Sikri, J. - (1.) This is an appeal by certificate granted by the High Court of Calcutta against its judgment in a reference made to it under S. 66 of the Indian Income-tax Act, 1922 (hereinafter referred to as the Act). The question referred to it by the Appellate Tribunal, at the instance of the assessee, was as follows: "Whether in the facts and circumstances of the case, the unabsorbed depreciation of the past years should be added to the depreciation of the current year and the aggregate of the unabsorbed depreciation and the current year's depreciation be deducted from the total income of the previous year relevant for the assessment year 1952-53." The relevant facts and circumstances are as follows:The Income-tax Officer assessing the respondent, M/s. Jaipuria China Clay Mines (P) Ltd. Calcutta, hereinafter referred to as 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. 5,360, 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 Rupees 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 Appellant 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.
(2.) The answer to the question depends on the interpretation of Ss. 6, 10 and 24 of the Act. We are concerned with the law as it stood on 1-4-1952. The scheme of the Act is that the tax is levied in respect of the total income of the previous year of every individual, Hindu Undivided family, etc., and the total income consists of income under various heads such as Salaries, Interest on Securities, Income from Property, Profits and gains of business, profession or vocation, and Income from other sources and Capital gains. Various sections deal with how income, profits and gains under each head have to be computed. Section 10 deals with the computation of profit and gains of any business carried on by an assessee. Section 10 (2) prescribes the allowances which have to be deducted before computing the profits and gains; one of the allowances is 'depreciation', and this is provided under sub-cl. (vi). Proviso (b) to S. 10 (2) (vi). On this a great deal of argument has been addressed to us and it reads as follows: "(b) where, in the assessment of the assessee or if the assessee is a registered firm, in the assessment of its partners, full effect cannot be given to any such allowance in any year not being a very which ended prior to the 1st day of April 1939, 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 the 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;" It may be mentioned that the words "in the assessment of the assessee or if the assessee is a registered firm, in the assessment of its partners" were inserted by S. 8 of the Income Tax (Amendment) Act, 1953 (25 of 1953) with effect from 1-4-1952. The next relevant statutory provision is S. 24, which provides for set-off of losses in computing aggregate income. Relevant portions of S. 24 are in the following terms: "24(1) where any assessee sustains a loss of profits or gains in any year under any of the heads mentioned in S. 6, he shall 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 that. ********** Provided further that when the assessee is an unregistered firm which has not been assessed under the provisions of Cl. (b) of sub-s. (5) of S. 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 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 31-3-1940, in any business, profession or vocation and the loss cannot be wholly set off under sub-s. (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, shall be carried forward to the following year and set off against the profits and gains, if any, of the assessee from the same business, profession or vocation for that year; and if it cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following year, and so on:but no loss shall be so carried forward for more than six years, and a loss arising in the previous years for the assessment for the years ending on 31-3-1940, the 31st day of March, 1941, the 31st day of March, 1942, the 31st day of March, 1943, and the 31st day of March, 1944, respectively, shall be carried forward only for one, two, three, four and five years, respectively: Provided that- (a) ********** (b) where depreciation allowance is, under Cl. (b) of the proviso to Cl. (vi) of sub-s. (2) of S. 10, also to be carried forward, effect shall first be given to the provisions of this sub-section; (c) nothing herein contained shall entitle any assessee, being a registered firm, to have carried forward and set off any loss which has been apportioned between the partners, under the proviso to sub-s. (1), or entitle any assessee, being a partner in an unregistered firm which has not been assessed under the provisions of Cl. (b) of sub-s. (5) of S. 23 in the manner applicable to a registered firm, to have carried forward and set off against his own income any loss sustained by the firm;............"
(3.) Mr. Sastri, learned counsel for the revenue, urges that depreciation, although a permissible allowance under S. 10 (2) of the Act, serves to compensate an assessee for the capital loss suffered by him by way of depreciation of his assets. He says that if it had not been expressly allowed as allowance, it would have been treated as capital expenditure and would have been excluded. He further says that depreciation is a charge on the profit of a business. Bearing these two factors in mind, he urges that the expression "loss of profits and gains" in S. 24 (1) does not include any deficiency resulting from depreciation and, therefore, an assessee is not entitled to ask the Department to include the depreciation in the amount which can be set off against income, profits and gains under other heads such as income from property or dividends. Mr. Rajgopala Sastri for the assessee relies on the history of the legislation and a number of authorities to support the judgment of the High Court.;