G.K.MITTER, J. - (1.) THIS is a reference under s. 66(1) of the Indian IT Act which turns on the interpretation of s. 10(2)(vi) r/w proviso (b) thereto and s. 24(2) r/w proviso (b) thereto. The question framed is 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 asst. yr. 1952-53 ?"
(2.) THE assessee is a company which had more than one source of income. THE assessment year in question is 1952-53, the previous accounting year ending on 30th June, 1951. During the year of assessment the total income from the business of the assessee computed by the ITO was Rs. 14,041 before charging depreciation for the year which was fixed at Rs. 5,360. Deducting the depreciation from the total income mentioned above the assessee had a net income for that year amounting to Rs. 8,681. THE assessee was however disclosing losses for the past years and there stood in its favour and unabsorbed depreciation aggregating Rs. 76,857 besides losses. Out of the losses the ITO gave a set- off of Rs. 8,681 against the income of the year and finally computed business income to be nil for that year. THE company had income from dividends received in that year amounting to Rs. 2,01,130. THE total income for the year was computed by the said officer at Rs. 2,01,130 leaving the unabsorbed depreciation to be carried forward. It was contended by the assessee that the depreciation for the year should not only be Rs. 5,360 but should be reckoned to be the total of the said sum along with the unabsorbed depreciation of Rs. 76,857, namely, Rs. 82,217. It was further claimed that under proviso (b) to s. 10(2)(vi) the whole of the unabsorbed depreciation of prior years should be deducted from the business income resulting in a loss of Rs. 68,176. Under s. 24(1) the deficiency under the head of business should be set off against the profits under other heads reducing the total income proportionately to Rs. 1,32,955. The question which arises is which of the two views is correct Under s. 6 of the Act income, profits and gains fall under several distinct heads which have to computed separately according to the different sections from 7 to 12B. "Profits and gains of business, profession or vocation" come under s. 10. Under this section profits and gains have to be computed after making the allowances, mentioned in cls. (1) to (xv) of sub-s. (2) one of such allowances, viz., under cl. (vi), is depreciation of buildings, machinery, plant or furniture which has to be calculated at prescribed rates. Inasmuch as the income from a business may not be enough to meet all the allowances, specially that of depreciation, the Act provides for the carrying forward of the depreciation allowance to subsequent years in so far as the same is not absorbed by the profits and gains of a year. The relevant portion of s. 10(2)(vi), cl. (b), provides that "where, in the assessment of the assessee.... 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, 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 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."
(3.) IN my view, this means that if depreciation for a particular year is X and the unabsorbed depreciation for the previous years in Y then for the year for which the depreciation is calculated at X the allowance admissible is X + Y and this is to be treated as the depreciation for the year in place of X. IN computing the profits or gains of a business under s. 10 allowance must be made for depreciation to the extent of X + Y. If the income, profits or gains of the year are not sufficient to cover the full total of X + Y the balance which is left over must be carried forward to the next year and so on. There is no limit to the number of years in which this can be done but the aggregate of all allowances in respect of depreciation cannot in any case exceed the original cost to the assessee of the buildings, machinery, plant or furniture, as the case may be. So far I have been dealing with the case of an assessee who has only one business but if the assessee has more than one business or if he has several heads under which he derives his income, s. 24 of the Act has got to be taken into consideration in computing his total income. If the assessee has several business in respect of each of which he can claim depreciation the total of the different amounts under the head "depreciation" must be taken into account and deducted from the total of his income from the different businesses so as to find the net result under the head "business, profession or vocation". If he wants to set off loss incurred under the above head against his income, profits or gains under any other head in that year he can do so under s. 24(1) of the Act which provides that "where any assessee sustains a loss or 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". The results is that if his business returns a loss under the head "income' he can set off the same towards his income from securities or from properties or capital gains or under "other sources". If a complete set-off of loss cannot be had under s. 24(1) he can carry the loss forward to the following year under sub-s. (2) of s. 24, the relevant portion of which provides : "Where any assessee sustains a loss of profits or gains in any year... under the head 'profits and gains of business, profession or vocation' and the loss cannot be wholly set off under sub-s. (1), the portion not so set off 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, amount of loss not so set off shall be carried forward to the following year, and so on; but no loss shall so carried forward for more than six years..... Provided that--... (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." ;