TMI Blog1965 (11) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... the losses can be carried forward only for six years under section 24(2), the assessee would in certain circumstances have in his books losses which he would not be able to set off. It seems to us that the legislature, in view of this, gave a preference to the deduction of losses first. But it is wrong to assume that section 24(2) also deals with the carrying forward of depreciation. This carry forward having been provided in section 10 (2)(vi) and in a different manner, section 24(2) only deals with losses other than the losses due to depreciation. Appeal dismissed. - - - - - Dated:- 1-11-1965 - Judge(s) : K. SUBBA RAO., J. C. SHAH., S. M. SIKRI JUDGMENT The judgment of the court was delivered by SIKRI J.---This is an appeal by certificate granted by the High Court of Calcutta against its judgment in a reference made to it under section 66 of the Indian Income-tax Act, 1922 (hereinafter referred to as the Act). The question referred to it by the Appellate Tribunal, at the instance of the assessee, was as follows : " Whether, in the facts and circumstances of the case, the unabsorbed depreciation of the past years should be added to the depreciation of the curre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd this is provided under sub-clause (vi). [Proviso (b) to section 10(2)(vi).] On this a great deal of argument has been addressed to us and it reads as follows : " (b) where, in the assessment of the assessee or if the assessee is a registered firm, in the assessment of its partners, full effect cannot be given to any such allowance in any year not being 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. " It may be mentioned that the words " in the assessment of the assessee or if the assessee is a registered firm, in the assessment of its partners " were inserted by section 8 of the Income-tax ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vi) of sub-section (2) of section 10, also to be carried forward, effect shall first be given to the provisions of this sub-section ; (c) nothing herein contained shall entitle any assessee, being a registered firm, to have carried forward and set off any loss which has been apportioned between the partners, under the proviso to sub-section (1), or entitle any assessee, being a partner in an unregistered firm which has not been assessed under the provisions of clause (b) of sub-section (5) of section 23 in the manner applicable to a registered firm, to have carried forward and set off against his own income any loss sustained by the firm ; ... " Mr. Sastri, learned counsel for the revenue, urges that depreciation, although a permissible-allowance under section 10(2) of the Act, serves to compensate an assessee for the capital loss suffered by him by way of depreciation of his assets. He says that if it had not been expressly allowed as allowance, it would have been treated as capital expenditure and would have been excluded. He further says that depreciation is a charge on the profits of a business. Bearing these two factors in mind, he urges that the expression " loss of pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a partner ; the only way effect can be given in the assessment of a partner is by setting it off against income, profits and gains under other heads. The learned counsel for the revenue tried to meet this inference by suggesting that what the legislature contemplated was an assessment of those partners who were carrying on other business. But in our opinion this suggestion is unsound. What would happen if a partnership consists of four partners, two carrying on other business and two carrying on no other business. Mr. Sastri was unable to explain. Now, if this is the inference to be drawn from these words, it is quite clear that the words " no profits or gains chargeable for that year " are not confined to profits and gains derived from the business whose income is being computed under section 10. It appears that the legislature accepted the interpretation placed by various High Courts on the Act as it stood before it was amended by Act 25 of 1953. In 1930, the Lahore High Court in Karam Ilahi Muhammad Shafi v. Commissioner of Income-tax held that depreciation on buildings and machinery can be set off against gains and profits accrued to the owner of those buildings and machin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustries Ltd. by the Bombay High Court and in Commissioner of Income-tax v. Girdharlal Harivallabhadas Mills Co. Ltd. by the Gujarat High Court. The only contrary view which has been placed before us is that of the Madras High Court in Commissioner of Income-tax v. B. Nagi Reddy, but we are unable to agree with the view expressed in the last case. The Madras High Court observed at page 196 as follows : " In our opinion, the statute leads one to the irresistible conclusion that the depreciation allowance must be a charge only on the profits. The limit of the charge is the limit of the profits. The non-existence of profits will prevent the absorption of the allowance. There is no warrant for taking in and absorbing the depreciation allowance in the profits and loss account to work out a loss. If that were the true position, the provision for carrying forward the unabsorbed depreciation allowance would be wholly redundant, if not meaningless, in view of the specific provision for the carrying forward of losses." 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 al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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