TMI Blog1991 (1) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... osses and unabsorbed depreciation of earlier years and right in granting relief of Rs. 25,000 to the assessee company ?" An answer to the second question would aid in solving the problem under the first question and, therefore, we proceed to consider the second question with reference to the facts. The assessment year in question is 1979-80. The assessee claimed certain entertainment allowance under the provisions of section 37(2A) of the Act. The Income-tax Officer, however, held that the carried forward depreciation allowance of the previous year will have to be set off along with other allowances before arriving at the income under the head "Profits and gains of business" in question. The assessee appealed to the Commissioner of Income-tax (Appeals). The assessee contended before the Commissioner that the assessee has not claimed this allowance while computing the profits from business and, therefore, it cannot be thrust upon the assessee. The Commissioner of Income-tax (Appeals) did not accept this contention and dismissed the appeal under this head. The assessee appealed to the Appellate Tribunal. Para 4 of the order of the Appellate Tribunal itself shows that the appeal p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y for exclusion while computing the profits and gains. It is true as rightly pointed out by learned counsel that section 37(2A)(i) does not in terms state that the depreciation allowance shall be considered and deducted before arriving at the profits and gains of the business. The said provision specifically mentions exclusion of the allowances under section 32A, 33 and 33A from being deducted before arriving at the profits. Therefore, learned counsel for the Revenue is certainly right when he contends that all other provisions governing the allowance would operate and whatever allowances are deductible will have to be deducted. Under section 14, the "Heads of income" are stated against A and C to F. Profits and gains of business or profession comes under D. Chapter IV of the Act has been further sub-divided providing for the computation of various heads of income from A and C to F. Under sub-division D commencing with section 28 onwards and before reaching section 45, there are several provisions which govern the computation of profits and gains of business or profession. Section 29, in clear terms, directs as to how the income thereunder will have to be computed and that is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall be entitled to have the amount of such loss set off against his income under any other head. In other words, the loss suffered by an assessee under any particular head is not kept separately to be set off only from the income of that head, subject to section 72 and other provisions of Chapter VI. Therefore, in particular year, if the business loss, is say a lakh of rupees, which could not be deducted out of the business income completely (very concept of law indicates the same), then this loss of one lakh rupees can be set off against the income under other heads, that is, income from house property or any other income from other sources coming under Head-F, etc. Since the scope for deducting a business loss, therefore, is wider and operates against the totality of the income, section 72(3) limits its operation for only eight assessment years. It is in this context that section 72 (2) gives priority to the business loss over the carried forward depreciation allowance. Whenever there is a business loss as well as a depreciation allowance to be carried forward, effect shall first be given to the business loss as provided under section 72(1). It is only thereafter that the carrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9, it is stated (at p. 559 of 59 ITR): "If the profits are not large enough to wipe off depreciation, the profit and loss account would show a loss. Therefore, apart from proviso (b) to section 10 (2) (vi), neither the Act nor commercial principles draw any distinction between; the various allowances mentioned in section 10(2) ; the only distinction is that while the other allowances may be outgoings, depreciation is not an actual outgoing." (underlining is ours) At page 1190 (at p. 561 of 59 ITR), the scheme of carrying forward of the depreciation loss is summarised thus: "The unabsorbed depreciation allowance is carried forward under proviso (b) to section 10(2)(vi) and the method of carrying it forward is to add it to the amount of the allowance or depreciation in the following year and deeming it to be part of that allowance ; the effect of deeming it to be part of that allowance is that it falls in the following year within clause (vi) and has to be deducted as allowance. If the Legislature had not enacted proviso (b) to section 24(2), the result would have been that depreciation allowance would have been deducted first out of the profits and gains in preference to any l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould not be extended beyond that legitimate field. Clearly, the avowed purpose of the legal fiction created by the deeming provision contained in proviso (b) to section 10 (2) (vi) is to make the unabsorbed carried forward depreciation partake of the same character as the current depreciation in the following year, so that it is available, unlike unabsorbed carried forward business loss for being set off against other heads of income of that year." (underlining is ours) In the light of the above observation, it is not possible to accept the contention of learned counsel for the Revenue that the unabsorbed depreciation allowance is part of computing the current year's gain from business or profession along with the current year's depreciation allowance. As a matter of course, the unabsorbed depreciation allowance will have to wait in the queue and could seek recognition only after due deduction is given to the carried forward business loss. Therefore, it is not open to the Income-tax Officer just to thrust upon the assessee the carried forward depreciation allowance without reference to these statutory provisions. To what extent the depreciation allowance carried forward from the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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