KANTAWALA J. -
(1.) BY this reference under S. 66(1) of the Indian INCOME TAX ACT, 1922, the question that is referred for our determination is as under :
"Whether, on the facts and in the circumstances of the case, the unabsorbed depreciation allowance of the previous years deemed to be part of depreciation allowance of the current year under proviso (b) to S. 10(2)(vi) of the Act can be set off against income under other heads?"
(2.) THE assessee is a public limited company and the question referred to us relates to the asst. yr. 1961 -62, the relevant previous year being the financial year ending March 31, 1961.
The income of the assessee from business under S. 10 before allowing depreciation was Rs. 1,19,67,810. Out of that, depreciation for the year was deducted as amounting to Rs. 51,80,953. After taking into account the depreciation for the current year, the income left over was Rs.
67,86,857. Besides, there was unabsorbed depreciation of the previous year in respect of which a set -off was claimed. The whole of the sum of Rs. 67,86,857 was permitted to be set off against the
unabsorbed depreciation of the previous year. After taking such set -off into account, the income
from business under S. 10 was calculated as rupees nil. Notwithstanding such set -off, there still
remains unabsorbed depreciation allowed to be carried forward in the sum of Rs. 6,98,190. Apart
from the income from business, the assessee had also income from securities amounting to Rs.
1,98,169 and the capital gains of Rs. 17. On behalf of the assessee, the remaining portion of the unabsorbed depreciation of Rs. 6,68,190 was claimed by way of set -off against the income from
interest on securities and capital gains and that is under the head "Other than income from
business". Such contention of the assessee was rejected by the ITO. On appeal by the assessee,
the AAC confirmed the order of the ITO. Against that decision, the assessee preferred an appeal
before the Tribunal. The Tribunal found that the question was decided in the case of CIT vs. Ravi
Industries Ltd. (1963) 49 ITR 145 (Bom). The Tribunal took the view that, in view of the said
decision, the claim made by the assessee was justified and it directed that the set -off of the portion
of the unabsorbed depreciation should be allowed aginst the interest on securities and capital
(3.) MR . Joshi, on behalf of the Revenue, has fairly conceded that the question involved in this reference is not only concluded by the decision of this Court in the case of Ravi Industries Ltd.
(supra) but it is concluded by the decision of the Supreme Court in CIT vs. Jaipuria China Clay
Mines (P.) Ltd. (1966) 59 ITR 555 (SC). As the ratio of the decision of the Supreme Court directly
applies to the facts of the present case, further controversy between the parties does not arise.
In the case before the Supreme Court, the total income of the respondent - company for the asst. yr. 1952 -53 before charging depreciation was Rs. 14,041. After deducting depreciation of Rs. 5,360 the ITO computed the profit of Rs. 8,681 against the whole of which he set off losses of an earlier year. The ITO then computed the dividend income of the respondent at Rs. 2,01,130, determined the total income at that figure and levied tax on it. The respondent claimed that the unabsorbed depreciation aggregating to Rs. 76,857 should be deducted from the dividend income reducing the total income thereby to Rs. 1,32,955. The ITO rejected the claim. On these facts the High Court took the view that the unabsorbed depreciation of past years had to be added to depreciation of the current year and the aggregate unabsorbed and current year's depreciation had to be deducted from the total income of the previous year relevant to the asst. year 1952 -53. The Supreme Court points out that the IT Act draws no distinction between the various allowances mentioned in S. 10 (2). They have all 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 its accounts. If the profits are not large enough to wipe off the depreciation, the profit and loss account would show a loss. At page 559 it is observed 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 S. 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. Thereafter, apart from proviso (b) to S. 10(2)(vi), neither the Act nor commercial principles draw any distinction between the various allowances mentioned in S. 10(2) ; the only distinction is that, while the other allowances may be outgoings, depreciation is not an actual outgoing. A little later it is pointed out that the legislature clearly assumes that effect can be given to depreciation allowance in the assessment of a partner. The only way effect can be given in the assessment of a partner is by setting it off against income, profits and gains under other heads. ;