Norman Macleod, C.J.
1. This is a reference under Section 66(2) of the Indian Income Tax Act XI of 1922 at the instance of the Secretaries, Treasurers and Agents of the Raja Gokaldas Mills, Limited. For the purposes of the income-tax and supertax assessments for the years 1921-22 and 1922-23 the Company submitted a printed copy of its audited balance sheet and profit and loss account for the year ending Juno 30, 1921, and that would form the basis of its final assessment for the year 1921-22 under the Indian Income-Tax Act VII of 1918 and the Super-tax Act XIX of 1920, and of its assessment for 1922-23 under the Indian Income-tax Act XI of 1922. We are not concerned in this reference with the assessment for the year 1921-22. We are only concerned to see on what basis the assessment for 1922-23 has to bo levied under the Indian Income-tax Act XI of 1922.
2. Under Section 3 of the Act:--
Where any Act of the Indian Legislature enacts that income-tax shall he charged for any year at any rate or rates applicable to the total income of an assessee, tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of all income, profits and gains of the previous year of every individual, company, firm and Hindu undivided family.
3. The term 'previous year' is defined by Section (2)(11), and it is not disputed that for the assessment of the year 1922-23 the 'previous year' within the meaning of Section 3 was the year ending June 30, 1921. For the purposes of that assessment the income, profits and gains of the company were to be ascertained for the year ending June 30, 1921.
4. Section 10 provides how the profits and gains are to be computed and under Sub-section. (2) the deduction of certain allowances is permitted. Under Sub-section (2), Sub-clause (vii), allowance could be made in respect of any machinery or plant which, in consequence of its having become obsolete, had been sold or discarded.
5. It is admitted that in the year ending June 30, 1921, the company had discarded obsolete machinery to the extent of Rs. 72,460-0-0. Therefore in calculating the profits and gains for that year the allowance was permissible, with the result that the profits and gains for that year amounted to Rs. 2,70,223-3-2. The Commissioner of Income Tax was of opinion that the profits and gains for the year ending June 30, 1921, for the purposes of the assessment for 1922-23, should be calculated without making that allowance on the ground that that allowance had already been made in computing the income for the year ending June 30, 1921, when making an adjustment for the financial year 1921-22 of the actual income earned by the company for that year under the provisions of Act VII of 1918, We do not think that the Commissioner of Income Tax was entitled to take that view. He was only concerned with the assessment for 1922-23 and that assessment was to be based on the income, profits and gains of the company for the previous year, which, as we have said, was the year ending June 30, 1921. He was bound to calculate the profits and gains according to the provisions of Act XI of 1922. and as the Company were entitled to make that allowance for obsolescence under that Act, the Commissioner was bound to accept their estimate of their profits and gains for that particular year, and the fact that under the previous Income Tax Act the profits and gains for the then current year formed the basis of the assessment for that year, was irrelevent when considering how the company had to be assessed for the year 1922-23 under Act XI of 1922. Assuming for the moment that the Company had earned a profit in the year ending June 30, 1921, which was nonrecurring, and in the nature of a wind-fall, undoubtedly the Commissioner would have had no hesitation in taxing it twice over, once under the Act of 1918 and secondly under Act XI of 1922.
6. The first question is:--
Whether having regard to Section 10(2)(vi)(c) of Act of 1922 the Income tax Officer was not bound to allow the Company to deduct the sum of Ra. 72,460 for obsolescence in computing the taxable income of the Company for the assessment of 1922-23?
7. It is difficult to understand this question. Section 10(2)(vi)(a) deals with depreciation of plant and buildings, not with obsolescence.
8. The second question is also unintelligible and unnecessary. It will be simpler for us to state our answer to the reference in the following form:--
9. This Court is of opinion that the Company were entitled in making their returns for the year 1922-23 on the basis of their income, profits and gains for the year ending June 30, 1921, to deduct an allowance for obsolescence under Section 10(2)(vii).
10. The company will be entitled to their costs of the reference.
11. Costs to be taxed as on the Original Side scale.