RANGANATHAN - (1.) THESE appeals raise a question of some complexity on the interpretation of the provisions of the Income Tax Act,1961 ('the 1961 Act'), in regard to which there is a difference of opinionamong various High courts. In the judgment under appeal, reported asCIT v. Garden Silk Wvg. Factory, the Gujarat High court has answeredthe question raised in favour of the revenue and against the assessees.Hence these appeals by the assessee, M/s Garden Silk Weaving Factory, Surat.
(2.) THE two appeals relate to the assessment years 1967-68 and 1968-69 for which the relevant previous years were the Saka years 2022 and2023 respectively. THE question arises in similar circumstances for boththe years. We shall set out the facts relevant for the assessment year1968-69 as the appeals and reference in respect of that year were disposed of earlier than those pertaining to the assessment year 1967-68. The assessee, M/s Garden Silk Weaving Factory, is a registeredfirm. For the assessment year in question, it returned a total income ofRs 3,94,483 and a provisional assessment, under S. 141 of the Act,was made accepting the income returned. Subsequently, the Income TaxOfficer found that, for the assessment year in question, the assessee hadmade an income of Rs. 11,82,056.00 but deducted therefrom three figuresaggregating to Rs. 7,87,573.00 to arrive at the net income of Rs. 3,94,483.00,which had been returned and accepted. These three figures were figurescarried over from the previous year of the assessment year 1967-68. They comprised: JUDGEMENT_684_2_1991Html1.htm The Income Tax Officer (ITO) agreed that, out of the above threeamounts, the unabsorbed development rebate pertaining to the assessment year 1967-68 had been rightly carried forward and set off in computing the total income for the assessment year 1968-69. However, forreasons which will become clear later, the Income Tax Officer was of theopinion that the sum of Rs. 1,59,181.00 (which represented that amount ofunabsorbed depreciation relating to the assessment year 1967-68) andthe amount of Rs. 3,49,242.00 (which represented the unabsorbed losspertaining to the assessment year 1967-68) could not be carried forward,as done by the assessee, to the assessment year 1968-69. He, therefore,added back the sum of Rs. 5,08,423.00 (the aggregate of the above twoamounts) to the returned income for determining the total income forassessment year 1968-69. This action of the Income Tax Officer was confirmed by the Appellate Assistant Commissioner (AAC). However, onfurther appeal, the Income Tax Appellate tribunal (AT) took a differentview. It upheld the Income Tax Officer's stand that the firm could not beallowed to carry forward and set off the business loss carried from theearlier year. But, so far as the unabsorbed depreciation was concerned, itupheld the assessee's contention. A reference to the High court followed. The following two questions were referred to the High court ofGujarat for its decision: "1. Whether on the facts and in the circumstances of the case,the tribunal was right in law in holding that the assessee registeredfirm is entitled to carry forward unabsorbed depreciation from earlier years and that it will be deemed to be an allowance in the natureof depreciation in the previous year, relevant to assessment year1968-69? 2. Whether the claim of the assessee to carry forward and setoff loss of Rs. 3,49,242.00 against its total income for the assessmentyear 1968-69 has been rightly rejected?" The High court, in a very detailed judgment, discussed the issuesthreadbare and answered both the questions against the assessee and infavour of the revenue. Hence the assessee's appeal for the assessmentyear 1968-69 under a certificate of fitness granted by the High court.
(3.) FOR the assessment year 1967-68, a full paper book containing allthe orders and statement of facts has not been placed before us.However, the petition of appeal gives a few facts which may be sufficientto dispose of the appeal. The relevant facts are these. FOR this assessmentyear, the assessee filed a return on 30/06/1967 showing a loss ofRs 7,87,515 but filed a revised return on 22/03/1972 showing a lossof Rs. 5,46,351.00. On March 14, 1973 the ITO completed the assessmentdetermining a loss of Rs. 4,85,250.00. (It will be noticed that the assessmentorder for 1968-69 gives a different figure and also shows its compositionas partly loss, partly unabsorbed depreciation and partly unabsorbeddevelopment rebate but this is not very material for deciding the principle in issue before us.) The assessee's request that this loss should becarried forward to the subsequent assessment year was rejected by theITO. This was confirmed by the AAC. On further appeal, the AT confirmed the order of the AAC, following the High court's decision forassessment year 1968-69 which had by then been announced. Thereuponthe following question of law was referred to the High court for its opinion: "Whether, on the facts and circumstances of the case, theTribunal was justified in rejecting the claim for carry forward ofbusiness loss in the hands of the firm in view of the decisionreported in COMMISSIONER OF INCOME TAX v. Garden Silk Wvg. Factory? The High court answered the question in the affirmative following itsearlier decision but granted a certificate of fitness for appeal to thisCourt. This is how the second appeal is before us. It will be seen from theabove that, though there are two appeals before us, the questioninvolved in both the appeals is the same. Before discussing the questions at issue, it may be useful to brieflysummarise the procedure under the statute for determining the totalincome of an assessee in respect of a previous year. All income accruingor arising to the assessee and includible in his total income, is, to beginwith, classified (see S. 14) under six different heads: A. Salaries.B. Interest on Securities: (recently omitted)C. Income from Property.D. Profits and gains of business, profession or vocation, (briefly,"business income")E. Capital gains.F. Income from other sources. ;