The allowance for depreciation for a particular year under the Indian IT Act, 1922, before amendment, was the percentage allowed by the statute for that year plus the unabsorbed depreciation for the previous year.

HARRIES, C.J.

1. THIS is a reference made by the Tribunal under s. 66 of the Indian IT Act at the instance of the assessees. The question which has been formulated for the opinion of this Court is as follows :

"Whether, on the facts and in the circumstances of this case, the Tribunal was right in holding that the unabsorbed depreciation of the end of the year 1938-39, which was not given effect to in the subsequent years, could not be treated as part of the allowable depreciation for the relevant assessment years which are asst. yrs. 1941-42, 1942-43 and 1943-44."

2. THE assessees, M/s Isthmian Steamship Co. of New York, are assessed in India as a company through their agents, M/s Angus Co. Ltd. In the three relevant assessment years which are referred to in the question as also for the asst. yr. 1940-41, the unabsorbed depreciation as at the end of the asst. yr. 1938- 39 was not allowed to be carried forward by the ITO. For the asst. yr. 1940-41 the assessees did not appeal against this order and that assessment became final. In the three assessments from 1941 onwards three appeals were filed and the assessees contended that their unabsorbed depreciation at the end of the asst. yr. 193839 should be carried forward for the purpose of the depreciation allowance in the asst. yr. 1939-40. THE claim was rejected by the ITO and the AAC. THE latter was of opinion that this question should have been raised in the assessment for 1940- 41 and as the disallowance of the unabsorbed depreciation had not been appealed from the matter could not be raised in subsequent assessments. It is to be observed that the Tribunal disagreed with the AAC on this question and held that though the assessment for the year 1940-41 had been allowed to become final, nevertheless the matter could still be raised in subsequent assessments and they heard the case upon that basis. It is to be observed that the IT authorities have accepted that view and they have not asked the Tribunal to state a case giving rise to the contention which had found favour with the Court of the Appellate Commissioner, but had been rejected by the Tribunal. As I have stated, the assesses are a company incorporated in the United States and they own steamships which visit India. THEy have been assessed to Indian income-tax. THE Indian profit of the assessee company is computed on the basis of "days on round voyage", and it would appear from their returns that there was each year a large amount as unabsorbed depreciation as the annual depreciation far exceeded their profits and gains.

The only question which was agitated before the IT authorities was whether or not the assessee- company was allowed to add the unabsorbed depreciation for the year 1938 to the depreciation allowed by statute for the year 1939. The contention of the assesses was that the depreciation permitted for the year 1939 was not only the percentage allowed by statute for that year, but that percentage plus the unabsorbed depreciation brought forward from the previous year. The taxing authorities on the other hand contended that all that could be allowed as depreciation in the year 1939 was the statutory percentage allowed for that particular year. The question which has been decided is what allowance can be properly allowed for depreciation for the year 1939 ?

3. THE matter turns on the construction to be given to a proviso to s. 10(2)(vi) of the Indian IT Act. THE proviso has been materially changed by the IT Amendment Acts 1939 and 1940 and it will be better if I set out the relevant provisions of the Act before the amendment and the provisions after the amendment. Previous to the 1939 amendment the relevant portion of s. 10(2)(vi) of the Act read as follows :

"Such profits or gains shall be computed after making the following allowances, namely : in respect of depreciation of such buildings, machinery, plant or furniture being the property of the assessee, a sum equivalent to such percentage on the original co