Decided on September 11,1962



V.S.DESAI, J. - (1.)THE question raised on this reference concerns the availability of the carried forward unabsorbed depreciation allowance for being set off against the losses of profits and gains under heads other than the head " Business, profession or vocation ".
(2.)THE assessee is a limited company. In the asst. year 1957 -58, for which the previous year was the calendar year ending on 31st Dec., 1956, the assessee had an unabsorbed depreciation brought forward from the earlier year in the sum of Rs. 2,01,271. The depreciation for the current year was Rs. 75,594. After deducting the current year's depreciation from the income from business, there was a balance of Rs. 24,054 as the business income for the year. The assessee had also property income in the year of account to the extent of Rs. 23,162. The ITO set off the business income of Rs. 24,054 against the unabsorbed depreciation and showed the business income as nil for the year. He did not, however, allow the property income to be set off against the unabsorbed depreciation, with the result that he showed the taxable income in the assessment year at Rs. 23,162 and the unabsorbed depreciation to be carried forward at Rs. 1,77,217. The AAC in the appeal, which the assessee preferred, from the decision of the ITO, determined the assessee's total income at nil, and worked out the unabsorbed depreciation to be carried forward at Rs. 1,54,055, i.e., he allowed a set -off not only of the business income against the unabsorbed depreciation, but also a set -off of the property income against it. The Department went in appeal to the Tribunal against the decision of the AAC. The appeal was dismissed by the Tribunal and the decision of the AAC was confirmed. Thereafter, on an application under S. 66(1) at the instance of the Department, the Tribunal has drawn up the statement of the case and referred to this Court the following question :
"Whether on the facts and circumstances of this case the unabsorbed depreciation allowance of the earlier year deemed to be a part of depreciation allowance of the current year under proviso (b) to S. 10(2)(vi) of the Act can be set off, unlike other business losses, against income under other heads ? "

The argument urged by the Department before the Tribunal and also before us is mainly this that the unabsorbed depreciation which is carried forward, so far as its availability for being set off against income, profits and gains of the following years is concerned, stands on the same footing as the carried forward losses. Under S. 24(2) which deals with the set -off of the carried forward losses, the carried forward losses are only capable of being set off against gains from business carried on by the assessee for the following year subject to the proviso that the business in which the losses were originally sustained continued to be carried on by him during that year. The carried forward losses are not capable of being set off against income from any other head, except under the head " Business, profession or vocation ". Since the unabsorbed carried forward depreciation is on the same footing as the carried forward losses, the unabsorbed depreciation also cannot be set off against income from any other head. In the present case, therefore, the AAC and the Tribunal were wrong in allowing the income from property to be set off against the unabsorbed carried forward depreciation. According to Mr. Joshi, learned counsel for the revenue, the unabsorbed depreciation is a business loss and carried forward unabsorbed depreciation is a carried forward business loss. It must, therefore, be dealt with in the same manner as the carried forward losses under S. 24(2), so far as its availability as set -off is concerned.

(3.)IN order to appreciate the contention which has been urged by Mr. Joshi, it is necessary to refer to the provisions of S. 10(2)(vi), proviso (b), and the provisions of S. 24(2) of the Indian IT Act. Under S. 10, the mode of computation of income under the head " Profits and gains of business, profession or vocation " is prescribed. Sec. 10(1) provides that under that head, tax shall be payable by an assessee in respect of profits and gains of any business, profession or vocation carried on by him. Sub -s. (2) of S. 10 enumerates several allowances which will be allowed in the computation of the income under that head. Sec. 10(2)(vi) deals with the allowance which is permissible for depreciation of the buildings, machinery, plant or furniture used by the assessee for the purposes of his business, profession or vocation. Proviso (b) to S. 10(2)(vi), so far as it is material for our purpose, states :
"(b) Where, in the assessment of the assessee. . . . . full effect cannot be given to any such allowance in any year. . . . . owing to there being no profits or gains chargeable for that year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of cl. (b) of the proviso to Sub -S. (2) of S. 24, 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 year and deemed to be part of that allowance, or if there is no such allowance for that year, be deemed to be the allowance for that year, and so on for succeeding years . . . . . "

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