TMI Blog1980 (3) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit under section 41(1). (ii) Rs. 4,161.-Being the amount due to one Parameswaran, during the course of the business but not paid. (iii) Rs. 5,881.-Being the interest received from M/s. Lakshmi Starch Factory for the delayed payment of sale proceeds of the factory sold by the assessee in 1964. The ITO computed the income of the assessee at Rs. 42,259 and demanded tax of Rs. 23,263. The assessee preferred an appeal to the Appellate Assistant Commissioner, Special Range, Hyderabad. The AAC deleted the addition of Rs. 17,846 and allowed the interest of Rs. 5,881 received from Lakshmi Starch Factory as a deduction against the interest payments made by the assessee. He also allowed the claim of the assessee regarding the unabsorbed depreciation. As against the said order of the AAC, the department preferred an appeal questioning the decision of the AAC deleting the addition of Rs. 17,846 and Rs. 5,881 and also against the decision of the AAC holding that the unabsorbed depreciation should be added to the current depreciation and set off against the business income of the assessee. The assessee preferred an appeal to the Appellate Tribunal, against the finding of the AAC, in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iation for the previous years. The Tribunal was of the view that the unabsorbed depreciation has to be given the same treatment, as was given to the depreciation for the current year as the question of deducting the depreciation allowance from the present year will arise only if the business, to which the depreciation allowance relates, was carried on, and it follows that the unabsorbed depreciation also cannot be allowed. The Tribunal observed that the starch factory to which the unabsorbed depreciation relates was sold away in the preceding year of account itself. The question of setting off of the unabsorbed depreciation allowance against the income under the other heads or income from other business would not arise. The Tribunal, therefore, rejected the assessee's contention and upheld the department's plea and held that the assessee was not entitled to set off the unabsorbed depreciation against income from business or against income under any other head. In this reference, before us Sri Y. V. Anjaneyulu, the learned counsel for the assessee, has submitted that the decision of the Tribunal in regard to the question of set off of the unabsorbed depreciation is not correct. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputed, continued to be carried on by him in the previous year relevant to the assessment year. In contrast to an express requirement regarding the continuance of the business or profession as a condition for set off of loss under s. 72(1)(i), proviso, there is no such requirement in regard to unabsorbed depreciation under s. 32(2). We, therefore, do not agree with the decision of the Tribunal that as the business was not continued and as the asset for which depreciation is claimed was not used as it was sold previous to the year of account, the unabsorbed depreciation could not be carried forward and set off. In a series of decisions the above view has been taken by different High Courts including this court. In CIT v. Warangal Industries P. Ltd. [1977] 110 ITR 756 (AP), a Division Bench decision to which one of us was party, the assessee which was a private limited company running an oil mill, sold its machinery on October 22, 1965, its accounting year being the year ending with Diwali and the concerned assessment year being 1967-68. The ITO held that the assessee did not carry on any business in the assessment year 1967-68 on the ground that the plant, machinery and building w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not necessary that the business in respect of which the depreciation allowance was originally worked out should remain in existence in such a succeeding year. The learned counsel for the revenue, Sri P. Rama Rao, however, relied upon a decision of the Madras High Court in CIT v. Dutt's Trust [1942] 10 ITR 477. Dealing with s. 10(2)(vi) of the Indian I.T. Act, 1922, the learned judges held that s. 10(2)(vi) could not be read as giving an assessee the right to deduct an allowance for depreciation in a business which had ceased to exist; that if the trustees had continued the cinema business they would certainly have been entitled to an allowance, but that business having ceased and the assets disposed of before the year of account, obviously they cannot ask for any allowance. Therefore, they answered the second question also in the negative. In CIT v. Nagi Reddy [1964] 51 ITR 178 (Mad), it was observed by another Division Bench of the Madras High Court that the statute leads one to the irresistible conclusion that the depreciation allowance must be a charge only on the profits; that the limit of the charge is the limit of profits; that the non-existence of the profits will pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 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 cl. (vi) and has to be deducted as allowance." We are inclined to prefer the view expressed by, the Bombay High Court in CIT v. Estate and Finance Ltd. [1978] 111 ITR 119, of the Allahabad High Court in CIT v. Rampur Timber Turnery Co. Ltd. [1973] 89 ITR 150 and CIT v. Virmani Industries (P.) Ltd. [1974] 97 ITR 461 and of this court in CIT v. Warangal Industries P. Ltd. [1977] 110 ITR 756, to the view expressed earlier by the Madras High Court in CIT v. Dutt's Trust [1942] 10 ITR 477 and of the Bombay High Court in Sahu Rubbers Ltd. v. CIT [1963] 48 ITR 464 on s. 10(2)(vi) of the Indian I.T. Act, 1922. Therefore, we answer the first part of the first question in favour of the assessee. Sri Anjaneyulu, learned counsel for the assessee, argues that the unabsorbed depreciation which is carried forward has to be set off not only against the business income but against the entire total income and h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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