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TMI Blog1965 (11) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee " for the year 1952-53 computed its total income at Rs. 14,041 before charging depreciation for that year. From that figure he deducted depreciation for the year amounting to Rs. 5,350, thus computing a profit of Rs. 8,681. From this figure he deducted an equivalent amount, i.e., Rs. 8,681, in respect of losses during 1947-48, and he thus worked out the business income as nil. He then computed the dividend income at Rs. 2,01,130 and determined the total income at this figure and levied tax on it. The assessee had in its favour an unabsorbed depreciation aggregating to Rs. 76,857 and it contended before the Income-tax Officer that this sum should be deducted from the income received from dividends, which, if done, would reduce the total income to Rs. 1,32,955, but the Income-tax Officer refused to accede to this contention. The Appellate Assistant Commissioner upheld the order of the Income-tax Officer and the assessee's appeal to the Appellate Tribunal met with the same fate. The High Court, however, accepted the contention of the assessee and answered the question referred to it in favour of the assessee. The answer to the question depends on the interpretation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be entitled to have the amount of the loss set off against his income, profits or gains under any other head in that year ... Provided further that where the assessee is an unregistered firm which has not been assessed under the provisions of clause (b) of sub-section (5) of section 23, in the manner applicable to a registered firm, any such loss shall be set off only against the income, profits and gains of the firm and not against the income, profits and gains of any of the partners of the firm and where the assessee is a registered firm, any loss which cannot be set off against other income, profits and gains of the firm shall be apportioned between the partners of the firm and they alone shall be entitled to have the amount of the loss set off under this section .... (2) Where any assessee sustains a loss of profits or gains in any year, being a previous year not earlier than the previous year for the assessment for the year ending on the 31st day of March, 1940, in any business, profession or vocation, and the loss cannot be wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no other head of income, sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... islation and a number of authorities to support the judgment of the High Court. Apart from authority, looking at the Act as it stood on April 1, 1952, it is clear that the underlying idea of the Act is to assess the total income of an assessee. Prima facie, it would be unfair to compute the total income of an assessee carrying on business without pooling the income from business with the income or loss under other heads. The second consideration which is relevant is that the Act draws no express distinction between the various allowances mentioned in section 10(2). They all have to be deducted from the gross profits and gains of a business. According to commercial principles, depreciation would be shown in the accounts and the profit and loss account would reflect the depreciation accounted for in the accounts. If the profits are not large enough to wipe off depreciation, the profit and loss account would show a loss. Therefore, apart from proviso (b) to section 10(2)(vi), neither the Act nor commercial principles draw any distinction between the various allowances mentioned in section 10(2) ; the only distinction is that while the other allowances may be outgoings, depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss, the excess depreciation can be set off against the profits and gains of other business or from other sources. " In Ballarpur Collieries v. Commissioner of Income-tax the court of the Judicial Commissioner, Nagpur, held that the partners of the assessee, a registered firm owning collieries, were entitled to set off depreciation against the other income of the members of the firm under section 24 of the Income-tax Act. In Laxmichand Jaiporia Spinning and Weaving Mills, In re the East Punjab High Court arrived at the same conclusion. The High Court further held that " the object of proviso (b) to sub-section (2) of section 24 is only to give preference to ordinary losses incurred by an assessee in regard to set-off over the loss which comes under clause (b) of the proviso to sub-section (2)(vi) of section 10. Where set-off is to be given for different kinds of losses other than those due to depreciation, such losses must be set off first and then the loss due to depreciation. " In Ambika Silk Mills Co. Ltd. v. Commissioner of Income-tax the Bombay High Court understood the effect of proviso (b) to section 10(2)(vi) and proviso (b) to section 24(2) as follows : " If a business wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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