Supreme Court Allows Set-off of Unabsorbed Depreciation Against Other Income

The Supreme Court held that unabsorbed depreciation allowance from previous years can be set off against income under other heads. The court emphasized the equal treatment of allowances under section 10(2) of the Income-tax Act and the comprehensive assessment of total income from all sources. Relying on precedent, the court allowed the set-off against income from interest on securities and capital gains, directing the revenue to pay the costs of the assessee.

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Issues:
Whether unabsorbed depreciation allowance of previous years can be set off against income under other heads.

Analysis:
The case involves a public limited company for the assessment year 1961-62, where the question revolves around setting off unabsorbed depreciation against income from other heads. Initially, the Income-tax Officer allowed the set-off of unabsorbed depreciation against the income from business, resulting in nil income under section 10. However, there was still unabsorbed depreciation of Rs. 6,98,190 remaining. The assessee claimed to set off this remaining amount against income from interest on securities and capital gains under the head "Other than income from business," which was rejected by the Income-tax Officer and the Appellate Assistant Commissioner.

The case proceeded to the Income-tax Appellate Tribunal, which referred to a precedent involving Commissioner of Income-tax v. Ravi Industries Ltd. The Tribunal found the claim justified based on the precedent and allowed the set-off against income from interest on securities and capital gains. The revenue representative acknowledged that the issue was settled by the Supreme Court in Commissioner of Income-tax v. Jaipuria China Clay Mines (P.) Ltd., where it was established that unabsorbed depreciation can be set off against income from other heads.

The Supreme Court emphasized that the Income-tax Act treats all allowances in section 10(2) equally, requiring them to be deducted from gross profits and gains of a business. Depreciation, though not an actual outgoing, is essential for assessing total income. The Act aims to assess an assessee's total income comprehensively, considering income from all sources. The court highlighted that depreciation allowance can be set off against income from other heads to give effect to its intended purpose.

Therefore, the court concluded that the assessee was entitled to set off the unabsorbed depreciation against income from interest on securities and capital gains. The answer to the question posed was affirmative, and the revenue was directed to pay the costs of the assessee.

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