P. CHAKRAVARTTI, C. J.

( 1 ) THIS Reference under Section 66 (1) of the Income-tax Act, involves a point which, though short, is somewhat tricky.

( 2 ) THE assessee is a company, called the Alluminium Corporation of India Limited and the assessment year in question is 1949-50. It appears that during the accounting year 1948-49, relative to that year of assessment, the assessee company showed a profit of Rs. 9,56,479/-which was done without deduction of the depreciation due for that year. The amount of depreciation allowance to which the assessee wag entitled in respect of its working during the year in question was Rs. 12,52,117/ -. The Income-tax Officer set off that depreciation against the pro-fit and determined the difference, namely, Rs. 2,95,638/-, as the loss for the year. The amount so determined as loss was directed to be carried over to the next year as unabsorbed depreciation.

( 3 ) THE company, however, had an amount of Rs. 27,359/- as loss carried forward from earlier years. Before the Income-tax Officer it was contended that against the year's profit of Rs. 9,56,479/-, the amount of the loss carried forward from the previous years, namely, Rs. 27,359/-, should first be set off and then should be set off, as against the balance of the profits, the depreciation allowance due for the year, that is to say Rs. 12,52,117/ -. The difference between the method followed by the Income-tax Officer and that contended for by the assesses would be this : according to the determination of the Income-tax Officer two amounts were to be carried forward to the next year, namely, Rs. 2,95,638/- as unabsorbed depreciation fop the year and Rs. 27,359/- as the loss brought up from the earlier years. If the method suggested by the assessee was followed, only one sum, namely, Rs. 3,22,997/- would be carried forward as unabsorbed depreciation. It will be noticed that the total of the two sums directed to be carried forward under the Income-tax Officer's determination was the same sum of Rs. 3,22,997/-, but it would be to the assessee's advantage, under the law as it then stood, to have the two amounts carried forward as unabsorbed depreciation in one sum, because whereas loss could be carried forward for only six years, there was no time limit at all with regard to the carrying forward of unabsorbed depreciation.

( 4 ) THE Appellate Assistant Commissioner and after him the Tribunal both upheld the Income-tax Officer in appeals successively preferred to them by the assessee. The assessee, being dissatisfied, asked for a Reference to this Court and the following question of law has been referred :"whether the depreciation allowance of Rs. 12,52,117/- relating to the current year has been rightly set off against the profits of Rs. 9,56,479/-of the said year as against the assessee's claim that the loss carried forward from the previous years, namely, Rs. 27,359/- be, in the first place set off against the said profits of Rs. 9,56,479/-".

( 5 ) THE two provisions of the Income-tax Act from which the correct method of setting off depreciation allowance or other loss against the profits of a year, when both are available for being set off is to be spelt out, are somewhat involved. It is not that the method itself is very complicated, but the form in which it has been laid down in proviso (b) to Section 10 (2) (vi), road with Clause (b) of Section 24 (2) and the manner in which the two provisions have been interlinked make some amount of analytical work necessary in order to arrive at the true import of the provisions. The position appears to be the following.

( 6 ) AMONG the allowances admissible under Section 10 (2) of the Act in computing the profits or gains of business is an allowance for depreciation of buildings, machinery, plant or furniture belonging to the assessee and used in or for the business. It follows that where the profits or gains of business for a particular year are to be ascertained, the allowance in respect of deprec

Click Here to Read the rest of this document