TMI Blog1993 (4) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee-company could lawfully claim the development rebate in priority to depreciation allowance prescribed under section 32 of the Income-tax Act, 1961, while computing its total income for each of the assessment years 1970-71, 1971-72 and 1972-73 ?" At the instance of the Revenue : "2. Whether, on the facts and in the circumstances of the case, the assessee-company is entitled to depreciation on the price paid for acquisition of drawings, blue prints, specifications, process sheets and technical data from Henry Meadows Ltd. of England being 'plant' within the meaning of section 32 of the Income-tax Act, 1961, for each of the assessment years 1970-71, 1971-72 and 1972-73 ? 3. Whether, on the facts and in the circumstances of the case, the assessee-company is entitled to depreciation on the expenditure of pound 2,000 incurred by the assessee for the purchase of know-how from Messrs. Ricardo and Co. Engineering Ltd., U. K., while computing its income for the assessment year 1971-72 ?" Consequent to above question No. 3, at the instance of the assessee: "4. If the answer to question No. 3 is in the negative, whether, on the facts and circumstances of the case, the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve any such direction to meet the hypothetical situation that may arise in future in the event of reversal of the decision of this court by the Supreme Court. As regards question No. 3, which is referred to at the instance of the Revenue, it is agreed by counsel for the parties that in view of the decisions of the Supreme Court in Scientific Engineering House P. Ltd. v. CIT [1986] 157 ITR 86 and CIT v. Elecon Engineering Co. Ltd. [1987] 166 ITR 66, this question has to be answered in the affirmative, that is, in favour of the assessee and against the Revenue. We answer this question accordingly. It is also an agreed position that in view of the answer to question No. 3 being in favour of the assessee, question No. 4 does not arise and the same need not be answered. Accordingly, we decline to answer question No. 4. The only question left for our consideration is question No. 1, which has been referred at the instance of the assessee. For the sake of convenience, this question is reproduced below : " Whether, on the facts and in the circumstances of the case, the assessee-company could lawfully claim the development rebate in priority c to depreciation allowance prescribed un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (vi) of sub-section (1) or under clause (i) of sub-section (1A) 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 the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years." "33. Development rebate.-(1)(a) In respect of a new ship or new machinery or plant (other than office appliances or road transport vehicles) which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section and of section 34, be allowed a deduction, in respect of the previous year in which the ship was acquired or the machinery or plant was installed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee, not being a loss sustained in a speculation business, and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of section 71, so much of the loss as has not been so set off or, where the assessee has income only under the head 'Capital gains' relating to capital assets other than short-term capital assets and has exercised the option under sub-section (2) of that section or where he has no income under any other head, the whole loss shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and (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. . . . (2) Where any allowance or part thereof is, under sub-section (2) of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for a period of eight years. The entire controversy has assumed importance because of this time-limit. In the case of unabsorbed depreciation, there is no time-limit. In the case of unabsorbed development rebate, there is a time-limit of eight years. However, on perusal of the scheme of the Act, we are satisfied that between unabsorbed development rebate and unabsorbed depreciation, the latter will have priority in respect of setting off against the profits of subsequent years. This view of ours gets support from a decision of the Karnataka High Court in Mysore Paper Mills Ltd. v. CIT [1979] 117 ITR 132, where dealing with a similar controversy, it was held as follows (at page 136): " Section 33 does not actually deal with any trading loss as it is ordinarily understood. Under section 33, Parliament has made provision by way of an incentive to businessmen who invest in new machinery or in modernising plant and equipment. In order to earn development rebate, the assessee has to satisfy certain other conditions which are provided under section 34 of the Act and the unabsorbed development rebate cannot be carried forward beyond eight years as provided by the Act. In the circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computing the profits and gains of a business for the current year, depreciation for the current year must be deducted first before deducting the unabsorbed carried forward business losses of earlier years. " We are in full agreement with the various decisions referred to above. We are of the clear opinion that unabsorbed depreciation will have priority in the matter of set off over unabsorbed development rebate. Learned counsel for the assessee submitted before us that it is an option of the assessee to claim depreciation or not. In support of this contention, reliance was placed on a decision of this court dated November 2, 1992, in Income-tax Reference No. 192 of 1977-CIT v. East India Cotton Association Ltd. In that case, following the decision in CIT v. Shri Someshwar Sahakari Sakhar Karkhana Ltd. [1989] 177 ITR 443 (Bom), this court had held that the assessee had an option to claim or not to claim the entire or a part of the depreciation or not to claim it at all. The Income-tax Officer is not entitled to force depreciation on an unwilling assessee. We have perused the above decision. In our opinion, the ratio of the above decision is clear. Under section 32 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X
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