TMI Blog1943 (3) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... he business previously carried on by that company as part of and in combination with its own existing business, and (2) the Bengal Company ceased to carry on business and went into voluntary liquidation. In addition to the provisions already set out, the agreement of the 8th September contained (inter alia) a further clause assigning. so far as capable of being assigned, any claim which the Bengal Company may have in respect of unabsorbed depreciation allowances. These allowances are those specified in Section 10 of the Indian Income-tax Act, 1922, a section which, so far as is material, contains the following provisions: 10. (1) The tax shall be payable by an assessee under the head Business in respect of the profits or gains of any business carried on by him. (2) Such profits or gains shall be computed after making the following allowances, namely:- (i) any rent paid for the premises in which such business is carried on, provided that, when any substantial part of the premises is used as a dwelling house by the assessee, the allowance under this clause shall be such sum as the Income-tax Officer may determine having regard to the proportional part so used. (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell settled, but where one company absorbs another at the end or in the course of a current fiscal year difficulties have from time to time arisen as to the correct allowances to be made. The statutory provision dealing with the liability to tax of a company whose business is transferred at these times is contained in Section 26(2) of the same Act and is as follows:- 26. (2) Where, at the time of making an assessment under Section 23, it is found that the person carrying on any business, profession or vocation has been succeeded in such capacity by another person, the assessment shall be made on such person succeeding, as if he had been carrying on the business, profession or vocation throughout the previous year, and as if he had received the whole of the profits for that year. The question for their Lordships' determination is to ascertain the true construction to be placed upon the two sections quoted when read together and to determine the principle upon which depreciation is to be computed and allowed in the case of such a change. After the amalgamation of the two companies an assessment was made upon the appellant company for the year 1937-38, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which depreciation was allowable. Similarly, it was said, with reference to the Indian Company the profits must be ascertained by the same method of computation, and were subject to the deduction of the original unabsorbed depreciation allowance allotted to that company of ₹ 62,00,775, together with the appropriate depreciation for the current year calculated upon the same principles as those adopted in the case of the other company. The profits and allowances having been ascertained in this way, the appellants contended that the lesser sum, i.e., profits, should be deducted from the greater, i.e., the unabsorbed depreciation allowance, and the resultant figure carried forward to the next year, the appellant being thus entitled to the future benefit of both sets of unabsorbed depreciation allowance as a deduction from its future profits. The respondent, on the other hand, asserted that the correct method to adopt was to find the profits of the Bengal Company for the 8 months from the 1st April to the 2nd December, 1936, and to deduct the resultant figure from the unabsorbed depreciation allowance standing to the credit of that company on the 1st April, 1936, together wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) Unabsorbed allowances as above... 85,45,150 0 0 Total... 94,07,479 0 0 Less profits of the business for this period. 3,76,162 0 0 Depreciation allowance left unabsorbed... 90,31,317 0 0 (ii) Indian Iron and Steel Company. (a) Depreciation allowed in respect of the original property of the Indian Company for the year 1936-37... 7,60,077 0 0 (b) Depreciation allowance in respect of the property acquired form the Bengal Company, for the period 3rd December, 1936, to the 31st March, 1937... 3,77,767 0 0 (c) Unabsorbed depreciation allowance as above 62,00,775 0 0 Total... 73,38,619 0 0 Less profits of the original business for the fiscal year, together with that of the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets of the Bengal Company only became the property of the Indian Company from the 3rd December, 1936. But assessee the Company maintained, must be read distributively as meaning the owner of the property for the time being, i.e., the assessee or his predecessor, as the case may be. In support of this contention they point out that such a construction is necessary in other parts of the sub-section, e.g., in sub-section (2)(i) and (ii). The words used as a dwelling house by the assessee must refer to the assessee or his predecessor, or to both in cases where each is owner of the property for part of the fiscal year. So too in sub-paras (vii) and (vii-a). Unless assessee includes predecessor no depreciation could be claimed in respect of the period during which the predecessor still owned the property and the successor had not acquired it. There is no doubt truth in the contention that the word assessee in Section 10(2) must, when there is a successor to the business charged to tax, be read in certain of the paragraphs as including both predecessor and successor, but their Lordships are not prepared to assent to the argument that it follows as a consequence that the unab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of liability for the previous 8 months it will be assessed as if had been carrying on the business throughout the year. The object is to impose liability for the whole profits, and in finding out what they are, the actual circumstances have to be considered. So far there is nothing to suggest that once the Bengal Company has ceased to carry on business its unabsorbed depreciation allowance should be carried on for the benefit of the Indian Company. But it is said that the company is to be treated as if it had been carrying on the business throughout the year: in that year full effect could not be given to its depreciation allowance, whether unabsorbed in previous years or acquired in the year in question, and under the direct terms of proviso (b), this allowance is to be added to that for the following year and to be deemed to be part of that allowance, and so on for succeeding years. To the answer that what is given is such allowance only and such allowance when read together with the previous language of sub-section (2)(vi) can mean only an allowance in respect of depreciation of buildings, etc., being the property of the assessee, it is replied that assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey are in agreement with the view of Mr. Justice Panckridge in the High Court in Calcutta in considering that if and in so far as Re Kamalapat Motilal [1939] 7 I.T.R. 374 lays down any different principles it is wrong. The argument on behalf of the appellant can perhaps be most strongly put by postulating the sale at the end of the fiscal year of a business carried on by a company or individual to another individual not previously carrying on any business or to a company formed solely for the purpose of carrying it on. If the business has not been sold it would have continued to enjoy the benefit of any unabsorbed depreciation allowance. Why, it is said, should it lose that benefit because it had changed hands? No doubt the example given does indicate a case in which some hardship may be said to arise, but the object of Section 10 is not to bolster up unsuccessful businesses, it is merely to protect them, in the hands of those who find the capital, against undue taxation. The example may be countered by quoting a case in which a bankrupt business with a large unabsorbed depreciation allowance is bought by a flourishing house in order to enhance its own allowance and decrease ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
