High Court denies assessee's claim for carrying forward losses and depreciation under section 32(1)(iii)

The High Court ruled against the assessee in a case concerning the entitlement to carry forward and set off unabsorbed losses, unabsorbed depreciation, and relief under section 32(1)(iii). The court held that the assessee could not claim these benefits as the businesses related to the losses and depreciation were discontinued, emphasizing the requirement for the businesses to be continuously carried on for such set-offs. The court cited relevant precedents and concluded in favor of the Revenue, ordering the assessee to bear the costs and counsel's fee.

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Issues Involved:
1. Entitlement to carry forward and set off unabsorbed losses.
2. Entitlement to carry forward and set off unabsorbed depreciation.
3. Entitlement to relief u/s 32(1)(iii).

Summary:

Issue 1: Entitlement to carry forward and set off unabsorbed losses
The Tribunal held that the assessee was not entitled to carry forward and set off the unabsorbed losses relating to the collapsible tubes factory against the income from refractory works for the assessment year 1970-71. The Tribunal reasoned that the business in which the loss was originally sustained must be continuously carried on till the year in which the carried forward loss is sought to be set off. Since the collapsible tubes factory ceased operations in 1965, the assessee could not claim the set-off. The High Court affirmed this view, emphasizing the proviso to s. 72 which requires the continuation of the business for the losses to be carried forward and set off.

Issue 2: Entitlement to carry forward and set off unabsorbed depreciation
The Tribunal held that the unabsorbed depreciation relating to the collapsible tubes and lamp factory could not be set off against the income from refractory works for the assessment year 1970-71. The Tribunal followed the decision in CIT v. Dutt's Trust [1942] 10 ITR 477, concluding that the business to which the unabsorbed depreciation relates should continue during the year in which the set-off is claimed. The High Court agreed, stating that the continuation of the business is an essential pre-requisite for allowing the carry forward and set off of unabsorbed depreciation.

Issue 3: Entitlement to relief u/s 32(1)(iii)
The Tribunal disallowed the assessee's claim for a loss u/s 32(1)(iii) on the sale of certain assets, as the assets sold related to a business that was discontinued in December 1965. The High Court upheld this view, interpreting s. 32(1)(iii) to mean that the business to which the sold assets belong must be carried on for at least some part of the relevant accounting year. The court cited various decisions, including Ganga Glass Works Ltd. v. CIT [1951] 19 ITR 126 (All) and Western States Trading Co. (P.) Ltd. v. CIT [1971] 80 ITR 21 (SC), to support its conclusion that the allowance under s. 32(1)(iii) cannot be claimed if the business has ceased to exist.

Conclusion:
The High Court answered all three questions in the affirmative and against the assessee, requiring the assessee to pay the costs of the Revenue, with counsel's fee set at Rs. 500 (one set).

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