Judgment— These appeals raise a question of some complexity on the interpretation of the provisions of the Income-tax Act, 1961 (the 1961 Act), in regard to which there is a difference of opinion among various High Courts. In the judgment under appeal, reported in (1975) .101 ITR 658 (Guj), the Gujarat High Court has answered the question raised in favour of the Revenue and against the assessees. Hence these appeals by the assessee, M/ s. Garden Silk Weaving Factory, Surat.

2. The two appeals relate to the assessment years 1967-68 and 1968-69 for which the relevant previous years were the Saka years 2022 and 2023 respectively. The question arises in similar circumstances for both the years. We shall set out the facts relevant for the assessment year 1968-69 as the appeals and reference in respect of that year were disposed of earlier than those pertaining to the assessment year 1967-68.

3. The assessee, M/s.Garden SilkWeaving Factory, is a registered firm. For the assessment year in question, it returned a total income of Rupees 3,94,483/- and a provisional assessment, under Section 141 of the Act, was made accepting the income returned. Subsequently, the Income-tax Officer found that, for the assessment year in question, the assessee had made an income of Rs. 1 1,82,056/ - but deducted therefrom three figures aggregating to Rs. 7,87,573 / -to arrive at the net income of Rs. 3,94,483 which had been returned and accepted. These three figures were figures carried over from the previous year for the assessment year 1967-68. They comprised of:

(i) Unabsorbed Depreciation Rs 1,59,181/-

(ii) Unabsorbed Development Rebate Rs. 2,79,150/-

(iii) Unabsorbed Business loss Rs. 3,49,242/-

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Total: Rs. 7,87,573/-

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The Income-tax Officer (I.T.O.) agreed that, out of the above three amounts, the unabsorbed development rebate pertaining to the assessment year 1967-68 had been rightly tarried forward and set off in computing the total income for the asse ssment year 1968-69. However, for reasons which will become clear later, the Income-tax Officer was of the opinion that the sum of Rs. 1,59,181 / - (which represented the amount of unabsorbed depreciation relating to the assessment year 196768) and the amount of Rs. 3,49,242 (which represented the unabsorbed loss pertaining to the assessment year 1967-68) could not be carried forward, as done by the assessee, to the assessment year 1968-69. He, therefore, added back the sum of Rs. 5,08,423 (the aggregate of the above two amounts) to the returned income for determining the total income for assessment year 1968-69 . This action of the Income-tax Officer was confirmed by the Appellate Assistant Commissioner (A.A.C.). However, on further appeal, the Income-tax Appellate Tribunal (A.T.) took a different view. It upheld the Income-tax Officers stand that the firm could not be allowed to carry forward and set off the business loss carried from the earlier year. But, so far as the unabsorbed depreciation was concerned, it upheld the assessees contention. A reference to the High Court followed. The following two questions were referred to the High Court of Gujarat for its decision:

"1. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee registered firm is entitled to carry forward unabsorbedjepreciation from earlier years and that it will be deemed to be an allowance in the nature of depreciation in the previous year, relevant to assessment year 1968-69?

2. Whether the claim of the assessee to carry forward and set off loss of Rs. 3,49,242/against its total income for the assessment year 1968-69 has been rightly rejected?"

4. The High Court, in a very detailed judgment, discussed the issues threadbare and answered both the.questions a . gains t the assessee and in favour of the Revenue. Hence the assessees appeal for the assessment year 1968-69 under a certificate of fitness granted by the High Court.

5. For the assessment