TMI Blog1974 (9) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 141 was made on November 18, 1968, on the basis of the income disclosed and tax was paid accordingly. It appears that the Income-tax Officer found subsequently that the assessee had in fact earned a profit of Rs. 11,82,856 in the previous year, but had deducted Rs. 7,87,573 consisting of Rs. 3,49,242 as business loss, Rs. 1,59,181 as depreciation and Rs. 2,79,150 as development rebate, all carried forward from the assessment year 1967-68. The Income-tax Officer, therefore, passed an order under section 154 and section 155 of the Income-tax Act, 1961, and held that business loss and depreciation which were unabsorbed in the earlier years could not be set off against the income of the firm in the year under reference. The matter was carried by the assessee-firm in appeal before the Appellate Assistant Commissioner, who, however, dismissed the appeal and confirmed the order of the Income-tax Officer. The matter was therefore, carried in appeal by the assessee-firm to the Tribunal. The Tribunal rejected the claim of the assessee-firm so far as the carry-forward and set-off of loss were concerned as, in its opinion, there was a clear bar under section 72(2) of the aforesaid Act. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by a firm again, if it has been fully effected in the case of assessment of the partners. It was vehemently urged on behalf of the assessee that on the plain reading of the section so much of that depreciation allowance of a registered firm which is not fully effected in the case of partners is to be carried forward and added to the current depreciation allowances of the next year and is deemed to be part of that allowance, or in case if there is no current depreciation allowance for the next year, that unabsorbed depreciation allowance would be deemed to be current depreciation allowance for the said year. In other words, it is urged that unabsorbed depreciation allowance is of the registered firm and, therefore, it is to be added to the depreciation allowances of the firm in the next year. On behalf of the revenue, it is urged that by the amendment effected in 1953, the case of a firm is taken out from the purview of section 10(2)(vi)(b) of the 1922 Act (corresponding to section 32(2) of the 1961 Act) an exception is sought to be carved out and the principle incorporated in the said sub-section is to be applied in case of assessment of partners, if the assessee is a registered fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a year which ended prior to the 1st day of April, 1939, owing to there being no profits or gains chargeable for that year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of clause (b) of the proviso to sub-section (2) of section 24, 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 year and deemed to be part of that allowance, or if there is no such allowance for that year, be deemed to be the allowance for that year, and so on for succeeding years." The relevant provision now to be found in the 1961 Act is contained in section 32(2) which reads as under : " (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 sub-section (1) in any previous year, owing to the profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being les ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the firm or along with the loss of the firm of the partners, it retains all its characteristics as a depreciation allowance. But, none the less, the allocation of depreciation allowance is made when profits or income of the firm is not sufficient to absorb depreciation allowance permissible under the Act to the firm. Once allocation is made amongst partners, either of business loss or of depreciation allowance, it is the partners who would be entitled to carry forward that loss or depreciation allowance and set it off against their other income. Once an allocation is made, there remains nothing with the firm which is to be carried forward on account of either there being no income or income being insufficient to absorb depreciation allowance. It is in this context that we have to examine the problem which has been posed before us. On behalf of the assessee, Mr. Shah, the learned advocate, urged before us that section 32(2) is a complete code by itself and if benefit of carry-forward and set-off is permissible, it has got to be upheld by the court and the court cannot read anything more or anything less in the said sub-section. It was pointed out to us by Mr. Shah that before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what is to happen when full effect to depreciation allowance of a registered firm is not given in assessment of partners ? After referring to the decision of the Supreme Court in S. Sankappa v. Income-tax Officer, the Division Bench of the Bombay High Court observed that the proceedings of assessment of a registered firm and proceedings of assessment of partners are independent and separate proceedings. The Division Bench on the reading of section 10(2)(vi), proviso (b), corresponding to section 32(2) was of the opinion that unabsorbed depreciation allowance has to be added to the allowance for depreciation for the following year and depreciation in the following year as contemplated by the proviso is available only to the firm as an assessee whose income is to be computed as required by section 23(5(a)(i) of the Act since deduction of depreciation allowance is not permissible for computing the income of the partners in their capacity as such. In that view of the matter, the Division Bench held that proviso (b) to section 10(2)(vi) clearly contemplated that assessment of partners is relevant only for the purpose of ascertaining whether full effect has been given to the depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porated in the said sub-section that unabsorbed depreciation would be current depreciation allowance for the next year provides the solution to the conundrum posed on behalf of the assessee's learned advocate relying heavily on the aforsaid decision of the Bombay High Court. The interpretation which has been sought to be placed on behalf of the assessee would secure the benefit of deduction of depreciation allowance twice over in the next year once for the firm for purposes of firm tax, and second time for the purposes of individual assessment of the partners' tax. At one stage an attempt was made on behalf of the assessee by its learned advocate, Mr. Shah, to overcome this infirmity by urging that the benefit of set-off should be restricted for purposes of firm tax only. In that case it would necessarily result in depriving the partners of the benefit of carry-forward and set-off of unabsorbed depreciation allowance. But apart from all these infirmities, the interpretation canvassed by Mr. Shah on behalf of the assessee, in our opinion, does not give full effect to the words contained in the brackets in sub-section (2), the relevant portion of which, for purposes of this reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatutes) 33 we find the Statement of Objects and Reasons for the Indian Income-tax (Amendment) Bill, 1952, which by clause 8 proposed to introduce two amendments in sections 10(2)(vi)(a) and (b), and the second of which sought to substitute in the proviso to clause (b) for the words, " where full " the words " where, in the assessment of the assessee or, if the assessee is a registered firm, in the assessment of its partners, full ". The objects and reasons for this particular amendment in proviso to clause (b) are to be found at page 57. It reads : " The second is intended to make it clear that where unabsorbed depreciation has been effectively allowed in the assessment of a partner of a registered firm, it would not be carried forward in the case of the firm." We have not been able to appreciate how this object of the proposed amendment can be of any assistance to the cause of Mr. Shah's client. If at all it means anything it provides against double benefit of depreciation allowance in case of partners as well as the firm. If it has been effectively allowed in the assessment of a partner of a registered firm, it could not be carried forward in the case of the firm. Mr. Shah ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, on the principle of the comity of judicial decisions, though we may not be completely agreeing with the view taken by the Bombay High Court, we must accept it in the interest of the assessees of these two adjoining States, namely, Maharashtra and Gujarat, which are separated by a common border only, as otherwise it would work to the prejudice of the assessees in these States. We would have been inclined to accept the submission of Mr. Shah provided there are no other views in the field. In K. T. Wire Products v. Union of India, a similar question arose before the Allahabad High Court, where a Division Bench of that court held that it was clear that according to the specific provision contained in sub-section (2) of section 32, the unabsorbed depreciation cannot be carried forward by a registered firm for the simple reason that it is allocated between partners, and there remains nothing to carry forward so far as the firm is concerned. Mr. Shah, however, tried to distinguish this decision on the ground that this was on the position conceded by the learned counsel for the revenue and the matter has not been examined on merits. In our opinion, this does not make any differ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the 1922 Act) at page 356, the learned authors have in the first paragraph set out the principles that is contained in the relevant proviso and thereafter they have expressed their view as to how these principles are to be applied in case where the assessee is a registered firm. The relevant portion of the Commentary reads as under : " The tax is chargeable under section 28 on the aggregate of profits of all the business carried on by the assessee. Therefore, if the profits of a particular business are insufficient to absorb the depreciation allowance permitted by this section, the allowance (like any other business loss) can be set off under section 70 against the profits of any other business. If, however, there are no profits chargeable under this head or if the profits chargeable under this head are insufficient to cover the depreciation allowance, the amount of the allowance may be set off under section 71 against profits chargeable under any other head for that year. If still some part of the depreciation allowance remains unabsorbed, it may be carried forward under this sub-section to the following year and set off against that year's profits, and so on for succeedin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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