1962 (2) TMI 117 - HC - Income Tax

Interpretation of Income-tax Act on Unabsorbed Depreciation Setoff

The judgment interprets Sections 10(2)(vi) and 24(2) of the Indian Income-tax Act regarding unabsorbed depreciation. It rules in favor of the assessee, ... - Issues Involved:1. Interpretation of Section 10(2)(vi) read with proviso (b) and Section 24(2) read with proviso (b) of the Indian Income-tax Act.2. Treatment of unabsorbed depreciation from past years in the computation of total income for the assessment year 1952-53.Issue-Wise Detailed Analysis:1. Interpretation of Section 10(2)(vi) read with proviso (b) and Section 24(2) read with proviso (b):The judgment revolves around the interpretation of Section 10(2)(vi) and Section 24(2) of the Indian Income-tax Act. Section 10(2)(vi) pertains to the allowance for depreciation on buildings, machinery, plant, or furniture, which must be calculated at prescribed rates. If the income from a business is insufficient to cover the depreciation allowance, the unabsorbed depreciation can be carried forward to subsequent years. The relevant portion of Section 10(2)(vi), clause (b), states that the unabsorbed depreciation 'shall be added to the amount of the allowance for depreciation for the following year and deemed to be part of that allowance.'The judgment clarifies that if depreciation for a particular year is X and the unabsorbed depreciation for previous years is Y, the allowance admissible for the year is X+Y. This combined depreciation must be treated as the depreciation for the current year. If the income is insufficient to cover the full amount of X+Y, the balance must be carried forward to the next year.2. Treatment of unabsorbed depreciation from past years in the computation of total income for the assessment year 1952-53:The assessee, a company with multiple sources of income, had an unabsorbed depreciation of Rs. 76,857 from past years. For the assessment year 1952-53, the total income from business was Rs. 14,041 before charging depreciation for the year, which was Rs. 5,360. After deducting the depreciation, the net income was Rs. 8,681. The Income-tax Officer set off this amount against the losses, resulting in a business income of nil for that year. The company also had dividend income of Rs. 2,01,130, making the total income Rs. 2,01,130, with the unabsorbed depreciation carried forward.The assessee argued that the depreciation for the year should be the total of Rs. 5,360 and the unabsorbed depreciation of Rs. 76,857, amounting to Rs. 82,217. They claimed that under proviso (b) to Section 10(2)(vi), the entire unabsorbed depreciation should be deducted from the business income, resulting in a loss of Rs. 68,176. This loss should be set off against the dividend income under Section 24(1), reducing the total income to Rs. 1,32,955.The judgment supports the assessee's view, stating that unabsorbed depreciation should be added to the depreciation for the current year and set off against the total income. The judgment references the case of Ambika Silk Mills Co. Ltd. v. Commissioner of Income-tax, where it was held that unabsorbed depreciation could be set off against income from other heads, including capital gains. The judgment also cites Laxmichand Jaiporia Spinning and Weaving Mills, where it was held that unabsorbed depreciation should be treated as part of the business loss and set off accordingly.The conclusion is that the unabsorbed depreciation of Rs. 76,857 should be added to the depreciation of the current year and deducted from the total income, supporting the assessee's claim. The assessee is entitled to set off the unabsorbed depreciation against the dividend income, reducing the total income for the assessment year 1952-53.Conclusion:The judgment concludes in favor of the assessee, stating that the unabsorbed depreciation from past years should be added to the depreciation of the current year and deducted from the total income of the previous year relevant for the assessment year 1952-53. The assessee is awarded the costs of the reference.