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TMI Blog1973 (4) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... ture of steel pipes and a part of the old machinery used for the manufacture of soap and oil was utilised in the new business. In the year 1956-57, which was the last year of the business of manufacture of soap and oil, the Income-tax Officer had worked out depreciation, which could not be fully set off against the profits, and, as such, a part of the depreciation was left unabsorbed. In the assessment year in dispute the assessee claimed that the unabsorbed depreciation to the extent that it pertained to the old machinery utilised in the new business should be brought forward and set off against the profits of the new business. This claim of the assessee was turned down by the Income-tax Officer as well as by the Appellate Assistant Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reads : " 32. (2) Where, in the assessment of the assessee (or, if the assessee is a registered firm, or an unregistered-firm assessed as a registered-firm, in the assessment of its partners) full effect cannot be given to any allowance under clause (i) or clause (ii) or clause (iv) or clause (v) of subsection (1) in any previous year owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance then, subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 73, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two conditions for the carry-forward of loss : " (i) it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year : Provided that the business or profession for which the loss was originally computed continued to be carried on by him in the previous year relevant for that assessment year; and (ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on : " It would at once be clear that there is a difference between the carried-forward loss and carried-forward depreciation allowance. In the case of a carried-forward loss, it can be set off against the profits of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 72(2) provides that where unabsorbed depreciation and business loss are both to be carried forward, effect shall first be given to the business loss. Now, in the instant case, after the assessment year 1955-56, the assessee did not carry on any business. It derived income by letting on hire the plant and machinery, etc., and this income was taxable under the head "Income from other sources ". So the unabsorbed depreciation could not be carried forward and set off against the income from other sources. In the assessment year in question the assessee started a business; hence the unabsorbed depreciation could be brought forward and allowed as a deduction in the computation of the business income. The learned counsel for the department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s distinction is not valid. We have already pointed out that for the purposes of section 32(2), it is not necessary either that the same business should be carried on in the succeeding year or that the depreciable assets of the original business should be utilised in the new business. So long as an assessee carries on some business in the year in which the set off is claimed, the unabsorbed depreciation by fiction becomes the depreciation allowance of that year even if that business has no depreciable assets. It is a well-known rule of interpretation of statutes that a legal fiction has to be carried to its logical conclusion by imagining, if necessary, something to exist which, in fact, does not exist. The view that we have taken finds sup ..... X X X X Extracts X X X X X X X X Extracts X X X X
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