Judgment

RANGANATHAN, J.

( 1 ) 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 opinionamong various High courts. In the judgment under appeal, reported ascit v. Garden Silk Wvg. Factory, the Gujarat High court has answeredthe 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 and2023 respectively. The question arises in similar circumstances for boththe years. We shall set out the facts relevant for the assessment year1968-69 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 Silk Weaving Factory, is a registeredfirm. For the assessment year in question, it returned a total income ofrs 3,94,483 and a provisional assessment, under S. 141 of the Act,was made accepting the income returned. Subsequently, the Income Taxofficer found that, for the assessment year in question, the assessee hadmade an income of Rs. 11,82,056. 00 but deducted therefrom three figuresaggregating to Rs. 7,87,573. 00 to arrive at the net income of Rs. 3,94,483. 00,which had been returned and accepted. These three figures were figurescarried over from the previous year of the assessment year 1967-68. They comprised:(i) unabsorbed Depreciation rs. 1,59,181

(ii) unabsorbed Development rs. 2,79,150

rebate

(iii) unabsorbed Business loss rs. 3,49,242

total: rs. 7,87,573

The Income Tax Officer (ITO) agreed that, out of the above threeamounts, the unabsorbed development rebate pertaining to the assessment year 1967-68 had been rightly carried forward and set off in computing the total income for the assessment year 1968-69. However, forreasons which will become clear later, the Income Tax Officer was of theopinion that the sum of Rs. 1,59,181. 00 (which represented that amount ofunabsorbed depreciation relating to the assessment year 1967-68) andthe amount of Rs. 3,49,242. 00 (which represented the unabsorbed losspertaining 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. 00 (the aggregate of the above twoamounts) to the returned income for determining the total income forassessment year 1968-69. This action of the Income Tax Officer was confirmed by the Appellate Assistant Commissioner (AAC ). However, onfurther appeal, the Income Tax Appellate tribunal (AT) took a differentview. It upheld the Income Tax Officers stand that the firm could not beallowed to carry forward and set off the business loss carried from theearlier year. But, so far as the unabsorbed depreciation was concerned, itupheld the assessees contention. A reference to the High court followed. The following two questions were referred to the High court ofgujarat 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 registeredfirm is entitled to carry forward unabsorbed depreciation from earlier years and that it will be deemed to be an allowance in the natureof depreciation in the previous year, relevant to assessment year1968-69?2. Whether the claim of the assessee to carry forward and setoff loss of Rs. 3,49,242. 00 against its total income for the assessmentyear 1968-69 has been rightly rejected?"

( 4 ) THE High court, in a very detailed judgment, discussed the issuesthreadbare and answered both the questions against the assessee and infavour of the revenue. Hence the assessees appeal for the assessmentyear 1968-69 under a certificate of fitness granted by the High court.

( 5 ) FOR the assessment year 1967-68, a full paper book containi