TMI Blog1952 (3) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... regards the computation of the capital gain. The assessee's contention was that the capital gains tax is ultra vires the Legislature. The Tribunal held that it was intra vires. No arguments were addressed to us on this point as the matter is pending before the High Court of Bombay. The only question on which a reference is sought by the assessee is on this point. The question of law which arises is : - Whether the provisions of Section 12B of the Indian Income-tax Act are ultra vires the Indian Legislature ? 3. The total assessable profit as computed by the Income-tax Officer before providing for depreciation in respect of the year of account amounted to a sum of ₹ 37,703. The total depreciation allowable under the Act in respect of the year under reference amounted to ₹ 52,985. The Income-tax Officer ascertained the assessee's business loss at ₹ 15,282 (Rs. 52,985 minus ₹ 37,703). This amount he set off against the capital gains of ₹ 90,400 and ascertained the assessable income at ₹ 75,118(90,400 minus 15,282). The question which arose before the Tribunal was what was the maximum depreciation which was allowable to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -- Where the total income of a company includes any income chargeable under the head 'capital gains', the super-tax payable by the company in any year shall be reduced by an amount computed on that part of its total income which consists of such inclusion at the rate of super-tax (excluding the rate of additional super-tax, if any) specified in the case of a company by the annual Act of the Central Legislature fixing the rate or rates of tax for that year. The Income-tax authorities computed the assessee's business loss at ₹ 15,282 and capital gains at Rs, 90,400. This resulted in a net assessable income according to the department of ₹ 75,118. The Tribunal has already held that the assessee had no business loss and, therefore, the total income which was assessable to tax was under the capital gains of ₹ 90,400. For the purpose of allowing relief to the assessee, therefore, under Section 17(7) the amount to be considered is ₹ 90,400. If, however, the assessment made by the department was to stand the net income ascertained would be ₹ 75,118 (90,400 minus 15,282). In such a case the department says that the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d one of the allowances is in respect of depreciation which is dealt with in clause (vi). Therefore, it is clear that as far as Section 10 itself is concerned, profits or gains of business are arrived at after giving credit for the various allowances referred to in sub-section (2). It is also clear that as a result of various allowances in the year of account a business may work at a loss rather than at a profit in which case the assessee would show a loss as a result of the working of the business and not a profit. Although the language used in sub-section (2) is that profits and gains are to be computed it cannot be disputed that what was intended by the Legislature was that the result of the working of the business should be arrived at by taking into consideration the various permissible allowances and then determining whether the business had worked at a profit or at a loss. Then we turn to Section 24(1) which provides for a set-off of loss in computing the aggregate income and it provides that where an assessee sustains a loss of profits or gains in any year under any of the heads mentioned in Section 6, he shall be entitled to set off the amount of the loss against his inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on has been allowed. Emphasis has also been placed upon the language of Section 24(2)(b) which provides that where depreciation allowance is, under clause (b) of the proviso to clause (vi) of sub-section (2) of Section 10, also to be carried forward, effect shall first be given to the provisions of this subsection . Therefore in the first place a loss has to be set off under Section 24(1) and only after setting off the loss contemplated by Section 24, the depreciation which has not already been absorbed would be absorbed. Now Mr. Desai is right in emphasising the language used by the Legislature in the proviso. The language used is, there being no profits or gains chargeable for that year and what is contended is that the profits or gains referred to are the profits or gains of the business in respect of which depreciation is claimed. Now whichever way one looks at this proviso it creates difficulty. If the plain natural meaning is to be given to the expression profits or gains then it would include depreciation which has got to be calculated in order to arrive at profits or gains within the meaning of Section 10 and that quite obviously cannot be the meaning of profits or ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to in Section 6 . Therefore, if the assessee has been assessed to income under the head capital gains as he has been in this case, viz., to the extent of ₹ 90,400, and if depreciation has been absorbed only to the extent of ₹ 52,985, he is entitled to set off the balance of ₹ 15,282 against the capital gains of ₹ 90,400, thus showing this total income at the figure of ₹ 75,118. Therefore, by enacting Section 10(2)(vi) and the proviso and Section 24(2)(b) what the Legislature had in mind was this: If a business was worked at a loss in any particular year, the loss can be set off against any other head under Section 24(1); if the loss cannot be fully set off then it can be carried forward to the next year, but then it can be only set off against the profits of that particular business and that set-off would be permissible to the assessee for a period of six years only. After six years the right to set off would come to an end. But in the case of depreciation and to the extent that the loss was caused by depreciation being not fully absorbed there would be no limit to the carrying forward of that depreciation, and that depreciation can be set off at any t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this particular case the view taken by the Department would be more favourable to it so far as this particular assessment is concerned because the question as to the liability of the assessee to pay super-tax under Section 17 arises. The assessee claims a rebate under Section 17(7) and the rebate in respect of super-tax is to be given where in the total income of a company is included any income chargeable under the head capital gains and the contention of the assessee is that its income under the head capital gains is ₹ 90,400 and the assessee is entitled to a rebate on that amount. The contention of the Department, on the other hand, is that rebate must be restricted not to ₹ 90,400 but to ₹ 90,400 less ₹ 15,282 set off in respect of the business loss and therefore the Department contends that the assessee is entitled to rebate only ₹ 75,118. It will now be appreciated why the Department contends that ₹ 15,282 should be set off against ₹ 90,400, because in that view of the case the relief to the assessee in respect of the super-tax would be less if ₹ 15,282 were so set off. But the error into which the Department has fallen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do is to reframe the questions as suggested by the Commissioner. The questions when reframed will be:- 1. Whether under the circumstances of the case the depreciation of ₹ 15,282 which could not be wiped off owing to the insufficiency of the business income could not be set off against the capital gains for that year? The answer to this question will be in the affirmative; it could be set off against ₹ 90,400. 2. Whether when the total income in any year of a company consists entirely of a residue of capital gains remaining after set-off against the total capital gains of that year of loss from business the amount by which the super-tax payable by them should be reduced should be computed on the total amount of the capital gains or only on the residue mentioned above? The answer to this question will be, on the total amount of the capital gains. The assessee has raised a question, whether the provisions of Section 12B of the Indian Income-tax Act are ultra vires the Indian Legislature . We have already decided this question on earlier references and, therefore, we answer that question in the negative. There will be no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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