TMI Blog1979 (1) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment year 1970-71 should have been set off against the total income of the assessment year 1971-72. The AAC did not accept this claim of the assessee and he, therefore, dismissed the appeal relying in support of his view on s. 75(2) of the I T. Act, 1961. The assessee thereafter appealed to the Tribunal and reiterated the claim for adjustment of the loss of Rs. 3,60,000. The Tribunal, relying on the decision of the Bombay High Court in Ballarpur Collieries Co. v. CIT[1973] 92 ITR 219, held that the assessee's claim for adjustment of the sum of Rs. 3,60,000 was proper. It, therefore, allowed the appeal of the assessee. It is this order of the Tribunal that has given rise to the present reference. For the assessment year 1970-71, the assessee filed a return showing a loss of Rs. 4,39,005. The ITO noticed that depreciation amounting to Rs. 8,75,538 had been claimed by the assessee in arriving at the income returned. He, however, computed the income on his own and found that there was a sum of Rs. 3,60,974 as unabsorbed depreciation which was described by him as net loss. He fixed the said loss roundly at Rs. 3,60,000. As the assessee-firm consisted of 19 partners, he allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or that previous year, and so on for the succeeding previous years. " The above extract shows that this provision is subject to ss. 72(2) and 73(3) of the Act. Section 72 provides for the carry forward and set off of business losses. Where for any assessment year, the net result of the computation under the head " Profits and gains of business or profession " is a loss to the assessee, then so much of the loss has to be carried forward and set off in the manner prescribed by s. 72(1). Section 72(2) provides that where any allowance or part thereof is, under sub-s. (2) of s. 32 or sub-s. (4) of s. 35, to be carried forward, effect shall first be given to the provisions of this section. Section 75 is the provision dealing with losses of registered firms. That provision runs as follows : " 75. (1) Where the assessee is a registered firm, any loss which cannot be set off against any other income of the firm shall be apportioned between the partners of the firm, and they alone shall be entitled to have the amount of the loss set off and carried forward for set off under sections 70, 71, 72, 73, 74. (2) Nothing contained in sub-section (1) of section 72, sub-section (2) of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of unabsorbed depreciation allowance, there is no such time limit. The Legislature has, therefore, made a specific provision for priority in setting off the loss other than the unabsorbed depreciation allowance so that the unabsorbed depreciation allowance can be carried forward if necessary without any time limit and set off in the appropriate succeeding years. It is thus clear that there is a separate identity maintained under the statute with reference to the unabsorbed depreciation allowance though at the time of computation it forms part of " loss ". It may be that at the time of allocation among the partners the unabsorbed depreciation is taken along with any other loss that may have been sustained by the registered firm; but this identity of unabsorbed depreciation is required to be maintained in order to enable it to be set off against the future income separately and independently of the other losses. If we approach the construction of s. 32(2) in the light of the above background, there appears to be no difficulty in construing the reference. In the case of a registered firm, as seen already, the amount of unabsorbed depreciation allowance has to be allocated in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 32(2) of the Act clearly contemplates two positions, one is that the depreciation allowance should remain unadjusted as against the income of the firm as such and, the second is, it should remain unadjusted in the hands of the partner also. When both the situations are reached, then the balance available is to be considered in the hands of the firm and treated as depreciation allowance to be added for the purpose of computation of the total income in accordance with the provisions of s. 32 read with other sections. Otherwise, s. 32(2) in so far as it applies to the registered firm would be meaningless. We do not find any warrant for the contention of the revenue that the depreciation allowance, so long as it is allocated among the partners, ceases to be depreciation allowance coming within the scope of s. 32(2) so that it gets reduced only to the position of a loss. This contention would be contrary to s. 72(2) as well as s. 73(3). In the course of the argument, reference has been made to a few decisions of other High Courts which have dealt with a similar problem. In Ballarpur Collieries Co. v. CIT [1973] 92 ITR 219 (Bom-Nag) the depreciation allowance allowable for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect to first before the carried-forward depreciation allowance is given effect to in view of the provisions of clause (b) of the proviso to section 24(2)." (underlined by us) However, when it came to the question of giving effect to the relevant statutory provisions, it has been considered that the losses could be carried forward by the partners only by virtue of s. 24(2), and since s. 24(2) deals only with business losses and does not deal with carrying forward of unabsorbed depreciation which is expressly dealt with by s. 10(2)(vi), prov. (b), unabsorbed depreciation could not come in for adjustment in the hands of the firm. Since s. 24(2) deals only with business losses, the loss referred to in prov. (c) to that sub-section cannot be said to include losses on account of unabsorbed depreciation which is taken care of by s. 10(2)(vi), prov. (b). Sufficient recognition has not been given to these statutory provisions in the view that was adopted in answering the question. A decision which has taken a view different from that of the Bombay High Court is in K. T. Wire Products v. Union of India [1973] 92 ITR 459 (All). That was a case which arose for consideration by the Allahaba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There was unabsorbed depreciation allowance of the earlier years amounting to, Rs. 76,857. The claim of the assessee was that this sum of Rs. 76,857 should be adjusted against the dividend income. The Supreme Court affirmed the conclusion of the High Court and held that the unabsorbed depreciation of past years had to be added to depreciation of the current year and the aggregate unabsorbed and current year's depreciation had to be deducted from the total income of the previous year relevant to the assessment year 1952-53. The effect of the Supreme Court's decision was that the sum of Rs. 76,857, which was termed as unabsorbed depreciation, should be adjusted against the dividend income assessed in that year. It is in this context that the Supreme Court observed that in prov. (b) to s. 10(2)(vi) the Legislature clearly assumed that effect can be given to depreciation allowance in the assessment of a partner and the only way in which it could be given in the assessment of a partner was by setting it off against income, profits and gains under other heads. Though the problem that arises for consideration in the present case did not arise in the same form before the Supreme Court, sti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court that there is a statutory assumption that effect can be given to depreciation allowance in the hands of the partner. Therefore, the submission of the learned counsel for the assessee that in so far as the unabsorbed depreciation is concerned it is not at all liable to be allocated among the partners under s. 182 read with s. 75 will be contrary to this decision. One other decision cited for the revenue is in Raj Narain Agarwala v. CIT [1970] 75 ITR 1 (Delhi). But that decision had no occasion to consider the specific problem that is now before us and, in fact, the relevant passage to which our attention was drawn has been described rightly as obiter in the headnote. In this decision, there is some discussion of some double benefit being available to the assessee, if the view that the firm also is eligible for adjustment of the unabsorbed depreciation is accepted. We do not find that this could be the correct position. In the view taken by us, it may be the unabsorbed depreciation that remains in the hands of the partners, will be transported to the assessment of the firm and will come in for adjustment and the partner will not be able to get it adjusted in his own assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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