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TMI Blog1977 (6) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the assessment year 1963-64, is entitled to carry forward and set off the unabsorbed depreciation of the assessment year 1963-64 and earlier years against the profits worked out under section 41(2) for the assessment year 1970-71 ? " [From the facts stated by the Tribunal, it would appear that the year 1963-64 has been mistakenly referred to in the question as the assessment year, whereas it should have been mentioned as the accounting year]. The assessee-company went into liquidation during the financial year 1963-64. Returns were filed by the official liquidator for the subsequent years including 1970-71. The accounting year for 1970-71 was the financial year 1969-70. During that accounting year some plant, machinery and furniture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal before the Tribunal. The assessee did not question before the Tribunal the correctness of the computation of the written down value or the profit under section 41(2). The only question which was considered by the Tribunal was whether the unabsorbed depreciation brought forward from the earlier years was available to the assessee for a set-off against the profits under section 41(2) for the assessment year in question. Following the decision of the Allahabad High Court in Commissioner of Income-tax v. Rampur Timber Turnery Co. Ltd. [1973] 89 ITR 150 (All), the Tribunal held that the unabsorbed depreciation of the past years was available as depreciation allowance in the relevant previous year and it could be set off against the prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that previous year, and so on for the succeeding previous years. " The unabsorbed depreciation of the past is thus treated as the depreciation allowance for the relevant previous year in which the business ceased to exist. Sub-section (5) of section 41 says : " (5) Where the business or profession referred to in this section is no longer in existence and there is income chargeable to tax under sub-section (1), sub-section (2), sub-section (2A), sub-section (3) or sub-section (4) in respect of that business or profession, any loss, not being a loss sustained in speculation business or under the head 'Capital gains', which arose in that business or profession during the previous year in which it ceased to exist and which could not be se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the instant case, although the plant and machinery were sold only in the accounting year 1969-70, and the business of the company had ceased to exist during 1963-64, it is by means of the fiction introduced in the Explanation that the profits earned by the assessee by such sale are to be treated as the chargeable income of the business of the previous year in which the amounts were received. In other words, the Explanation projected the business into the relevant previous year in which the profits were received, thereby making such receipts chargeable to tax under the sub-section. The legislature having introduced the fiction to bring to charge the receipt by sale of plant and machinery in the relevant previous year as the income of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see in order that the excess realised on the sale of building, machinery or plant, could be treated as profits of the business under the second proviso to that sub-section. In our view, the sub-section considered by the Supreme Court is not in pari materia with the provisions under consideration in the instant case and, therefore, that decision is of little help for the present purpose. We are of the view that since the business of the assessee should be deemed to have been in existence in the accounting year relevant to the assessment year 1970-71, the unabsorbed depreciation of the past years is available as the depreciation allowance in the relevant accounting year in which the company closed its business, and such allowance can be set ..... X X X X Extracts X X X X X X X X Extracts X X X X
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