COMMISSIONER OF INCOME TAX Vs. GARDEN SILK WVG FACTORY

JUDGEMENT

(1.) THE following two questions have been referred to us for our opinion :

(2.) SHORTLY stated the facts leading to this reference are as under : The relevant assessment year was 1968 -69. The assessee which is a registered firm filed a return of income showing the total income of Rs. 3,94,483. A provisional assessment under section 141 was made on November 18,1968, on the basis of the income disclosed and tax was paid accordingly. It appears that the Income -tax Officer found subsequently that the assessee had in fact earned a profit of Rs. 11,82,856 in the previous year, but had deducted Rs.7,87,573 consisting of Rs. 3,49,242 as business loss, Rs. 1,59,181 as depreciation and Rs. 2,79,150 as development rebate, all carried forward from the assessment year 1967 -68. The Income -tax Officer, therefore, passed an order under section 154 and section 155 of the Income -tax Act, 1961, and held that business loss and depreciation which were unabsorbed in the earlier years could not be set off against the income of the firm in the year under reference. The matter was carried by the assessee -firm in appeal before the Appellate Assistant Commissioner, who, however, dismissed the appeal and confirmed the order of the Income -tax Officer. The matter was, therefore, carried in appeal by the assessee -firm to the Tribunal. The Tribunal rejected the claim of the assessee -firm so far as the carry -forward and set -off of loss were concerned as, in its opinion, there was a clear bar under section 72(2) of the aforesaid Act. As regards the claim of the assessee -firm, on account of carry -forward and set -off of unabsorbed depreciation allowance against its business income for the assessment year under reference. In this view of the matter, therefore, the Tribunal partially allowed the appeal of the assessee -firm so far as its claim for the business loss was concerned. Both the parties, therefore, sought the reference to this court and the Tribunal has referred the two questions set out hereinabove for our opinion.

(3.) IT is now on the first question that the entire debate in this reference, therefore, turned. The next question which arises for our determination is, whether in the case of an assessee which is a registered firm where full effect cannot be given to depreciation allowances in the assessment of individual partners, the registered firm is entitled to carry forward the unabsorbed depreciation allowance to the next year and set off against its business income. On behalf of the assessee, it has been strenuously urged that but for the amendment which has been made in the relevant section governing this question, namely, section 32(2), in the year 1953, when the words, 'where the assessee is a registered firm, in the case of the assessment of partners' were added the position was that both the firm and the partners were entitled to claim the benefit of carry forward and set off of unabsorbed depreciation allowance to the next year of their respective assessments. The only difference which has been made, it was so urged on behalf of the assessee, by addition of the aforesaid words was that the same depreciation allowance could not be claimed by a firm again, if it has been fully effected in the case of assessment of the partners. It was vehemently urged on behalf of the assess that on the plain reading of the section so much of that depreciation allowance of a registered firm which is not fully effected in the case of parties is to be carried forward and added to the current depreciation allowances of the next year and is deemed to be part of that allowances, or in case if there is no current depreciation allowance would be deemed to be current depreciation allowance for the said year. In other words, it is urged that unabsorbed depreciation allowance is of the registered firm and, therefore, it is to be added to the depreciation allowances of the firm in the next year. On behalf of the revenue, it is urged that by the amendment effected in 1953, the case of a firm is taken out from the purview of section 10(2)(vi)(b) of the 1922 Act (corresponding to section 32(2) of the 1961 Act) an exception is sought to be carved out and the principle incorporated in the said sub -section is to be applied in case of assessment of partners, if the assessee is a registered firm. It was, therefore, urged on behalf on the revenue that the benefit of carry -forward and set -off of the unabsorbed depreciation allowance which has been granted by the said sub -section is to be applied in case of individual assessment of partners, if the assessee concerned is a registered firm, and, therefore, if once depreciation allowance is allocated amongst partners on account of there being insufficient profit or income of the firm, it cannot be again brought back to the assessment of the firm, if full effect could not be given to the depreciation allowance in the case of partners.