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TMI Blog1976 (11) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany which was incorporated in 1947. It purchased a large plot of land at Malad and the same was being sold in parcels. The income from such sale was assessed as business income of the assessee-company. In December, 1947, it had purchased a theatre in Bombay for Rs. 8,50,000. The necessary finance for acquiring the theatre was raised by mortgaging the theatre itself. The theatre was let out with all its installations and furniture and the income from such letting out was being assessed under section 12 of the Indian Income-tax Act, 1922. The theatre was sold in 1952, the assessment year being 1953-54. In computing the income from the letting out of the theatre the assessee was allowed depreciation on the theatre's machinery and furniture under section 12(3) read with section 20(2)(vi). In the assessment years 1950-51, 1951-52 and 1952-53 the depreciation as properly computed could not be allowed as a deduction because the activities of the assessee resulted in a loss. The unabsorbed depreciation of the assessee of these three years was as follows : Assessment year Depreciation Rs. 1950-51 25,706 1951-52 23,443 1952-53 21,551 ------------ Total 70,700 ------------ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal income ; (2) the depreciation was treated on a different footing from normal business loss ; (3) while in the case of business loss the condition precedent as enacted by the proviso to section 72(1) was that the business for which the loss was originally computed continued to be carried on by the assessee in the relvent previous year, a similar condition did not appear in section 32(2) and there was no warrant for importing such a condition into the section. On behalf of the department it was contended that the source in respect of which the claim arose must continue to exist in the year under consideration and if the said source has disappeared, as in this case, by the sale of the theatre, then the relevant provisions did not permit adjustment of unabsorbed depreciation. The Tribunal upheld the contentions advanced on behalf of the assessee, inter alia, holding that there was no warrant for importing the condition provided in the proviso to section 72 into section 32(2). Further, according to the Tribunal, it was a well-settled principle in construing fiscal statutes that when two interpretations were possible the court should accept that interpretation which is of help and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e report), it was plain on the construction of this provisio that the right to set off past depreciation 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not possible. The assessee thereafter started another business of importing trimobiles, clocks, cement and set itself 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 bad 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees in Sahu Rubbers' case [1963] 48 ITR 464 (Bom) based his argument for being allowed the relief on the contention that the provision for relief had to be considered to be a substantive provision to be read with a 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 to the statutory provision for calculating depreciation for the relevant year. The chain of argument ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was contended on behalf of the revenue in Laxmi Printing's case [1968] 70 ITR 148 (Bom) that for an allowance of depreciation in the assessment year the buildings, plant or machinery in respect of the allowance claimed must be in use in the said year ; and only if it so exists can the fiction enacted in the proviso be given effect to. The Division Bench observed that they did not agree with the interpretation which the learned counsel for the revenue had put on the proviso to clause (b) of sub-section (2) of section 10. According to the Division Bench : " The only qualification for it to be treated as an allowance for the year is that it must have been properly allowed in earlier years and by reason of its not being absorbed, must have been allowed to be carried forward to the assessment year. The qualification of its being allowable on the basis of the machinery in respect of which it is claimed being in use was properly satisfied when the depreciation was allowed. There is nothing in clause (b) of the proviso to section 10(2)(vi) which requires the qualification to be satisfied again, viz., that the machinery in respect of which it has been claimed in past years is in use i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only in respect of income from the property which it owned. During the previous year relevant to the assessment year 1962-63, the assessee received a refund of Rs. 6,982 from the electricity department out of electricity charges already paid by it in the years when it was carrying on the business aforesaid, which had been then allowed to the assessee as expenditure of the business in those assessments. During the assessment for the assessment year 1962-63, the Income-tax Officer included the aforesaid amount of Rs. 6,982 as the business income of the assessee in view of the deeming provisions contained in section 41(1) of the income-tax Act, 1961. It was urged by the assessee that such profits should be set off against the unabsorbed depreciation allowance of Rs. 46,003 determined for the assessment years 1951-52 to 1954-55. In the reference to the High Court this contention of the assessee was accepted. It was held that the benefit of unabsorbed depreciation could be availed of by an assessee in any subsequent year without satisfaction of the preconditions attaching to sub-section (2) of section 32 and it is not necessary that in such subsequent years the assessee actually carrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided the business for which the loss was originally computed continued to be carried on in the succeeding year. There is no such requirement so far as the carried-forward depreciation allowance is concerned. It is not necessary that the business in respect of which the depreciation allowance was originally worked out should remain in existence in the succeeding year nor is it necessary that the business assets to which the depreciation pertains must be used in the business carried on in the succeeding year. All that is necessary is that an assessee must carry on some business in the succeeding year in which the set-off of the unabsorbed depreciation is claimed. That is so, because a depreciation allowance is essentially a deduction allowable out of the gross profits of a business. If there is no business there can be no depreciation allowance. It is also not necessary that the business in the succeeding year must have some depreciable assets so that even if there is no depreciation allowance available to the assessee in the succeeding year, by fiction, the unabsorbed carried-forward depreciation of the earlier year shall be deemed to be the depreciation allowance of the succeed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approach to be found in the observations at page 470 of the report (48 ITR 464), viz., that if the intention of the legislature had been to adjust the unabsorbed depreciation allowance against the profits and gains chargeable to tax of the following year or years irrespective of whether that business continues or not it would have said so, may not commend itself to us. Indeed, it is possible to hold and observe that if in a later section when the legislature intended to impose such a requirement or condition on the right of the assessee to claim a similar benefit the legislature expressly provided for such restrictive condition, then in the absence of any such restrictive condition the provision giving the benefit of unabsorbed depreciation should be read without importing any such condition, i.e., in favour of the assessee rather than in the manner as was done in Sahu Rubbers' case [1963] 48 ITR 464 (Bom). It would appear that the absence of such express provisions in the statutory provision for unabsorbed depreciation is eloquent and can only be fairly construed in favour of the assessee that there was no such requirement. The learned advocate for the revenue referred us to a r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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