 3rd edn. (1981), vol. 1, at page 958, it is stated as follows : " Where there are claims for absorption of current depreciation, unabsorbed depreciation, carried forward business loss and unabsorbed development rebate, the order of precedence for set off and absorption will be: firstly, the current depreciation is to be deducted from the current profits; secondly, the carried forward business loss is to be set off because of the fact that the legal fiction of section 32(2) has been made subject to the provisions of section 72(2); thirdly, the unabsorbed depreciation is to be set off and, lastly, the unabsorbed development rebate shall come up for state of Mysore Paper Mills Ltd. v. CIT [1979] 117 ITR 132 (Kar) ; CIT v. Coromandel Steels Ltd. [1981] 130 ITR 856 (Mad) ). " We see no reason to differ from the reasoning of the Gujarat, Karnataka and the Madras High Courts in the decisions referred to above. In the light of the aforesaid decisions, we see no error of law or error of jurisdiction in Exts. P-1 and P-3 orders. The Revenue has set off the unabsorbed business loss of the earlier years and still the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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