V.G. Oak, C.J. - (1.) THIS is a reference under Section 66 of the Indian Income-tax Act, 1922, hereafter referred to as the Act. The assessee is a limited company. The assessment years are 1951-52 and 1952-53.
(2.) AFTER the assessment year 1950-51, there was an unabsorbed loss of Rs. 67,534 and unabsorbed depreciation of Rs. 1,78,154. In the assessment year 1951-52 the business income before making any deductions amounted to Rs. 50,624. The Income-tax Officer adjusted the current depreciation amounting to Rs. 58,140 as against the business income amounting to Rs. 50,624. It was ordered that the balance of depreciation amounting to Rs. 7,516 should be carried forward. The result was that the total unabsorbed depreciation carried forward amounted to Rs. 1,85,670. It was further decided that the entire unabsorbed loss amounting to Rs. 67,534 should be carried forward. At the time of assessment for 1952-53 the business income was found to be Rs. 64,232. Depreciation allowance for that year amounted to Rs. 44,580. The Income-tax Officer adjusted the current depreciation against the business income of the assessee. The net income came to Rs. 19,652. That net income was again adjusted against the unabsorbed business loss amounting to Rs. 67,534. There were thus a balance of unabsorbed loss to the extent of Rs. 47,832 and unabsorbed depreciation amounting to Rs. 1,85,670. These unabsorbed amounts under the two heads were carried forward. In appeal the Appellate Assistant Commissioner directed that for both the assessment years business loss which had been brought forward should be adjusted before allowing depreciation for those years: When the matter went before the Appellate Tribunal, Allahabad, the Tribunal decided that the manner of adjustment by the Appellate Assistant Commissioner was incorrect. Departmental appeals for the two assessment years were there fore allowed by the Tribunal.
(3.) AT the instance of the assessee, the following question of Taw has been referred by the Tribunal to this court: "Whether, for the assessment years 1951-52 and 1952-53, the assessee was entitled to deduct the unabsorbed business loss at the end of the assessment year 1950-51 before setting off the depreciation allowance of Rs. 58,140 and Rs. 44,580 respectively for these years ?" It will be seen that the problem raised in this referrence is that of priority between unabsorbed loss and current depreciation. According to the department, current depreciation has to be deducted from the business income for any assessment year before considering unabsorbed loss. On the other hand, the assessee has urged that unabsorbed business loss must be adjusted before considering the current depreciation allowance.;