TMI Blog1984 (7) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... in consideration of payment of rent and compensation. The assessee utilised the machinery for sewing laminated bags, the running expenses of which, the wages of the labourers and other expenses being agreed to be paid by the assessee. For the jetty and trolly lines, the assessee had been allowed depreciation and development rebate in the earlier assessment year which had remained unabsorbed. In the assessment years involved, the assessee claimed that such unabsorbed depreciation and development rebate should be allowed to be carried forward and set off against its business income for the said years. The ITO disallowed the assessee's claim for set off of unabsorbed depreciation on the ground that the assessee did not carry On its earlier business in the relevant years. The claim for set off of unabsorbed development rebate was also disallowed on the same ground as also on the ground that a reserve had not been created in respect of the same. In the assessment year 1970-71, the assessee had borrowed money on interest from one Utkal Properties Finance Private Ltd. Money was also advanced by the assessee to the said New Era Fabrics Private Ltd. The assessee paid Rs. 79,169 in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and in the circumstances of the case, the assessee was entitled to carry forward and set off the unabsorbed depreciation and development rebate of the assessment years 1968-69 and 1969-70, against the business income of the years under reference ? For the assessment year 1970-71 : "Whether, on the facts and in the circumstances of the case, the sum of Rs. 16,582 is allowable as admissible expenditure under section 57 of the Income-tax Act, 1961 ? At the hearing, learned advocate for the Revenue drew our attention to ss. 32 and 33 of the I.T. Act, 1961, the material points of which are as follows: Section 32(1): " In respect of depreciation of...... machinery, plant...... owned by the assessee and used for the purposes of the business...... the following deductions shall, subject to the provisions of section 34, be allowed-... (ii) in the case of ... machinery, plant or furniture, other than ships covered by clause (i), such percentage on the written down value thereof as, may in any case or class of cases be prescribed. Section 32(2): " Where, in the assessment of the assessee ... full effect cannot be given to any allowance under...... clause (ii)..... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pment rebate to be allowed for the following assessment year shall be such amount as is sufficient to reduce the total income of the assessee assessable for that assessment year, computed in the manner aforesaid, to nil, and the balance of the development rebate, if any, still outstanding shall be carried forward to the following assessment year and so on, so however, that no portion of the development rebate shall be carried forward for more than eight assessment years immediately succeeding the assessment year relevant to the previous year in which ...... the machinery or plant installed or the immediately succeeding previous year, as the case may be." Construing the said sections, learned advocate for the Revenue Submitted that to claim unabsorbed depreciation or development rebate, the assessee must show that the assets in respect of which such depreciation and development rebate have arisen and had remained unabsorbed, continued to be owned and used by the assessee in his business. The sections and in particular s. 32, it was submitted, must be read as a whole. In support of his contentions, learned advocate for the Revenue cited the following decisions: (a) Sahu Rubbe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciation allowance to any subsequent year, without any time-limit, where such non-absorption is owing to there being no profits or gains chargeable for the previous year or owing to the profits or gains being less than the allowance. Depreciation loss under section 32(2) thus, to large extent, stands on the same footing as other business losses. An assessee claiming depreciation of assets has to show that such assets are owned by him and were used by him in the account year for the purpose of his business, the profits of which are being charged [section 32(1)(i)]. " On question No. 2, learned advocate for the Revenue submitted that, in the facts and circumstances, the said amount of Rs. 16,582 was not allowable as admissible expenditure under s. 57 of the I.T. Act, 1961. Learned advocate for the assessee contended, on the other hand, that the issue in question No. 1 has since been answered categorically in favour of the assessee by the Allahabad High Court as also by the Bombay High Court in a subsequent decision where its earlier decision in Sahu Rubbers Private Ltd.'s case [1963] 48 ITR 464 was distinguished. The learned advocate submitted that both unabsorbed depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as no difference in phraseology, the provision in s. 32(2) was not intended to be applied only for computing depreciation. The said section contained an independent provision and for setting off unabsorbed depreciation carried forward from a preceding year, it was not necessary that the business in respect of which the depreciation was originally allowed and carried forward should remain in existence in the succeeding year. (d) Hyderabad Construction Co. Ltd. v. CIT [1981] 129 ITR 81 (AP). In this case, a Division Bench of the Andhra Pradesh High Court held that unlike s. 32(1) of the Act, s. 32(2) did not impose any condition for set off of unabsorbed depreciation against the income of the succeeding assessment year which required continuation of the business and user of the assets and machinery in such business. It was held that such unabsorbed depreciation could be set off against other income of the assessee in the relevant assessment year. The decision of the Bombay High Court in Sahu Rubbers Private Ltd.'s case [1963] 48 ITR 464 was expressly dissented from. (e) Addl. CIT v. Kapila Textiles (P.) Ltd. [1981] 129 ITR 458 (Kar), In this case, a Division Bench of the Karnatak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o carry forward such unabsorbed depreciation is also not in dispute. Sub-s. (2) of s. 32 of the I.T. Act, 1961, provides that once depreciation has been duly allowed in a particular year but could not be given effect to by reason of the chargeable profits or gains being less than the allowance, the same has to be added to the amount of allowance for depreciation for the following previous year or alternatively if there is no allowance in that year be deemed to be the allowance for that previous year. This continues in the succeeding previous years. The deeming provision comes into operation if there is no allowance in any succeeding previous year. It has been held by this court in Eastern Cold Storage (P) Ltd. [1983] 139 ITR 664, that the deeming provision has to be given full effect for all purposes of the Act. The Allahabad High Court, the Andhra Pradesh High Court, the Karnataka High Court as also the Bombay High Court in its subsequent decision in Estate and Finance Ltd. [1978] 111 ITR 119 (Bom) have clearly held that in order to claim unabsorbed depreciation, it is not necessary that the depreciable assets have to be utilised in the new business. We respectfully agree with ..... X X X X Extracts X X X X X X X X Extracts X X X X
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