Ajit K. Sengupta,J. - (1.) In this reference under Section 256(2) of the Income-tax Act, 1961, for the assessment year 1967-68, the following question of law has been referred to this court: "Whether, on the facts and circumstances of the case, the Tribunal misdirected itself in law in holding that depreciation amounting to Rs. 24,703 (rupees twenty-four thousand seven hundred and three only) even though not admissible as expenditure in working out the deficiency under Section 44A of the Income-tax Act, 1961, should be allowed as a deduction in computing the business income assessed to tax ?"
(2.) The point of reference relates to the deductibility of depreciation for computing the deficiency under Section 44A of the Income-tax Act, 1961. The assessee is a trade association and the assessment year involved is 1967-68 for which the accounting period ended on December 31, 1966. Besides deriving business income which is taxed, the assessee has also income from payments made by the members by way of subscriptions or otherwise. Such receipts fell short of the expenditure incurred solely for the purpose of protection or advancement of the common interest of the members. In working out the deficiency, a sum of Rs. 24,703 representing depreciation was included by the Income-tax Office/ in the original assessment. Subsequently, the Income-tax Officer reopened the assessment under Section 147(b) in the view that income chargeable to tax has escaped assessment by computing excess deficiency by way of depreciation of Rs. 24,703 and, consequently, reduced the deficiency to that extent in the reassessment made by him.
(3.) On appeal by the assessee, the Appellate Assistant Commissioner upheld both the validity of the reassessment under Section 147(b) and also the reduction of deficiency under Section 44A of the Income-tax Act, 1961.;