TMI Blog1962 (9) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of ₹ 23,162. The Income-tax Officer set off only the business income of ₹ 24,054 against the unabsorbed depreciation of the earlier year, i.e., he computed the business income at nil for this year and property income at ₹ 23,162. A copy of the Income-tax Officer's order is annexure A and forms part of the case. The Appellate Assistant Commissioner relying upon the provisions of proviso (b) to section 10(2)(vi) determined the assessee's total income at nil and worked out the unabsorbed depreciation that had got to be carried forward at ₹ 1,54,055, i.e., he allowed a set-off of the property income of ₹ 23,162 against the unabsorbed depreciation of earlier year. A copy of the Appellate Assistant Commissioner's order is annexure B and forms part of the case. Against this order of the Appellate Assistant Commissioner the department came up in appeal to the Tribunal. It was contended that inasmuch as depreciation could be set off only to the extent of the profits available in respect of the business in respect of which depreciation had been allowed, the carried forward unabsorbed depreciation could not be set off against other income. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he year of account to the extent of ₹ 23,162. The Income-tax Officer set off the business income of ₹ 24,054 against the unabsorbed depreciation and showed the business income as nil for the year. He did not, however, allow the property income to be set off against the unabsorbed depreciation with the result that he showed the taxable income in the assessment year at ₹ 23,162 and the unabsorbed depreciation to be carried forward at ₹ 1,77,217. The Appellate Assistant Commissioner in the appeal, which the assessee preferred, from the decision of the Income-tax Officer, determined the assessee's total income at nil, and worked out the unabsorbed depreciation to be carried forward at ₹ 1,54,055, i.e., he allowed a set-off not only of the business income against the unabsorbed depreciation, but also a set-off of the property income against it. The department went in appeal to the Tribunal against the decision of the Appellate Assistant Commissioner. The appeal was dismissed by the Tribunal and the decision of the Appellate Assistant Commissioner was confirmed. Thereafter, on an application under section 66(1) at the instance of the department, the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be payable by an assessee in respect of profits and gains of any business, profession or vocation carried on by him. Sub-section (2) of section 10 enumerates several allowances which will be allowed in the computation of the income under that head. Section 10(2)(vi) deals with the allowance which is permissible for depreciation of the buildings, machinery, plant or furniture used by the assessee for the purposes of his business, profession or vocation. Proviso (b) to section 10(2)(vi), so far as it is material for our purpose, states: (b) Where, in the assessment of the assessee...full effect cannot be given to any such allowance in any year...owing to there being no profits or gains chargeable for that year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of clause (b) of the proviso to sub-section (2) of section 24, the allowance or part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance, for depreciation for the following year and deemed to be part of that allowance, or if there is no such allowance for that year, be deemed to be the allowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that year: provided that the business, profession or vocation in which the loss was originally sustained continued to be carried on by him in that year; and (iii) if the loss in either case cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following year and so on, but no loss shall be so carried forward for more than eight years. Provided that--...... (b) 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 sub-section. It would thus appear that the addition to the following year's depreciation of the previous year's unabsorbed depreciation and the treating of that added depreciation as part of the depreciation for the following year is subject to the qualification contained in the proviso (b) to sub-section (2) of section 24, namely, that the availability of the carried forward depreciation for setting off against the gains of the business of the following year will be postponed to the first absorption of the carried forward losses of the business from earlier years, if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the same category, and he has therefore contended that the carried forward depreciation allowance is nothing else but a carried forward loss. We do not think that the submission is correct. The subject of depreciation allowance has been dealt with in section 10(2)(vi). The provision permitting it to be carried forward and the consequence of its being carried forward is also contained in section 10(2)(vi), proviso (b). It is only because both the carried forward losses under section 24(2) as well as the carried forward depreciation allowance under section 10(2)(vi), proviso (b), are capable of being adjusted against the profits and gains of the business of the years to which they are carried forward that a provision has been made fixing the order in which they will be absorbed. The fixing of the priority also does not appear to be without a purpose. The carried forward losses are, under section 24(2), capable of being adjusted up to a maximum period of eight years. The depreciation allowance which is permitted to be carried forward is, however, allowed to be carried forward without any time limit until it is totally absorbed. It may therefore be that the carried forward losses whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, but that would not have the effect of making the carried forward part of the unabsorbed depreciation into the following year a carried forward loss when the provision of the statute clearly and unequivocally states that it will be carried forward as an allowance and treated as a part of the allowance for the next year. On a consideration of the provisions of section 10(1), section 10(2)(vi), proviso (b) and section 24(1) and (2), it appears to us that the depreciation allowance permitted under section 10(2)(vi) is available in the first place in the computation of the income from the business in which the depreciation is given and is adjusted against the profits and gains of that business. If the depreciation allowance is larger than the profits or gains in that business so that an excess remains after the said profits and gains are absorbed, such excess comes under section 10(1) for absorption of the profits and gains of other business, if any, carried on by the assessee. If a balance from the depreciation allowance is left even thereafter, that becomes available for set off against the income, profits and gains from any other head during that year. In case there is still a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 time so long as the business showed a profit in the future. In Aluminium Corporation of India Ltd. v. Commissioner of Income-tax [1958] 33 I.T.R. 367, it was observed: Proviso (b) to section 10(2)(vi) begins with setting out by way of a premise that there is an amount of depreciation allowance to which effect or full effect cannot be given owing to there being no profits or owing to the profits or gains chargeable being less than the allowance. There is thus a surplus of allowance. As to what is to be done with the surplus, the further provision of the proviso is that 'subject to the provisions of clause (b) of the proviso to sub-section (2) of section 24, the allowance or part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax Act, 1922, the excess depreciation can be treated as loss of profits and gains within the meaning of section 24...The object of proviso (b) to sub-section (2) of section 24 is only to give preference to ordinary losses incurred by an assessee in regard to set-off over the loss which comes under clause (b) of the proviso to sub-section (2)(vi) of section 10. Where set-off is to be given for different kinds of losses other than those due to depreciation such losses must be set off first and then the loss due to depreciation. Mr. Joshi has argued that this case is an authority for the proposition that the unabsorbed depreciation is of the category of a carried forward loss, and therefore, it is on the basis of a carried forward loss that it comes for treatment under section 24(1) and (2). It must, therefore, have the same disqualification as is possessed by the carried forward losses, namely, that they are not available for being set off against the income from any other head except that under the head Business . In our opinion, the said decision does not lay down any such proposition as is contended for by Mr. Joshi. It is no doubt true that the excess of the current year' ..... X X X X Extracts X X X X X X X X Extracts X X X X
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