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1950 Supreme(P&H) 25
HIGH COURT OF PUNJAB & HARYANA
KAPUR,SONI, JJ.
In the matter of the Income-tax Assessment of M/S Laxmichand Jaiporia Spinning and Weaving Mills, Delhi
Versus
.
Reference No.5 of 1949
Decided On : 22-05-1950
Bhagirath Dass and Parshotam Lal Chopra - for Petitioner.
S.M. Sikri and Hem Raj Mahajan - for Respondent.
The unabsorbed balance of depreciation allowance can be set off against income from other sources under S.24(1), Income-tax Act, 1922.
Headnote:
INCOME TAX - DEPRECIATION ALLOWANCE - LOSS OF PROFITS - SET OFF - REGISTERED FIRM - INCOME TAX ACT, 1922, SS. 6, 10(2)(VI), 24(1), 24(2).
Fact of the Case:
The assessee, a registered firm, claimed a set-off against its income from property and other sources for a loss of Rs.12,505, being the unabsorbed balance of depreciation allowance brought forward from the preceding year. The Income-tax Officer allowed a set-off of Rs.3,257, but disallowed the balance on the ground that it should be carried forward under S.10(2)(vi), proviso (b), Income-tax Act, 1922.
Finding of the Court:
The court held that the assessee was entitled to set off the entire loss of Rs.12,505 against its income from property and other sources under S.24(1), Income-tax Act, 1922. The court interpreted S.10(2)(vi), proviso (b) as not precluding the assessee from claiming the benefit of the earlier part of the subsection, which allowed for the set-off of losses against profits from other sources.
Issues: Whether the assessee, a registered firm, was entitled to set off the unabsorbed balance of depreciation allowance against its income from property and other sources under S.24(1), Income-tax Act, 1922.
Ratio Decidendi: The court held that the assessee was entitled to set off the entire loss of Rs.12,505 against its income from property and other sources under S.24(1), Income-tax Act, 1922. The court interpreted S.10(2)(vi), proviso (b) as not precluding the assessee from claiming the benefit of the earlier part of the subsection, which allowed for the set-off of losses against profits from other sources. The court reasoned that S.24(1) provided for the set-off of any loss of profits or gains under any of the heads mentioned in S.6, including depreciation allowance under S.10(2)(vi), and that there was no reason why the allowance for depreciation should be treated differently for the purpose of computing from that given in other clauses.
Final Decision: The court answered the question in the affirmative, holding that the assessee was entitled to set off the entire loss of Rs.12,505 against its income from property and other sources under S.24(1), Income-tax Act, 1922.
"in the circumstance; of the case and having regard to the proviso (b) to S.10 (2)(vi), the part of the depreciation allowance (to which effect could not be given) viz. Rs.12,505 (Rs.23,990 minus Rs.8,228 and minus Rs.3,257) could be treated as loss of profits under the head business and apportioned amongst the partners under proviso 2 to S.24(1), Income-tax Act."
2. The case as stated by the Income-tax Tribunal is as follows:
"2.The assesses is a registered firm known by the name Laxmichand Jaiporia Spinning and Weaving Mills. It is the proprietor of the Spinning and Weaving Mills known as Laxmichand Jaiporia Spinning and Weaving Mills. In the previous year ending Kartik Vadi 14, 1998, relevant to the assessment year 1942-43, its income from property was computed at Rs.2, 897 and its income from other sources was computed at Rs.360. Its income from the Mills without providing for depreciation under S.10 (2) (vi), Income-tax Act amounted to Rs.8, 228. The depreciation allowance permissible to The assesses for the year of account amounted to Rs.23, 990. The assesses has also to its credit unabsorbed balance of the depreciation allowance brought forward from the preceding year amounting to Rs.27, 012. According to The assesses its income should have been computed as follows:
Business profit Rs.8, 228. Les:
Depreciation (Rs.23,990 depreciation on account of the year of account and Rs.27,012 on account of the unabsorbed balance of depreciation allowance) Rs.51,002.
Total business loss Rs.42, 774.
The Income-tax Officer having allowed, under S.24(1) of the Act, a set off against the income from property and other sources amounting to Rs.3,257 (2,897 plus 360), the net loss amounting to Rs.39,517 (42,774-3,257) according to the assesses, should have been apportioned amongst the partners of the firm and that the loss so apportioned should have been set off against their profits in their individual assessments as laid down in proviso 2 to S.24(1) of the Act. The department, on the other hand, relying upon S.10 (2)(vi), proviso (b), contended that the assesses was only entitled to claim depreciation allowance to the extent of the business profits of the year of account and that the balance of the depreciation allowance, viz , Rs.42, 774 (Rs.51,002 minus Rs.8,228) should be carried forward. The Income-tax Officer having allowed under S.24 (1) the set off to the extent of Rs.3, 257, the question whether it was properly done was not decided by the Tribunal.
3. The Tribunal for the reasons given by it in its order doled. 31st March 1948 held as follows:
We therefore hold that the assesses cannot take into account the item of Rs.27, 012 and the figure of loss for the year of account would be (Rs.39, 517 - 27,012) Rs.12, 505 which should be apportioned between the partners. The partners are entitled to claim a deduction in their individual assessments as provided under proviso 2 to S.24 (1).
A copy of the Tribunals order is annexure A. and forms part of the case. The assessee has sought no reference in connection with the order of the Tribunal disallowing the sum of Rs.27,012 for the purpose of the set off under S.24(1), Income-tax Act, although it seeks, by its reply to the Commissioners application under S.66(1) of the Act, to raise that point. In our opinion, the assesses cannot raise this question without making an application under S.66 (1) of the Act."
3. The question is whether this sum of rupees 12,505 can be taken into account by the partners of the registered firm in their individual assessment.The submission of the Commissioner was that this was not a loss which could be so taken into consideration for the purpose of S.24, Income-tax Act. Reliance was placed on S.6, Income-tax Act under this section the heads of income chargeable to income-
