HARRIES, C.J. - (1.) THIS is a reference made by the Tribunal under s. 66 of the Indian IT Act at the instance of the assessees. The question which has been formulated for the opinion of this Court is as follows : "Whether, on the facts and in the circumstances of this case, the Tribunal was right in holding that the unabsorbed depreciation of the end of the year 1938-39, which was not given effect to in the subsequent years, could not be treated as part of the allowable depreciation for the relevant assessment years which are asst. yrs. 1941-42, 1942-43 and 1943-44."
(2.) THE assessees, M/s Isthmian Steamship Co. of New York, are assessed in India as a company through their agents, M/s Angus Co. Ltd. In the three relevant assessment years which are referred to in the question as also for the asst. yr. 1940-41, the unabsorbed depreciation as at the end of the asst. yr. 1938- 39 was not allowed to be carried forward by the ITO. For the asst. yr. 1940-41 the assessees did not appeal against this order and that assessment became final. In the three assessments from 1941 onwards three appeals were filed and the assessees contended that their unabsorbed depreciation at the end of the asst. yr. 193839 should be carried forward for the purpose of the depreciation allowance in the asst. yr. 1939-40. THE claim was rejected by the ITO and the AAC. THE latter was of opinion that this question should have been raised in the assessment for 1940- 41 and as the disallowance of the unabsorbed depreciation had not been appealed from the matter could not be raised in subsequent assessments. It is to be observed that the Tribunal disagreed with the AAC on this question and held that though the assessment for the year 1940-41 had been allowed to become final, nevertheless the matter could still be raised in subsequent assessments and they heard the case upon that basis. It is to be observed that the IT authorities have accepted that view and they have not asked the Tribunal to state a case giving rise to the contention which had found favour with the Court of the Appellate Commissioner, but had been rejected by the Tribunal. As I have stated, the assesses are a company incorporated in the United States and they own steamships which visit India. THEy have been assessed to Indian income-tax. THE Indian profit of the assessee company is computed on the basis of "days on round voyage", and it would appear from their returns that there was each year a large amount as unabsorbed depreciation as the annual depreciation far exceeded their profits and gains. The only question which was agitated before the IT authorities was whether or not the assessee- company was allowed to add the unabsorbed depreciation for the year 1938 to the depreciation allowed by statute for the year 1939. The contention of the assesses was that the depreciation permitted for the year 1939 was not only the percentage allowef by statute for that year, but that percentage plus the unabsorbed depreciation brought forward from the previous year. The taxing authorities on the other hand contended that all that could be allowed as depreciation in the year 1939 was the statutory percentage allowed for that particular year. The question which has been decided is what allowance can be properly allowed for depreciation for the year 1939 ? The matter turns on the construction to be given to a poviso to s. 10(2)(vi) of the Indian IT Act. The proviso has been materially changed by the IT Amendment Acts 1939 and 1940 and it will be better if I set out the relevant provisions of the Act before the amendment and the provisions after the amendment. Previous to the 1939 amendment the relevant portion of s. 10(2)(vi) of the Act read as follows : "Such profits or gains shall be computed after making the following allowances, namely : in respect of depreciation of such buildings, machinery, plant or furniture being the property of the assessee, a sum equivalent to such percentage on the original cost thereof to the assessee as may in any case or class of cases be prescribed : Provided that--(a) the prescribed particulars have been duly furnished; (b) Where full effect cannot be given to any such allowance in any year 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, 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 that 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; and (c) the aggregate of all such allowances made under this Act or any Act repealed hereby or under the Indian IT Act, 1886, shall, in no case, exceed the original cost to the assessee of the buildings, machinery, plant or furniture as the case may be." It is to be observed that Indian ocean going vessels are treated as "plant", although that word is hardly a suitable one.
(3.) THIS section was amended by the Indian IT (Amendment) Act, 1939. For the words "original cost" the words "written down value" were substituted, and also the words "not being a year which ended prior to the April 1, 1939" were inserted between the words "any year" and "owing" in the second line of proviso (b); but it was provided that this amendment was to take effect only from April 1, 1940. Thus for assessment for the year 1939- 40 the unabsorbed depreciation as at the end of 1938-39 was to be brought forward. A further amendment was made by the IT (Amendment) Act, 1940, and s. 10(2)(vi) now reads as follows : "In respect of depreciation of such buildings, machinery, plant or furniture, being the property of the assessee, a sum equivalent, where the assets are ships other than ships other than ships ordinarily plying on inland waters to such percentage on the original cost thereof to the assessee as may in any case or class of cases be prescribed and in any other case, to such percentage on the written down value thereof as may in any case or class of cases be prescribed. Provided that---(a)--No change. (b) Where full effect cannot be given to any such allowance in any year not being a year 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, 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 that 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." (c) No change.;