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Commissioner of Income-tax, Bombay City Ii Vs. Estate and Finance Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 30 of 1967
Judge
Reported in[1978]111ITR119(Bom)
ActsIncome Tax Act, 1961 - Sections 32(2) and 72
AppellantCommissioner of Income-tax, Bombay City Ii
RespondentEstate and Finance Ltd.
Appellant AdvocateR.J. Joshi, Adv.
Respondent AdvocateI.M. Munim, Adv.
Excerpt:
direct taxation - depreciation - sections 32 (2), 56, 57 and 72 of income tax act, 1961 - whether on proper interpretation of sections 56, 57 (ii) and 32 (2) unabsorbed depreciation brought forward since 1952-53 be set off against business income assessed in assessment year 1963-64 when source in respect of which depreciation computed ceased to exist - as per judicial precedent for purpose of section 32 (2) not necessary either that same business to be carried on in succeeding year or that depreciable assets of original business in year in which set off is claimed unabsorbed depreciation becomes depreciation allowance of year even if that business has no depreciable assets - held, depreciation to be allowed. - - the tribunal upheld the contentions advanced on behalf of the assessee,.....desai, j. 1. this is a reference to the high court at the instance of the commissioner under section 256(1) of the income-tax act, 1961. the question referred for our consideration by the income-tax appellate tribunal is as follows : 'whether, on a proper interpretation of sections 56, 57(ii) and 32(2) of the income-tax act, 1961, the unabsorbed depreciation of rs. 70,700 brought forward since 1952-53 could be off against the business income assessed in the assessment year 1963-64 when the source in respect of which the depreciation was computed had ceased to exist.' 2. a few facts may be stated : 3. the reference arises out of the assessment proceedings for the assessment year 1963-64, the relevant previous year being the period 1st august, 1961, to 31st july 1962. the assessee is a.....
Judgment:

Desai, J.

1. This is a reference to the High Court at the instance of the Commissioner under section 256(1) of the Income-tax Act, 1961. The question referred for our consideration by the Income-tax Appellate Tribunal is as follows :

'Whether, on a proper interpretation of sections 56, 57(ii) and 32(2) of the Income-tax Act, 1961, the unabsorbed depreciation of Rs. 70,700 brought forward since 1952-53 could be off against the business income assessed in the assessment year 1963-64 when the source in respect of which the depreciation was computed had ceased to exist.'

2. A few facts may be stated :

3. The reference arises out of the assessment proceedings for the assessment year 1963-64, the relevant previous year being the period 1st August, 1961, to 31st July 1962. The assessee is a limited company which was incorporated in 1947. It purchased a large plot of land at Malad and the same was being sold in parcels. The income from such sale was assessed as business income of the assessee-company. In December, 1947, it had purchased a theatre in Bombay for Rs. 8,50,000. The necessary finance for acquiring the theatre was raised by mortgaging the theatre itself. The theater was let out with all its installations and furniture and the income from such letting out was being assessed under section 12 of the Indian Income-tax Act, 1922. The theatre was sold in 1952, the assessment year being 1953-54. In computing the income from the letting out of the theatre the assessee was allowed depreciation on the theatre's machinery and furniture under section 12(3) read with section 20(2)(vi). In the assessment years 1950-51, 1951-52 and 1952-53 the depreciation as properly computed could not be allowed as a deduction because the activities of the assessee resulted in a loss. The unabsorbed depreciation of the assessee of these three years was as follows :

Assessment year DepreciationRs.1950-51 25,7061951-52 23,4431952-53 21,551-----------------Total 70,700-----------------

4. As stated earlier, the theatre was sold in 1952. Even thereafter the unabsorbed depreciation indicated above could not be set off against the profits of subsequent years as the profits were not sufficient to absorb this sum or any part thereof. The unabsorbed depreciation thus remained unadjusted up to the assessment year 1963-64 with which year we are concerned in this reference. In that year the assessee was assessed on a total income of Rs. 21,453. In the order of the Income-tax Officer there is no discussion on the point whether or not the assessee was entitled to set off part of the unabsorbed depreciation towards this income.

5. The assessee thereafter appealed to the Appellate Assistant Commissioner contending that under section 57(ii), in determining the income under the head 'Other sources', the assessee was entitled to all the allowances contemplated under section 32 and that by reason of the provision contained in section 32(2) where full effect could not be given to the depreciation allowance due in any previous year, the allowance or part thereof to which effect could not be given was required to be added to the amount of allowance of depreciation for the following previous year and deemed to be part of that allowance or if there is no profit for that year, it should be deemed to be unabsorbed allowance or sufficient profit for that year and carried forward to succeeding year or years. It was urged before the Appellate Assistant Commissioner that, applying these provisions in the manner indicated, the unabsorbed depreciation amount of Rs. 70,700 should be deemed to be part of the allowance for the assessment year 1963-64 and that it should be set off against other income as provided under the Act. The Appellate Assistant Commissioner rejected this contention holding that since the assessee had ceased the letting of building, plant or furniture since 1952, the question of invoking the provisions of section 57 read with section 32(2) did not arise.

6. The assessee thereafter went in further appeal to the Income-tax Appellate Tribunal. Before the Tribunal it was contended on behalf of the assessee as follows : (1) on a proper reading of the provisions of section 56(2)(iii) read with section 57(ii) and section 32(2) of the Income-tax Act, 1961, the assessee was eligible for the adjustment of the unabsorbed depreciation against the available total income; (2) the depreciation was treated on a different footing from normal business loss; (3) while in the case of business loss the condition precedent as enacted by the proviso to section 72(1) was that the business for which the loss was originally computed continued to be carried on by the assessee in the relevant previous year, a similar condition did not appear in section 32(2) and there was no warrant for importing such a condition into the section. On behalf of the department it was contended that the source in respect of which the claim arose must continue to exist in the year under consideration and if the said source has disappeared, as in this case, by the sale of the theatre, then the relevant provisions did not permit adjustment of unabsorbed depreciation. The Tribunal upheld the contentions advanced on behalf of the assessee, inter alia, holding that there was no warrant for importing the condition provided in the proviso to section 72 into section 32(2). Further, according to the Tribunal, it was a well-settled principle in constructing fiscal statutes that when two interpretations were possible the court should accept that interpretation which is of help and assistance to the assessee rather than the one which would help the revenue. Accordingly, it was held that the Tribunal should not by construction do what Parliament had omitted to do. In this view of the matter, according to the Tribunal, the assessee's contention was required to accepted; and the Tribunal held that the assessee was eligible for the adjustment of the sum of Rs. 70,700 to the extent possible in the assessment year. It is at the instance of the Commissioner thereafter that this reference has been made to the High Court.

7. Mr. Joshi, on behalf of the revenue, submitted that as far as this court was concerned, the matter was concluded by a decision of the Division Bench of this High Court consisting of Y. S. Tambe and V. S. Desai JJ. in Sahu Rubbers Private Ltd. v. Commissioner of Income-tax : [1963]48ITR464(Bom) . According to him, in the said decision the Division Bench of the Bombay High Court had accepted and propounded the same principle which was being contended for on behalf of the revenue before the Tribunal and that if that principle was applied, as was required to be applied, the Tribunal was clearly and demonstrably in error in upholding the contention of the assessee. It was further stated by him that in Sahu Rubbers' case : [1963]48ITR464(Bom) the Division Bench had referred to an earlier decision of the Madras High Court in Commissioner of Income-tax v. Dutt's Trust : [1942]10ITR477(Mad) . According to him, there was still another decision of the Bombay High Court, one which is reported earlier than that of the Madras High Court, in which the same rule had been accepted and followed, and this was in In re David Sassoon & Co. Ltd. : [1940]8ITR7(Bom) . It will become necessary, therefore, to refer to these three decisions. If it is found that in David Sassoon's case : [1940]8ITR7(Bom) or in Sahu Rubbers' case : [1963]48ITR464(Bom) the Division Benches have clearly accepted and applied the principle contended for by the revenue, we will be bound by those decisions and it would not be open to us to treat the question as res integra and construe the relevant statutory provisions for ourselves.

8. One of the question being considered in David Sassoon's case : [1940]8ITR7(Bom) was the proper construction to be put on the proviso to section 10(2)(vi) of the Indian Income-tax Act, 1922, and, according to Beaumont C. J. (at page 15 of the report), it was plain on the construction of this proviso that the right to set off past depreciation only exists in the person who continues to derive profits in respect of the business concerned. A similar conclusion was also reached by Kania J., who delivered a separate but concurring judgment; according to him, on this question the answer was as stated by Beaumont C.J., and that the right to claim depreciation could not be regarded as a personal right of the party who had parted with the ownership of the property in respect of which depreciation is to be assumed.

9. Undoubtedly, these conclusions have been arrived at by the Division Bench. But a perusal of the judgment in David Sassoon's case : [1940]8ITR7(Bom) does not indicate the process of reasoning by which the two judges concerned arrived at their respective conclusions. According to them, a plain reading of the provisions concerned compelled them to the conclusions which have been indicated and set out earlier. As we shall see later on, there is no warrant for the assumption that the wording is plain and admits of only one conclusion. It will be difficult, therefore, to accept this decision in In re David Sassoon & Co. Ltd. : [1940]8ITR7(Bom) as binding authority. Indeed, it has not been Mr. Joshi's contention that it was so, although it was certainly, according to him, entitled to the highest respect. Perhaps, the same comment may be made with respect to the decision of the Madras High Court in Commissioner of Income-tax v. Dutt's Trust : [1942]10ITR477(Mad) . There also (at page 483 of the report) the proviso has been interpreted upholding the contention advanced before us on behalf of the revenue. According to the Division Bench of the Madras High Court, section 10(2)(vi) could not be read as giving the assessees the right to deduct an allowance for depreciation in a business which has ceased to exist. There also the assessees originally owned a cinema, a saw mill and a rice mill. At a subsequent stage the cinema business was disposed of and the general business was also subsequently sold, but they continued to carry on the saw mill business which proved to be profitable concern. The question arose whether in subsequent years the assessees were entitled to set off the unabsorbed depreciation of the cinema business against the profits earned from the saw mill. According to the Division Bench of the Madras High Court, the assessees had no right to deduct an allowance for depreciation in a business which had ceased to exist; that if the trustees had continued the cinema business they would have certainly been entitled to an allowance; but that business having ceased and the assets disposed of before the year of account, they obviously could not ask for any allowance.

10. As stated earlier, it would be permissible to characterise this portion of the decision also as a conclusion without the necessary process of reasoning being indicated in the same.

11. The decision in Sahu Rubbers' case : [1963]48ITR464(Bom) , however, does not suffer from any such infirmity and would, therefore, be required to be considered in greater detail. The assessee before the court in Sahu Rubbers' case : [1963]48ITR464(Bom) was a private limited company which was carrying on the business of manufacture and sale of rubber shoes in its own factory. This factory was closed down on 1st August, 1949, by reason of certain demands of labour which were upheld by an award of the Industrial Tribunal. As a result of such demands it was decided by the management that profitable working of the concerned was not possible. The assessee thereafter started another business of importing trimobiles, clocks, cement and set itself up in trading in them. The rubber factory was restarted towards the end of April, 1950, but manufacturing was not carried on beyond a year or two. Trading in cement and in other commodities, however, was pushed on vigorously. In respect of the assessment year 1956-57 the assessee claimed for the allowance of the carried forward depreciation of earlier years; but this was not conceded because the shoe manufacturing business in respect of which the depreciation had been calculated and had been allowed earlier was closed during the entire previous year. Before the Division Bench of the Bombay High Court it was contended by the learned advocate appearing on behalf of the assessee that on a proper construction of proviso (b) to clause (vi) of sub-section (2) of section 10 of the Indian Income-tax Act, 1922, the assessee was entitled to set off the aforesaid unabsorbed depreciation against the profits and gains of the business for the two assessment years in question although it was not carrying on the business of manufacturing and sale of rubber shoes in those two years. This contention was not accepted by the Division Bench. Mr. Joshi has invited us to follow this very decision and has submitted that the decision being that of a Division Bench of this very High Court is binding on us and is required to be followed irrespective of our view of the provisions contained. On the other hand, Mr. Munim, on behalf of the assessee, submitted that the said decision did not constitute a binding authority inasmuch as it was given on a construction of the proviso to section 10(2)(vi) of the Indian Income-tax Act, 1922, whereas we were concerned with construing the proper meaning to be given to the provisions contained in section 32(2) of the Income-tax Act, 1961 which was enacted not as a proviso but as an independent substantive provision. According to Mr. Munim's submission, the decision in Sahu Rubbers' case : [1963]48ITR464(Bom) entirely turned on the question whether the statutory provision under which the assessee claimed the relief and the right to set off the unabsorbed depreciation in respect of the profits of subsequent years was a proviso or a substantive provision of law. He has pointed out that at four different places in the judgment in Sahu Rubbers' case : [1963]48ITR464(Bom) the Division Bench has taken pains to emphasise this aspect of the matter and has not stated anywhere that the decision would be the same or that its interpretation of the provision would be as given in that decision irrespective of the question whether the statutory provision was enacted as a proviso or an independent substantive provision. These four places in the report are to be found at pages 468, 471 and 472.

12. We think we will have to accept this contention raised on behalf of the assessee for the limited purpose only that the said decision does not constitute a binding authority on the interpretation to be placed by this court on the true meaning to be given to the statutory provision enacted in section 32(2) inasmuch as the provision contained in the Act of 1961 has ceased to be a proviso as was the case under the Act of 1922 and the decision in Sahu Rubbers' case : [1963]48ITR464(Bom) principally turned on the question whether the statutory provision was required to be considered and interpreted and given effect to as a proviso or as an independent substantive provision. As a matter of fact, the learned advocate for the assessees in Sahu Rubbers' case : [1963]48ITR464(Bom) based his argument for being allowed the relief on the contention that the provision for relief had to be considered to be a substantive provision to be read with a part of Chapter IV of the Act dealing with deductions and assessment and not as a proviso. In our view, if the Division Bench had wanted to consider the statutory provision irrespective of the question whether the provision was enacted as a proviso or as an independent substantive provision, they could have repelled this submission of Mr. Ramaswamy by stating that even if regarded as an independent substantive provision, the scheme of the Act would suggest that such unabsorbed depreciation could not be claimed in the year of assessment unless the business in respect of which it has arisen earlier was being carried on in that year. This has not been held and, on the other hand, we find repeated pronouncements (as indicated earlier) which seem to suggest that such relief as claimed by the assessee could not be allowed because the statutory provision was enacted as a proviso to the statutory provision for calculating depreciation for the relevant year. The chain of arguments which appealed to the Bench and enunciated that decision (Sahu Rubbers' case : [1963]48ITR464(Bom) ) seems to be that, in the first place, the depreciation allowance for the relevant year has to be computed. Such depreciation can only be computed for a business if the business is in existence in that year. It is only in such a case that the question of giving the benefit of earlier unabsorbed depreciation, which benefit is required to be given by reason of the proviso, comes into the picture. Such benefit cannot be given to the assessee unless the depreciation in the business is required to be calculated for the relevant year. According to us, such conclusion appears to have been arrived at by reason of the fact that the statutory provision for giving this benefit to the assessee (the deeming provision or fiction for carrying forward of and allowance of unabsorbed depreciation) was enacted by way of a proviso and not as an independent substantive provision.

13. Mr. Munim, on behalf of the assessee, has submitted that there is a later judgment of the Bombay High Court concerned with the very same statutory provision in which, after considering the scheme of the proviso and the main provision, it has been observed that it is not necessary that the plant or machinery in respect of which the benefit of unabsorbed depreciation is claimed must still be in use in the assessment year in question, but that it was enough if the business carried on is the same. It was submitted by him that although Sahu Rubbers' case : [1963]48ITR464(Bom) was not referred to in this later decision, the scheme of the statutory provision has been fully considered in it and the view of the scheme of the statutory provision which appealed to and was accepted by the later Division Bench in favour of the assessee and in favour of the view taken by the Tribunal in the case before us. This later decision is Shri Laxmi Printing and Dyeing Works Pvt. Ltd. v. Commissioner of Income-tax : [1968]70ITR148(Bom) . The relevant observations on which great stress has been laid by the learned advocate for the assessee before us are to be found at pages 162, 163 and 164 of the said report. At pages 162 and 163 is to be found the argument on behalf of the revenue which is based on the construction of the statutory provision which had appealed to the Division Bench in Sahu Rubbers' case : [1963]48ITR464(Bom) . It was contended on behalf of the revenue in Laxmi Printing's case : [1968]70ITR148(Bom) that for an allowance of depreciation in the assessment year the buildings, plant or machinery in respect of the allowance claimed must be in use in the said year; and only if it so exists can the fiction enacted in the proviso be given effect to. The Division Bench observed that they did not agree with the interpretation which the learned counsel for the revenue had put on the proviso to clause (b) of sub-section (2) of section 10. According to the Division Bench (pages 163, 164) :

'The only qualification for it to be treated as an allowance for the year is that it must have been properly allowed in earlier years and by reason of its not being absorbed, must have been allowed to be carried forward to the assessment year. The qualification of its being allowable on the basis of the machinery in respect of which it is claimed being in use was properly satisfied when the depreciation was allowed. There is nothing in clause (b) of the proviso to section 10(2)(vi) which requires the qualification to be satisfied again, viz., that the machinery in respect of which it has been claimed in past years is in use in the assessment year also.'

14. There is considerable force in the submission made by the learned advocate for the assessee that the approach of this later Division Bench is to a large extent in conflict with the approach of the Division Bench which decided Sahu Rubbers' case : [1963]48ITR464(Bom) . In his further submission, however, it is unnecessary for us to attempt to reconcile the two decisions or to prefer one over the other as, according to him, these decisions were given under the statutory provisions as contained in the Indian Income-tax Act, 1922, which provisions have received a different shape when the Act of 1961 was enacted. It may be mentioned that the difference is not in any change in phraseology, but the provision contained in section 32(2) with which we are concerned is not put as a proviso to any provision for computing depreciation but as a separate provision. In our opinion, and since we read the decision in Sahu Rubbers' case : [1963]48ITR464(Bom) as principally turning on the question of how a proviso is to be interpreted, we will be required to consider this provision afresh and not as bound by the earlier decision of this High Court in Sahu Rubbers' case : [1963]48ITR464(Bom) .

15. The learned advocate for the assessee has at this stage submitted that the question has been decided in favour of the assessee by the decisions of the Allahabad High Court, in one of which the view of this High Court in : [1963]48ITR464(Bom) (Sahu Rubbers' case) has been expressly dissented from, and he invited us to come to the same conclusion. Alternatively, it was submitted that even if two interpretations were possible, the court must approve of the approach of the Tribunal which observed that in such a contingency that interpretation which favours the assessee as against the revenue is required to be accepted. Brief reference may now be made to these two Allahabad decisions.

16. The first of these two decisions of the Allahabad High Court in point of time is the one in Commissioner of Income-tax v. Rampur Timber & Turnery Co. Ltd. : [1973]89ITR150(All) . The assessee, in that case, was carrying on business in the manufacture of bobbins, etc., and had stopped the business with effect from the previous year relevant to the assessment year 1955-56, though it continued to own the plant, machinery, etc. Thereafter, the assessee continued to be assessed only in respect of income from the property which it owned. During the previous year relevant to the assessment year 1962-63, the assessee received a refund of Rs. 6,982 from the electricity department out of electricity charges already paid by it in the years when it was carrying on the business aforesaid, which had been then allowed to the assessee as expenditure of the business in those assessments. During the assessment for the assessment year 1962-63, the Income-tax Officer included the aforesaid amount of Rs. 6,982 as the business income of the assessee in view of the deeming provisions contained in section 41(1) of the Income-tax Act, 1961. It was urged by the assessee that such profit should be set off against the unabsorbed depreciation allowance of Rs. 46,003 determined for the assessment years 1951-52 to 1954-55. In the reference to the High Court this contention of the assessee was accepted. It was held that the benefit of unabsorbed depreciation could be availed of by an assessee in any subsequent year without satisfaction of the preconditions attaching to sub-section (2) of section 32 and it is not necessary that in such subsequent years the assessee actually carried on the business and the asset in question was used for the purpose of the assessee's business. It may be pointed out that in this decision the Division Bench also accepted the alternative head of argument which proceeded upon the basis that a legal fiction was created under section 41(1) and as a corollary to that legal fiction it was necessary also to assume that the business had actually continued in the relevant year although, as a matter of fact, it had been closed down. It could have been argued that, as the decision has been based on both the arguments, its authority to that extent is weakened somewhat and we should give effect to the scheme of section 10(2)(vib) as propounded by Sahu Rubbers' case : [1963]48ITR464(Bom) , even though the statutory provision has been somewhat differently enacted in section 32(2).

17. Such comment as is available in respect of the decision of the Allahabad High Court in Commissioner of Income-tax v. Rampur Timber and Turnery Co. Ltd. : [1973]89ITR150(All) is not available for the later decision of that very High Court in Commissioner of Income-tax v. Virmani Industries (P.) Ltd. : [1974]97ITR461(All) , in which the Allahabad High Court was once again called upon to construe section 32(2) and where the Bombay decision in Sahu Rubbers' case : [1963]48ITR464(Bom) was cited on behalf of the revenue but was expressly dissented from by the Allahabad High Court. According to that High Court, the view of the Bombay High Court contained in Sahu Rubbers' case : [1963]48ITR464(Bom) was contrary to the plain language of section 32(2) of the Act.

18. In the aforesaid decision the Allahabad High Court considered the statutory provisions contained in sections 32, 71 and 72 of the Income-tax Act, 1961, and observed that these were similar provisions for carry forward and set off of unabsorbed depreciation and losses of previous years. It then noted the important distinction which was to be found in the proviso to section 72(1) which, according to the High Court, constituted one of the two conditions for carry forward and set off of the past losses. It then went on to observe (at page 464) as under :

'It would at once be clear that there is a difference between the carried-forward loss and carried-forward depreciation allowance. In the case of a carried-forward loss, it can be set off against the profits of a business of the succeeding year provided the business for which the loss was originally computed continued to be carried on in the succeeding year. There is no such requirement so far as the carried-forward depreciation allowance is concerned. It is not necessary that the business in respect of which the depreciation allowance was originally worked out should remain in existence in the succeeding year nor is it necessary that the business assets to which the depreciation pertains must be used in the business carried on in the succeeding year. All that is necessary is that an assessee must carry on some business in the succeeding year in which the set-off of the unabsorbed depreciation is claimed. That is so, because a depreciation allowance is essentially a deduction allowable out of the gross profits of a business. If there is no business there can be no depreciation allowance. It is also not necessary that the business in the succeeding year must have some depreciable assets so that even if there is no depreciation allowance available to the assessee in the succeeding year, by fiction, the unabsorbed carried-forward depreciation of the earlier year shall be deemed to be the depreciation allowance of the succeeding year and shall be an allowable deduction out of the business profits. The other distinction is that while the unabsorbed loss can be carried forward only for eight years, there is no time limit for the carry forward of the unabsorbed depreciation. That is why section 72(2) provides that where unabsorbed depreciation and business loss are both to be carried forward, effect shall first be given to the business loss.'

19. Thereafter, after dissenting from the decision of the Bombay High Court in Sahu Rubbers' case : [1963]48ITR464(Bom) , the Division Bench went on to observe-See : [1974]97ITR461(All) :

'We have already pointed out that for the purposes of section 32(2), it is not necessary either that the same business should be carried on in the succeeding year or that the depreciable assets of the original business should be utilised in the new business. So long as an assessee carried on some business in the year in which the set-off is claimed, the unabsorbed depreciation by fiction becomes the depreciation allowance of the year even if that business has no depreciable assets. It is a well-known rule of interpretation of statutes that a legal fiction has to be carried to its logical conclusion by imagining, if necessary, something to exist which, in fact, does not exist.'

20. It may be pointed out that reference has been made in both these Allahabad decisions to a decision of the Supreme Court in Commissioner of Income-tax v. Jaipuria China Clay Mines (P.) Ltd. : [1966]59ITR555(SC) , where the Supreme Court has drawn a distinction between a carried-forward loss and a carried-forward depreciation allowance.

21. If we bear in mind the principal basis of the decision given in Sahu Rubbers' case : [1963]48ITR464(Bom) , as enunciated by us earlier, viz., that the court was construing a proviso and the view that it took turned on this aspect of the matter, it is possible to disagree with the observations to be found in Commissioner of Income-tax v. Virmani Industries : [1974]97ITR461(All) , that the decision in Sahu Rubbers' case : [1963]48ITR464(Bom) is contrary to the plain words of section 32(2). It appears to us that in Sahu Rubbers' case : [1963]48ITR464(Bom) , a limited effect was given to the legal fiction contained in the proviso principally because that fiction was provided for in the enactment by way of a proviso. It is true that the approach to be found in the observations at page 470 of the report : [1963]48ITR464(Bom) , viz., that if the intention of the legislature had been to adjust the unabsorbed depreciation allowance against the profits and gains chargeable to tax of the following year or years irrespective of whether that business continues or not it would have said so, may not commend itself to us. Indeed, it is possible to hold and observe that if in a later section when the legislature intended to impose such a requirement or condition on the right of the assessee to claim a similar benefit the legislature expressly provided for such restrictive condition, then in the absence of any such restrictive condition the provision giving the benefit of unabsorbed depreciation should be read without importing any such condition, i.e., in favour of the assessee rather than in the manner as was done in Sahu Rubbers' case [1963] 48 ITR. It would appear that the absence of such express provisions in the statutory provision for unabsorbed depreciation is eloquent and can only be fairly construed in favour of the assessee that there was no such requirement.

22. The learned advocate for the revenue referred us to a recent decision of our High Court in Kishendas Dilberdas v. Commissioner of Income-tax : [1974]96ITR638(Bom) ; we were particularly referred to the observations in the said report at page 644. It is, however, to be pointed out that the court in the said decision was dealing with a claim made on behalf of a partnership in respect of getting the benefit of unabsorbed depreciation for the period when the concern was a sole proprietary concern. This contention was rejected by the Bombay High Court and it is in this context that those observations have to be read. In our opinion, those observations relied upon by Mr. Joshi have no relevance to the point under consideration in the present reference.

23. In any case, we are in agreement with the view expressed by the Tribunal that where two interpretations are possible, it will be proper for the court to put that interpretation on the statutory provisions as would be favorable to the assessee bearing in mind that the court is construing a taxing statute. This principle has been enunciated in several decisions and it is not necessary to refer to those decisions in our judgment. In our view the fair interpretation of the statutory provision as it now stands under the Income-tax Act, 1961, would be as propounded by the Division Bench of the Allahabad High Court in Commissioner of Income-tax v. Virmani Industries (P.) Ltd. : [1974]97ITR461(All) . Even if we were inclined to be of opinion bearing in mind the observations in Sahu Rubbers' case : [1963]48ITR464(Bom) , that two views are possible, we must accept the view favourable to the assessee, both because it is a view favourable to the assessee and because there has been a change in the manner of enacting the statutory provisions by which a proviso has now been enacted as an independent substantive provision.

24. In the result, it appears to us that the view taken by the Income-tax Appellate Tribunal was the correct view in law and is required to be upheld. Accordingly, the question referred to us is answered in the affirmative and in favour of the assessee.

25. The department will pay to the assessee the costs of this reference.


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