COMMISSIONER OF INCOME TAX Vs. GIRDHARLAL HARIVALLABHADAS MILLS COMPANY LIMITED

JUDGEMENT

(1.) THIS is a reference under section 66(1) of the Indian Income -tax Act, 1922. The assessee in this case is Girdharlal Harivallabhadas Mills Co. Ltd. The assessment proceedings relate to the assessment year 1957 -58. The business profit for the relevant previous year of the assessee -company was determined at Rs. 7,94,272. At against the amount of this profit, depreciation and development rebate amounting to Rs. 1,30,529 was set off, leaving the income for the previous year from business at Rs. 6,63,743. The assessee had carried forward the loss of Rs. 4,10,095 from the preceding years. After giving a set -off for this amount, the business income was reduced to Rs. 2,44,648. The assessee had an unabsorbed depreciation of Rs. 5,62,317 in respect of the preceding years. The Income -tax Officer set off the unabsorbed depreciation of the preceding years to the extent of Rs. 2,44,648, leaving a balance of Rs. 3,17,669 as the unabsorbed depreciation for carry forward purposes. The assessee had also income falling under the head 'income from property' which was determined at Rs. 5,614. The Income -tax officer assessed the assessee on a total income of Rs. 5,614. The assessee appealed against the decision of the Income -tax Officer. The Appellate Assistant Commissioner held that by virtue of the provisions contained in section 10(2) (vi) the unabsorbed depreciation of the preceding years was to be treated as a part of the depreciation allowance for the year in question. He, therefore, permitted the amount of unabsorbed depreciation to be set off also against the income from property amounting to Rs. 5,614 leaving a balance of Rs. 3,12,055 as the unabsorbed depreciation for carry forward purposes. The matter was carried further to the Income -tax Appellate Tribunal. The Tribunal upheld the decision of the Appellate Assistant Commissioner, whereupon the Commissioner of Income -tax, Gujarat, applied to the Income -tax Appellate Tribunal for a reference under section 66(1). Thereupon, the Income -tax Tribunal has raised the following question and referred the same for our decision :

(2.) THE Commissioner of Income -tax had desired that the question should be framed slightly differently. The question as required to be raised by the Commissioner was the following :

(3.) DEALING with the merits of the matter, it will be necessary first to refer to the provisions of section 10. Section 10(1) provides that the tax shall be payable by an assessee under the head 'profits and gains of business, profession or vocation' in respect of the profits or gains of any business, profession or vocation carried on by him. Sub -section (2) (vi) provides that such profits or gains shall be computed after making an allowance in respect of depreciation of buildings, machinery, plant or furniture being the property of the assessee used for the purposes of business, profession or vocation, of a sum equivalent to such percentage on the written down value thereof as may in any case or class of cases be prescribed. Proviso (b) to section 10 (2) (vi), to the extent that it is relevant, runs as under :