1982 (8) TMI 11 - HC - Income Tax

High Court allows set-off of unabsorbed depreciation for partner in individual assessment

N. Krishnammal Versus Commissioner Of Income-Tax

N. Krishnammal Versus Commissioner Of Income-Tax - [1984] 147 ITR 431 Issues Involved:1. Set-off of unabsorbed depreciation.2. Continuity of business operations.3. Interpretation of relevant sections of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Set-off of Unabsorbed Depreciation:The primary issue revolves around whether the assessee is entitled to set off unabsorbed depreciation from the firm, Messrs. Pioneer Transports, in her individual assessment for the year 1971-72. The Income Tax Officer (ITO) disallowed the set-off claim, stating that the assessee did not meet the mandatory requirements of the Income Tax Act, 1961. The Appellate Assistant Commissioner (AAC) and the Income Tax Appellate Tribunal (ITAT) upheld this disallowance. The matter was then referred to the High Court under Section 256(1) of the Act.The High Court analyzed Section 32(2) of the Act, which deals with the carry-forward and set-off of depreciation. It was observed that if full effect for depreciation cannot be given in a particular year due to insufficient profits, the unabsorbed depreciation can be carried forward and set off against future profits. The Court emphasized that the unabsorbed depreciation from the firm's assessment should be given effect in the individual assessments of the partners, as per Section 32(2) read with Section 72(2).2. Continuity of Business Operations:The ITO rejected the set-off claim on the grounds that there was no continuity in the transport firm's business, as the business was halted from May 1, 1969, to August 16, 1969. The assessee contended that the business was only temporarily stopped and resumed thereafter until the firm's dissolution on June 11, 1970. The AAC directed the ITO to verify the actual share of loss from the firm remaining unabsorbed in 1971-72 and set it off against the income from the same business, in conformity with Section 72 of the Act. However, this direction did not cover unabsorbed depreciation.The High Court noted that the transport business was indeed continued by the firm after a brief halt and subsequently taken over by the assessee. Therefore, the assessee's claim for continuity of business was accepted.3. Interpretation of Relevant Sections of the Income Tax Act, 1961:The Court examined Sections 32 and 72 of the Income Tax Act, 1961. Section 32(2) allows for the carry-forward of unabsorbed depreciation to subsequent years, treating it as part of the depreciation allowance for those years. Section 72 deals with the carry-forward and set-off of business losses, including unabsorbed depreciation.The Court referred to several precedents, including CIT v. Garden Silk Weaving Factory, CIT v. Virmani Industries (P) Ltd., and Raj Narain Agarwala v. CIT, which support the assessee's position. The Court also discussed the contrasting views in Ballarpur Collieries Co. v. CIT and CIT v. Nagapattinam Import and Export Corporation, ultimately siding with the interpretation that allows partners to carry forward their share of unabsorbed depreciation for set-off against their future income.The Court concluded that the assessee is entitled to set off her share of unabsorbed depreciation of the firm against her aggregate income for the assessment year in question. This decision aligns with the Supreme Court's ruling in CIT v. Jaipuria China Clay Mines (P.) Ltd., which supports the set-off of unabsorbed depreciation in the individual assessments of partners.Conclusion:The High Court answered the referred question in the negative and in favor of the assessee, allowing her claim for set-off of unabsorbed depreciation. The assessee was awarded costs from the Revenue, with counsel's fee set at Rs. 500.