Commissioner of Income Tax, Kanpur Vs.
M/S. Mother India [1985] INSC 177 (14 August 1985)
TULZAPURKAR, V.D. TULZAPURKAR, V.D.
MUKHARJI, SABYASACHI (J) MISRA RANGNATH
CITATION: 1985 AIR 1720 1985 SCR Supl. (2)
556 1985 SCC (4) 1 1985 SCALE (2)236
ACT:
Indian Income Tax Act, 1922, ss. 10(2) (vi)
proviso (b) and 24 (2) proviso (b) Income Tax Act, 1961. ss. 32(2) and 72 (2).
- Unabsorbed carried forward losses and current depreciation - Deduction of -
Unabsorbed carried forward losses cannot be given preference over current
depreciation while computing the total income of an assessee in an assessment
year.
HEADNOTE:
The Respondent-assessee in the Civil Appeals
had an unabsorbed business 1088 of Rs. 67534 and unabsorbed depreciation of Rs.
1,78,154 at the end of assessment year 1950-51. The respondent's income without
taking into account the current depreciation was Rs. 50,624 in 1951-52 and Rs.
64332 in 1952-53. The amount of current
depreciation was, however, Rs. 58,140 in 1951-52 and Rs. 44,580 in 1952-53.
The respondent contended before I.T.O. that
before deducting the current depreciation from the above profits the unabsorbed
1088 of the earlier year 1950-51 should be first set off. The I.T.O. held that
the carried forward 1088 could not be given priority over the current year's
depreciation in the matter of set off and completed the assessment Accordingly.
Aggrieved by the order of I.T.O., the respondent preferred appeals for both the
years before the A.A.C. who accepted the same holding that unabsorbed carried
forward business 1088 should be set off first in each year before deducting the
current year's depreciation. On further appeals by the appellant Revenue the
Appellate Tribunal restored the order of the I.T.O. But, the High Court in a
reference at the instance of the respondent-assessee answered the question in
favour of the assessee. Similar question of law arose for decision in the Tax
Reference Case.
Counsel for the Revenue contended before the
Supreme Court That on proper construction of the proviso (b) to s.
10(2) (vi) read with the proviso (b) to s.
24(2) of the 1922 Act (equivalent 557 to 8.32(2) read with 8.72(2) of the 1961
Act), it is apparent that unabsorbed carried forward losses of the earlier
years have been given priority over unabsorbed depreciation of the earlier
years but not over the current year's depreciation for, under proviso (b) to 8.
10(2) (vi) it is the carry forward (actual words used are 'added to') of
unabsorbed depreciation to the following previous year that is made subject to
the proviso (b) to 8. 24(2), that is to say, the preference given to the
unabsorbed carried forward losses of the earlier years under proviso (b) to 8.
24(2) is over the unabsorbed depreciation and
not over the current depreciation. On the other hand, counsel for the assessees
strongly relied upon the legal fiction arising from the deeming provision
contained in priviso (b) to 8.
10(2) (vi) of the 1922 Act and S. 32(2) of
the 1961 Act as a result whereof the unabsorbed depreciation is not merely
carried forward to the following previous year but is deemed to be the
depreciation for that year and, therefore, contended that this entire aggregate
depreciation is made subject to proviso (b) to 8. 24(2) of the 1922 Act or to
s.
72(2) (of the 1961 Act). Counsel urged that
his legal fiction must be given full effect without any reservation and,
therefore, between the aggregate amount of depreciation and the unabsorbed
carried forward losses priority has to be given to the latter in the matter of
set off.
Allowing the appeals and answering the
question in the Tax Reference against the assessee, ^
HELD: 1.1 The unabsorbed carried forward
losses cannot be given preference over current depreciation in the matter of
set off in computing an assessee's income for any particular assessment year.
1567
1.2 A close scrutiny of the relevant
provisions of the 1922 Act as also the 1961 Act clearly shows that the
computation of income under the head "profits and gains of business"
of any particular assessment year is required to be done after making certain
allowances specified in sub-s.
(2) of 8.10 of the 1922 Act and after
allowing certain deductions in accordance with the provisions contained in
88. 30 to 43-A of the 1961 Act; in other
words it is the net profits and gains after the specified deductions are made
that are subjected to tax; one of such deductions pertains to depreciation
allowance at the prescribed rate of percentage of the written down value of the
business asset;
and this is provided in s. 10 (2) (vi) of the
1922 Act in 8.
32(1) of the 1961 Act. Upto this stage of
computation no question of either carry forward of unabsorbed depreciation of
the earlier 558 years or carry forward of unabsorbed business losses of earlier
years arises. In other words, the normal accountancy principle has to be
applied in arriving at the net income from, business for that year by debiting
the Current year's depreciation. The question is whether any deviation from
this normal rule of accountancy is contemplated by proviso (b to s. 10(2) (vi)
read with proviso (b) to s. 24(2) of the 1922 Act or by s. 32(2) read with s.
72(2) of the 1961 Act and it is here that the aspect of proper construction of
these provisions arises. [565 E-H, 566 A]
1.3 It is clear that proviso (b) to 8. 10(2)
(vi) of the 1922 Act 18 in two parts and provides for two things;
its first part provides for a carry forward
of unabsorbed depreciation and its second part provides for clubbing the said
carried forward depreciation with the current year's depreciation and deeming
the aggregate to be the current year's depreciation. However, carrying forward
to the unabsorbed depreciation ant the teeming provision in proviso (b) is not
absolute but is subject to the proviso (b) to s.
24(2). had proviso (b) to s. 24(2) not been
enacted by the Legislature the-result would have been that the aggregate
depreciation would have been deducted first out of the profits and gains in
preference to unabsorbed business losses which might have been carried forward
under s. 24(2) but as such losses can be carried forward only for limited
number of years the assessee would in certain circumstances have in his books
losses which he might not be able to set off even within the time limit during
which the set off is permitted. In order to prevent such a situation the
legislature enacted proviso (b) to s.24(2). And proviso (b) to 8. 24(2)
expressly states "where depreciation allowance 18 under clause (b) of the
proviso to clause (vi) of sub-s.2 of s.10 also to be carried for rd, effect
shall first be given to the provisions of this sub-section. In other worts, lt
clearly provides that in the matter of set off the unabsorbed business losses
of the earlier years will have preference over unabsorbed depreciation that is
required to be carried forward under proviso (b) to s. 10(2) (vi) and no
preference over the current depreciation is intended. Since the provisions of
the 1961 Act are in pari materia with the corresponding provisions under the
1922 Act the same conclusion must follow under the 1961 Act. [566 B,E, 567G]
Aluminium Corporation of India Ltd. v. C.I.T. 22 I.T.R.
367. C.I.T. Gujarat v. Gujarat State
Warehousing Corporation 104 ITR 2, Add1. C.I.T. A.P. v. Andhra Printers Ltd.
147 ITR 555, ant C.I.T. West Bengal-IV v.Malwa Sugar Mills Co. Ltd.
134 ITR 56 559 (2) It is true that proviso
(b) to s.10(2) (vi) creates a legal fiction and under that fiction unabsorbed
depreciation either with or without current year's depreciation is deemed to be
the current year's depreciation but it is well settled, as has been observed by
Supreme Court in Bengal Immunity Company Ltd. v. The State of Bihar [1955] 2
SCR 603 at p. 606 that legal fictions are created only for some definite
purpose and these must be limited to the purpose and should not be extended
beyond that legitimate field. Clearly, the avowed purpose of the legal fictions
created by the deeming provisions contained in proviso (b) to s. 10(2) (vi) is
to make the unabsorbed carried forward depreciation partake of the same
character as the current depreciation in the following year, so that it is
available unlike unabsorbed carried forward business 1088, for being set off
against other heads of income of that year. [566 F-H, 567 A] Jaipuria China
Clay Mines (P) Ltd. 59 ITR 555 relied upon.
C.I.T. Bombay v. Bavi Industries 49 ITR 145
approved.
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos.
1570- 1571 of 1973 and Tax Reference Case No. 15 of 1983.
From the Judgment and Order dated 4.9.1970 of
the Allahabad High Court in Income Tax Reference No. 340 of 1964 .
B.B. Ahuja and Miss A. Subhashini for the
appellant in C.A.Nos. 1570-71 of 1973. Harish Salve and Mrs. A.K. Verma for the
appellant in Tax Ref. No. 15 of 1983. S.T. Desai, R.S. Suri and Sudhir Kumar
Sajawan for the respondents in C.A.Nos. 1570-1571 of 1973. B.B. Ahuja and Miss
A. Subhashini for the respondents in Tax Ref. No. 15 of 1983. Harish Salve,
Joel Peres and Mrs. A.K. Verma for intervenors.
The Judgment of the Court was delivered by
TULZAPURKAR, J. In these appeals and the tax reference the common question
arising for determination relates to the priority 560 between current
depreciation and unabsorbed carried forward business loss that is to say which
should be deducted first while computing the total income of an assessee for
the concerned assessment year.
The facts giving rise to the above question
in the civil appeals are these. The concerned assessment years are 1951-53. At
the end of assessment year 1950-51 there was an unabsorbed business loss of Rs.
67534 and unabsorbed depreciation of Rs. 1,78,154. The assessee's income
without taking into account the current depreciation was Rs. 50,624 in 1951-52
and Rs. 64,332 in 1952-53. The assessee contended before the ITO that before
deducting the current depreciation from the above profits the unabsorbed loss
of the earlier year 1950-51 should be first set off. The ITO did not accept the
contention and what he did was that from the profit of Rs. 50,624 for 1951-52,
the depreciation allowance for that year amounting to Rs. 58,140 was partially
set off and the balance of the depreciation of Rs.
7516 was ordered to be carried forward with
the result that the total unabsorbed depreciation carried forward amounted to
Rs. 1,85,670. It was further directed that the entire unabsorbed loss amounting
to Rs. 67534 should also be carried forward. Similarly, in 1952-53 the full
depreciation allowance of that year amounting to Rs. 44580 was set off against
the income of Rs. 64,232; the net income of Rs.
19652 (Rs. 64232 minus Rs. 44580) was
utilised for setting off a part of the carried forward business loss of Rs.
67534 leaving a balance of unabsorbed loss to the extent of Rs. 47832. Both the
unabsorbed amounts (Rs. 1,85,670 and Rs. 47,832) were directed to be carried
forward. Aggrieved by the ITO's refusal to give preference in the matter of set
off to the earlier carried forward business loss before deducting the current
year's depreciation, the assessee preferred appeals for both the years and the
AAC accepted the assessee's contention and directed that unabsorbed carried
forward business loss should be set off first in each year before deducting the
current year's depreciation.
The Department preferred further appeals to
the Appellate Tribunal and relying upon the decision of the Calcutta High Court
in Aluminium Corporation of India Ltd. v. C.I.T., 33 I.T.R. 367, the Tribunal
accepted the Department's contention and restored the ITO's decision. at the
instance of the assessee the following question was referred to the High Court for
its opinion:
"Whether for the assessment years
1951-52 and 1952-53, the assessee was entitled to deduct the unabsorbed
business loss at the end of the assessment year 561 1950-51, before setting off
the depreciation allowance of Rs.58,140 and Rs. 44580 respectively for these
years? " After referring to the relevant provisions of the Indian Income
Tax Act 1922, namely, ss.10 and 24, particularly proviso (b) to 8. 10(2) (vi)
and s. 24(2) Proviso (b) the High Court answered the question in favour of the
assessee.
The Revenue has challenged the High Court's
view in these appeals.
The facts in the Tax Reference are briefly
these. For the assessment year 1969-70 the assessee-company filed a return on
18.7.1969 disclosing a 1088 of Rs. 50,736;
subsequently a revised return was filed on
20.8.1971 claiming a set off of the carried forward 1088 of earlier years
against the income of that year even before making any allowance for the
current year's depreciation. the ITO held that the carried forward 1088 could not
be given priority over the current year's depreciation in the matter of set off
and completed the assessment determining the unabsorbed depreciation for the
year at Rs. 40,255, brought forward development rebate of Rs. 8,020 and the
carried forward past losses were allowed to be carried forward in full. In
appeal the AAC, following the decision of the Allahabad High Court in the case
of Mother India Refrigeration Industries (P) Ltd. (which decision is the
subject matter of civil appeals before us) accepted the assessee's contention
that the carried forward losses have priority not only over the unabsorbed
depreciation of the past years but also over the current year's depreciation in
the matter of set off. The Department preferred an appeal to the Appellate
Tribunal and the Tribunal took the view that unabsorbed carried forward losses
of the earlier years will have priority over unabsorbed deprecation of the
earlier years but not over the current year's depreciation. In coming to this
conclusion the Tribunal placed certain construction on the relevant provisions
of the 1961 Act, namely, ss. 32(2) and 72(2). In other words it preferred the
views of the Calcutta High Court in Aluminium Corporation's case (supra) and of
Andhra Pradesh High Court in Addl. Commissioner of Income-tax- v. Andhra
Printers Ltd., 117 I.T.R. 555, in so far as the competition for priority was
between unabsorbed carried forward 1088 and current depreciation. At the
instance of the assessee in view of conflict of decisions between various High
Courts the Tribunal has referred the following question of law for this Court's
opinion under s. 257 of the Income Tax Act, 1961:
562 "Whether on the facts and in the
circumstances of the case, the depreciation for the current year should first
be deducted before deducting the unabsorbed carried forward business losses
having regard to the provisions of s. 72 (2) read with 8- 32 (2) of the Income
Tax Act, 1961?" Since the answer to the question raised depends upon
proper construction to be placed on the relevant provisions of the 1922 Act as
also of 1961 Act it will be necessary to set out the relevant provisions. Under
the 1922 Act s. 10(2) (vi) permits, while computing profits or gains of
business, a deduction by way of depreciation allowance in respect of buildings,
machinery, plant or furniture of a sum equivalent to such percentage on the
written down value thereof as may be prescribed. Then comes proviso (b) to the
aforesaid provision which is material. The relevant portion of proviso (b) (omitting
unnecessary words) runs thus:
"(b) Where in the assessment of the
assessee full effect cannot be given in any such allowance in any year owing to
there being no profits or gains charge able for that year, or owing to the
profits or gains chargeable being less than the allowance, then, subject to the
provisions of clause (b) of the proviso of 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 nd deemed to be a part of that allowance, or if there is no such
allowance for that year be deemed to be the allowance for that years, and so on
for succeeding years . " Section 24 provides for setting of 1088 in computing
aggregate income. Sub-s.(1) thereof provides for setting off of 1088 of pro-
fits or gains under one head against profits or gains under any other head in
the same year. Sub-s(2) thereof runs thus:
"(2) Where any assessee sustains a 1088
of profits or gains in any year, in any business, profession or vocation, and
the 1088 cannot be wholly set off under sub-s.(1) so much of the 1088 as is not
so set off or the whole 1088 where the assessee had no other head of income
shall be carried forward to the following year, and 563 (i).........
(ii) Where the 1088 was sustained by him in
any other business, profession or vocation (meaning other than speculative
business), it shall be set off against the profits and gains if any, if any
business, profession or vocation carried on by him in that year: provided that
the business, profession or vocation in which the 1088 was originally sustained
continued to be carried on by him in that year;
Then comes proviso (b) to sub-s (2) which is
material and it runs thus "(b) Where depreciation allowance is under
clause (b) of the proviso to clause (vi) of sub-s(2) of s. 10, also to be
carried, effect shall first be given to the provisions of this
sub-section;" Under the 1961 Act the material provisions are to be found
in s. 32(1) and (2) and s. 72(1) and (2) and it was not disputed that the
material provisions in both the Acts are couched in substantially the same
language. Two more things which are common under both the Acts need be noticed.
Unabsorbed carried forward business 1088 can
be set off only against business income of the following year or years while
depreciation can be deducted from income under any other head; further while
the former can be carried forward for a limited number of years as specified in
the enactment there is no time limit prescribed for carrying forward unabsorbed
depreciation.
Counsel for the revenue urged that on proper
construction of the proviso (b) to s. 10(2) (vi) read with the proviso (b) to
s. 24(2) of the 1922 Act (equivalent to s. 32(2) read with s. 72(2) of the 1961
Act) it is apparent that unabsorbed carried forward losses of the earlier years
have been given priority over unabsorbed depreciation of the earlier years but
not over the current year's depreciation for, under priviso (b) to s. 10(2)
(vi) it is the carry forward (actual words used are 'added to') of unabsorbed
depreciation to the following previous year that is made subject to the proviso
(b) to s. 24(2), that is to say, the preference given to the unabsorbed carried
forward losses of the earlier years under proviso (b) to s. 24(2) is over the
unabsorbed depreciation and not over the current depreciation. Counsel 564
further urged that such construction is in accord with the basic and well
recognized principle of commercial accountancy that in computing the profits
and gains of business for a particular year that year's depreciation (meaning
current depreciation) is always to be treated as the first charge on such
profits and gains and that is also the scheme of the Act. According to him tax
is pay able on the total income of the concerned year, that such income
includes profits and gains of a business, that the profits and gains must mean
net profits and gains and net profits and gains cannot be ascertained without
debiting the current year's depreciation to the profits and 1088 account of
that year and it is in accordance with this principle of commercial accountancy
that preference to unabsorbed carried forward losses has not been given over
current depreciation but has been given over the unabsorbed depreciation of the
earliers year in the matter of set off. In fact, counsel contended that having
regard to well settled principles of accountancy and the aforesaid provisions
of the Act there can be no competition between current year's depreciation must
be deducted first before unabsorbed carried forward losses are set off. In
support of his submissions counsel relied upon four decisions: Aluminium
Corporation of India Ltd. v. C.I.T. (supra) C.I.T. Gujarat, v. Gujarat State Warehousing
Corporation 104 I.T.R. 1, Addl. C.I.T. A.P. v.
Andhra Printers Ltd. 147 I.T.R. 555 and
C.I.T., West Bengal- IV v. Malwa Sugar Mills CO. Ltd. 134 I.T.R. 56. In all
these decisions the view taken is that current depreciation has to be deducted
first before unabsorbed carried forward business losses are set off. He pointed
out that the High Court in deciding the question in favour of the assessee
referred to a decision of this Court in Jaipuria China Clay Mines (P) Ltd. 59
I.T.R. 555 and relied on certain observations made therein but the point that
arose for decision in that case was entirely different and the observations
cannot be divorced from the context of the Point decided therein.
On the other hand, counsel for the assessee
in the appeals and the tax reference strongly relied upon the legal fiction
arising from the deeming provision contained in proviso (b) to 8. 10(2) (vi) of
the 1922 Act and 8. 32(2) of the 1961 Act as a result whereof the unabsorbed
depreciation is not merely carried forward to the following previous year but
is deemed to be the depreciation for that year and according to counsel this
entire aggregate depreciation is made subject to proviso (b) to s. 24(2) (of
the 1922 act) or to s. 72(2) (of the 1961 Act). Counsel urged that this legal
fiction must be given full effect without any reservation and, therefore,
between the aggregate amount of 565 depreciation and the unabsorbed carried
forward losses priority A has to be given to the latter in the matter of set
off. It was further urged that the revenue cannot rely upon the principles of
commercial accountancy, however well settled or well recognised these might be,
in order to achieve a result contrary to what is warranted by the express
provision of the statue including the legal fiction if any, created therein; in
other words principles of commercial accountancy, if they are modified or
deviated from by statute, cannot be allowed to prevail over statutory
provision. It was also urged that the construction of the relevant provisions
suggested by the assessee and which has been accepted by the High Court has
some advantages and therefore should be preferred to the construction suggested
by the revenue.
Having regard to the aforesaid rival
contentions it will be clear that the real issue that arises for our
consideration in this case is whether, on proper construction of the relevant
provisions of the concerned enactment unabsorbed carried forward losses should
have preference over current depreciation in the matter of set off or is the
position vice versa while computing the total income of an assessee in the
concerned assessment year? And the answer to this question depends on what is
the true scope and purpose of the legal fiction created under proviso (b) to s.
10(2) (vi) of the 1922 Act or under s. 32(2) of the 1961 Act.
At the outset it may be stated that a close
scrutiny of the relevant provisions of the 1922 Act as also the 1961 Act
clearly shows that the computation of income under the head profits and gains
of business of any particular assessment year is required to be done after
making certain allowances specified in sub-s(2) of s.10 of the 1922 Act and
after allowing certain deductions in accordance with the provisions contained
in ss. 30 to 43-A of the 1961 Act; in other words it is the net profits and
gains after the specified deductions are made that are subjected to tax; one of
such deductions pertains to depreciation allowance at the prescribed rate of
percentage of the written down value of the business asset; and this is
provided in s.10(2) (vi) of the 1922 Act and in s.32 (1) of the 1961 Act. Upto
this stage of computation no question of either carry forward to unabsorbed
depreciation of the earlier years or carry forward of unabsorbed business
losses of earlier years arises. In other words, the normal accountancy
principle has to be applied in arriving at the net income from business for
that year by debiting the current year's depreciation.
The question is whether any deviation from
this normal rule of accountancy is contemplated by proviso (b) to 566 s. 10(2)
(vi) read with proviso (b) to s.24(2) of the 1922 Act or by s. 32(2) read with
s. 72(2) of the 1961 Act and it is here that the aspect of proper construction
of these provisions arises. Dealing with the provisions of the 1922 Act first,
it will be clear that proviso (b) to s. 10(2) (vi) is in two parts and provides
for two things; its first part provides for a carry forward of unabsorbed
depreciation and its second part provides for clubbing the said carried forward
depreciation with the current year's depreciation.
However, carrying forward of the unabsorbed
depreciation and the deeming provision in proviso (b) is not absolute but is
subject to the proviso (b) to s.24(2). Had proviso (b) to s.24(2) not been
enacted by the Legislature the result would have been that the aggregate
depreciation would have been deducted first out of the profits and gains in
preference to unabsorbed business losses which might have been carried forward
under s. 24(2) but as such losses can be carried forward only for limited
number of years the assessee would in certain circumstances have in his books
losses which he might not be able to set off even within the time limit during
which the set off is permitted. In order to prevent such a situation the
legislature enacted proviso (b) to s.
24(2). And proviso (b) to s. 24(2) expressly
states where depreciation allowance is, under clause (b) of the proviso to
clause (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. In other words, it clearly
provides that in the matter of set off the unabsorbed business losses of the
earlier years will have preference over unabsorbed depreciation that is
required to be carried forward under proviso (b) to s. 10(2) (vi) and no
preference over the current depreciation is intended.
It is true the proviso (b) to s.10(2)(vi)
creates a legal fiction and under that fiction unabsorbed depreciation either
with o. without current year's depreciation is deemed to be the current year's
depreciation but it is well settled, as has been observed by this Court in
Bengal Immunity Company Limited v. The State of Bihar [1955] 2 S.C.R. at p.606,
that legal fictions are created only for some definite purpose and these must
be limited to that purpose and should not be extended beyond that legitimate
field. Clearly, the avowed purpose of the legal fiction created by the deeming
provision contained in proviso (b) to s.10(2) (vi) is to make the unabsorbed
carried forward depreciation partake of the same character as the current
depreciation in the following year, so that it is available, unlike unabsorbed
carried forward business loss, for being set off against other heads of income
of 567 that year. That this is so becomes clear from this Court's observations
in Jaipuria China Clay Mines (P) Ltd. case (supra) appearing at p. 561 of the
Report which run thus:
"The unabsorbed depreciation allowance
is carried forward under proviso (b) to s.10(2) (vi) and the method of carrying
it forward is to add it to the amount of the allowance or depreciation in the
following year and deeming it to be part of that allowance; the effect of
deeming it to be part of that allowance is that it falls, in the following year
within cl.(vi) and has to be deducted as allowance.
In CIT Bombay v. Ravi Industries 49 I.T.R.
145, the same position has been clarified by the Bombay High Court.
The Court has observed that the unabsorbed
depreciation does not lose its character and attributes when it is carried
forward to the followings year; such unabsorbed depreciation of the earlier
year, which is carried forward to the current year and which is deemed to be of
the current year under proviso (b) of s.10(2) (vi) can be set off, unlike other
business losses, against income under other heads. Such being the purpose for
which the legal fiction is created it is difficult to extend the same beyond
its legitimate field and will have to b confined to that purpose. It is
therefore not possible to accept the contention of Counsel for the assessees
that because of the legal fiction the unabsorbed carried forward losses should
be given preference not merely over the unabsorbed carried forward depreciation
but also over the current year's depreciation. There is thus no modification of
nor deviation from the basis and well recognised principle of commercial
accountancy by the statute as is contended by counsel for the assessees.
Since the provisions of the 1961 Act are in
pari materia with the corresponding provisions under the 1922 Act the same
conclusion must follow under the 1961 Act namely the current depreciation must
be deducted first before deducting the unabsorbed carried forward business
losses of the earlier years in giving set off while computing the total income
of any particular year.
Having regard to the above discussion it
seems to us clear that unabsorbed carried forward losses cannot be given
preference over current depreciation in the matter of set off in computing an
assessee's income for any particular assessment year and as 568 such the
question has been correctly decided In Aluminium Corporation's case and Malwa
Sugar Mills case (supra) by the Calcutta High Court, in Gujarat State
Warehousing Corporation's case (supra) by the Gujarat High Court and in Andhra
Printers'case (supra) by the Andhra Pradesh High Court. In the impugned
judgment in the Civil Appeals the High Court has relied on some observations of
this Court in Jaipuria China Clay Mines case (supra) but that case dealt with a
different point altogether and as such the observations made in the context of
the points that arose for decision there would be of no avail. The High Court's
decision in the Civil Appeals is therefore set aside and that of the Tribunal
is restored while in Tax Reference the question referred to this Court in
answered against the assessee to the effect that the depreciation for the
current year must first be deducted before deducting the unabsorbed carry
forward business loss. The assessee will pay the costs of the appeals and tax
reference to the Department.
M.L.A. Appeals allowed.
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