- (1.) THE Income-tax Appellate Tribunal, Allahabad Bench, Allahabad, at the instance of the assessee has referred the following question of law for the opinion of this court under Section 256(1) of the Income-tax Act, 1961 (for short "the Act") : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the unabsorbed development rebate for earlier years cannot be given precedence over the unabsorbed depreciation in computing the business income of the assessee ?"
(2.) THE dispute pertains to the assessment year 1975-76, where the assessee claimed that unabsorbed development rebate in respect of earlier years and carried forward to the extent of Rs. 4,52,99,772 (allowed during the assessment year 1968-69) should have been first set off, before calculating and setting off of the carried forward amount of unabsorbed depreciation. THE unabsorbed depreciation carried forward in terms of assessment order dated May 12, 1977, relating to the assessment year 1974-75 was to the extent of Rs. 4,79,14,914. THE Income-tax Officer, however, did not accept this claim and allowed the unabsorbed depreciation of the earlier years to the extent of Rs. 96,63,527 as a result of which, the taxable income for the year in question was reduced to nil. The assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals) and objected to the action of the Income-tax Officer, on the grounds, inter alia, that unabsorbed development rebate should have been given precedence over unabsorbed depreciation of earlier years in computing the business income. This contention was advanced on the ground that, whereas the depreciation could be carried forward indefinitely, the development rebate on the other hand could be carried forward only up to eight years and therefore, in equity, the development rebate should be given precedence. The appellate authority, however did not accept the contention of the assessee taking the view that the principles of carry forward have to be strictly construed according to the provisions of the Act. The provisions of carry forward and setting off of business losses are contained in Section 72(1) and the Legislature in its wisdom had thought fit as per provisions of Sub-section (2) of Section 72, that only an allowance under Sub-section (2) of Section 32 or Sub-section (4) of Section 35 are to be allowed before the set off of carry forward loss. Further, it is nowhere provided that the development rebate is to get precedence over unabsorbed depreciation brought forward. The assessee appealed further to the Income-tax Appellate Tribunal which upheld the appellate order, relying upon a decision of the Karnataka High Court in Mysore Paper Mills Ltd. v. CIT [1979] 117 ITR 132. Feeling still dissatisfied, the assessee applied for a reference under Section 256(1) of the Act and in granting the application, the question set out above has been referred to this court for its opinion.
(3.) WE have heard learned counsel for the parties. Learned counsel for the assessee reiterated the argument that was put forward before the Commissioner of Income-tax (Appeals) and thereafter before the Income-tax Appellate Tribunal. It was contended that carry forward of unabsorbed depreciation is for an unlimited period while the carry forward of unabsorbed development rebate is restricted only to a period of eight years and, for this consideration alone the relevant provisions of the Act dealing with carry forward be construed in the manner that the benefits permissible under the Act are given full effect and an assessee is not put to any disadvantage in availing of the benefits. The question that falls for consideration is the order of priority in adjustment between carried forward accumulated depreciation of earlier years and the carried forward unabsorbed development rebate against the profits and gains of the business of the subsequent year.;