COMMISSIONER OF INCOME TAX Vs. ESTATE AND FINANCE LIMITED

JUDGEMENT

(1.) THIS is a reference to the High Court at the instance of the CIT under S. 256(1) of the IT Act, 1961. The question referred for our consideration by the Tribunal is as follows:

(2.) THE reference arises out of the assessment proceedings for the asst. year 1963 64, the relevant previous year being the period 1st Aug., 1961, to 31st July, 1962. The assessee is a limited company which was incorporated in 1947. It purchased a large plot of land at Malad and the same was being sold in parcels. The income from such sale was assessed as business income of the assessee company. In Dec., 1947, it had purchased a theatre in Bombay for Rs. 8,50,000. The necessary finance for acquiring the theatre was raised by mortgaging the theatre itself. The theatre was let out with all its installations and furniture and the income from such letting out was being assessed under s.12 of the Indian IT Act, 1922. The theatre was sold in 1952, the assessment year being 1953 54. In computing the income from the letting out of the theatre the assessee was allowed depreciation on the theatre's machinery and furniture under S. 12(3) r/w S. 20(2)(vi). In the asst. yrs. 1950 51, 1951 52, and 1952 53 the depreciation as properly computed could not be allowed as a deduction because the activities of the assessee resulted in a loss. The unabsorbed depreciation of the assessee of these three years was as follows :

(3.) THE assessee thereafter appealed to the AAC contending that under S. 57(ii), in determining the income under the head "Other sources", the assessee was entitled to all the allowances contemplated under S. 32 and that by reason of the provision contained in S. 32(2) where full effect could not be given to the depreciation allowance due in any previous year, the allowance or part thereof to which effect could not be given was required to be added to the amount of allowance of depreciation for the following previous year and deemed to be part of that allowance or if there is no profit for that year, it should be deemed to be unabsorbed allowance or sufficient profit for that year and carried forward to the succeeding year or years. It was urged before the AAC that, applying these provisions in the manner indicated, the unabsorbed depreciation amount of Rs. 70,700 should be deemed to be part of the allowance for the asst. year 1963 64 and that it should be set off against other income as provided under the Act. The AAC rejected this contention holding that since the assessee had ceased the letting of building, plant or furniture since 1952, the question of invoking the provisions of S. 57 read with S. 32(2) did not arise.