CHANDURKAR, J. - This is a reference at the instance of the assessee in which two questions have been referred and we have found considerable difficulty in ascertaining the scope of question No. 2.
The assessee is a sugar factory and actual production of sugar had stated only on 17th January, 1957 though the factory building was erected and machinery was installed by the end of August, 1956. The accounting year of the society was 1st of July to 30th of June and in response to a notice issued under S. 22(2) of the Income-tax Act, 1922, the assessee filed its first return of income for the assessment year 1958-59 showing income as nil. In the column relating to particulars regarding claim for depreciation of the assets also no details were given and the remark was Nil. When the Income-tax Officer took up the assessment proceedings in respect of the assessment year 1958-59 for consideration, he passed a cryptic order as follows :
'The assessee is a co-operative society registered as such deriving, income from his business in the manufacture and sale of sugar and from interest on deposits with other co-operative Banks. Under s. 14(3) of the I.T. Act both the business profit on sales and the interest derived from other Co-operative Banking Institution are exempt. Declared not liable for tax.'
In the subsequent assessment year 1954 the assessee filed a return returning a income of only Rs. 600/- which was shown as interest on securities and in the column relating to business income the remark 'Exempted being a co-operative society registered under the Act. The income disclosed in Part D of the form of the return was Rs. 3,24,000/- which, it was claimed, was not liable to tax. He particulars with regard to the claim in depreciation were filed, but on being asked by the Income-tax Officer to produce particulars they were produced. The contention raised by the assessee before the Income-tax Officer was firstly that there was no need to compute the income from business because the income of co-operative society from business exempt from tax and secondly that depreciation having actually been allowed for the earlier assessment year 1958-59, in the assessment year 1959-30 depreciation had to be allowed on the basis of the original cost of the assets. Both contentions were negatived by the Income-tax Officer who held that the view provisions of S. 16(1)(a); in computing total income, even the income tax business which was exempted was liable be included. With regard to the relating to depreciation the Income tax Officer took the view that for assumed year 1959-60 it was the written down of the assets which had to be taken account which was equal to the original cost as reduced by the depreciation amount of Rs. 1,75,361/-. The Income-tax Officer, however, found that the correct amount of depreciation permissible in respect of the year 1958-59 was Rs. 1,45,858/-. The findings given by the Income-tax Officer were upheld by the Appellate Assistant Commissioner and the assessee then filed an appeal before the Tribunal.
3. Now, so far as the order of the Tribunal is concerned, in the opening part of the order it sets out five contentions which are said to have been raised before if by the assessee. The first question which is considered by the Tribunal in paragraph 7 of the order was whether the income of a co-operative society which is exempt from tax under S. 14(3) of the Act is required to be computed at all and the Tribunal took the view after reproducing S. 16(1)(a) of the Act that even if the business income of the assessee was exempt from tax under S. 14(3), 'there is no doubt that its computation was yet permissible because such income did form part of the total income'. The order of the Tribunal shows that this contention with regard to the computation of the total income was raised in the context of the proceedings for the assessment year 1958-59 as would be clear from the following observations :-
'The mere fact that in the assessment year 1958-59 total income itself was exempt from tax under S. 14(3) of the Act is no answer to the point that computation of such income was all the same necessary in view of the said provisions of the Act.'
The Tribunal then directed its attention to the second question which was posed as to whether it can be said that depreciation had actually been allowed in the assessment year 1958-59. It is obvious that the contention before the Tribunal on behalf of the assessee was that no depreciation had been actually allowed on the assets of the assessee in the assessment year 1958-59 and therefore, the cost of the assets should be taken as the proper amount for working out depreciation permissible in the year 1959-60. The case of the Revenue before the Tribunal was that the assessee was entitled to depreciation not on the original cost of the assets but on the written down value because depreciation had already been taken into account in the first assessment year 1958-59. The contention of the assessee was accepted and on a construction of the assessment order in respect of the year 1958-59. The contention of the assessee was accepted and on a construction of the assessment order in respect of the year 1958-59 the Tribunal took the view that depreciation cannot be said to have been actually allowed to the assessee in the assessment year 1958-59. In paragraph 10 of the order an additional reason was given by the Tribunal in support of its conclusion, the reason being that in the assessment year 1958-59 no particulars were furnished by the assessee which it was obligatory upon the assessee to do if depreciation is to be claimed under S. 10(2)(vi) of the Act. Thus in paragraph 11 of the order the conclusion reached by the Tribunal was that the assessee would be entitled to depreciation for the assessment year 1959-60 calculated on the basis of the original cost. The only other contention which was advanced before the Tribunal, as it appears from the order, was that the depreciation to be considered must be in proportion to the taxable income in the relevant year and that inasmuch as the only other taxable income of the assessee was Rs. 600/- depreciation with reference to the entire business income should not be computed. This contention was negatived. The order of the Tribunal, therefore, shows, that only three questions were agitated before the Tribunal; firstly, whether in the case of a co-operative society, whose income is exempted under S. 14(3) of the Act, a computation of the income under S. 16 is necessary; secondly, what was the value of the assets to be taken into account for the purposes of depreciation; and thirdly, whether the depreciation had to be worked out on a proportionate basis with reference to the total income. After these findings we must now reproduce the two questions which have been referred by the Tribunal at the instance of the assessee. These questions are :
'(1) Whether on a proper construction of the provisions of Ss. 3, 14(3) and 16(1)(a) of the Indian Income-tax Act, 1922, as in force on 1-4-1959, it was necessary to compute the assessees income from business under S. 10 of the said Act ?
(2) Whether on the facts and in the circumstances of the case, depreciation under S. 10(2)(vi) of the Indian Income-tax Act, 1922, was liable to be allowed as a deduction when no claim for such deduction was made by the assessee ?'.
Now, there can be on difficulty in holding that the first question arises out of the findings given by the Tribunal in paragraph 7 of the order where the contention of the assessee considered was that the income of the assessee being that of a co-operative society was excluded and computation of income was not necessary. We have merely to reproduce the provisions of S. 16(1)(a) of the Act to point out that there is no error in the order of the Tribunal when it held that the computation of the income of the assessee, even though it was a co-operative society, was contemplated by the provisions of S. 16(1). S. 19(1)(a) so far as is material provided that in computing the income of an assessee any sums exempted under the first proviso to sub-S. (1) to S. 7, the second and third provisos to S. 8 Sub-Ss. (2), (3), (4) and (5) of S. 14 S. 15, S. 15B and S. 16C shall be included, and any sum expended under S. 15A shall also be included except for the purposes of determining the rates at which Income-tax is payable by the assessee to whom the exemption is given. S. 14(3), it is not disputed, provides that the tax shall not be payable be a co-operative society in respect of profits and gains of business carried on by it. Now, so far as the provisions of the Income-tax Act are concerned, the exemption granted under the Act are of two kinds. Certain classes of income are exempted from tax and also excluded from the computation of total income while certain other classes of income exempted from tax are to be included in the assessees total income. As observed by Chagla C.J, in C.I.T. vs. Raiji, with reference to the scheme of the Income-tax Act, 1922, wherever one finds and exemption or exclusion from payment of tax, the exemption or exclusion operates for the purpose of computation the total income and not only is the sum not liable to tax but it is also not to form part of the total income for the purpose of determining the rate. It was further pointed out in that case that 'When further pointed out in that case that 'When the legislature intends that certain sums, although not liable in tax should be included in the total income, it expressly so provides, as it is done in S. 16'. The legislature has express provided in S. 16(1)(a) that income exempted under S. 14(3) which deals will the profits and gains of business carried on a by co-operative society shall be included while computing the total income of the assessee though such inclusion is not for the purpose of determining in the rats as which Income-tax is payable by the assessee to whom the exemption is given. The Tribunal was, therefore, justified in rejecting the contention of the assessee that for the purposes of computation under S. 16(1)(a), the business income of the assessee co-operative society, could not be taken into consideration. The first question must, therefore, be answered in the affirmative and against the assessee.
4. Now, so far as the second question is concerned, as we have already observed, we have found considerable difficulty in ascertaining the scope of that question and finding out whether it ready arose from the order of the Tribunal. We are unable to find any discussion of the contention on which the second question is based. According to Mr. Trivedi appearing on behalf of the assessee that question relates to the assessment year 1959-60. We have referred in extenso to the three contention which were raised before the Tribunal. It was sought be argued by Mr. Trivedi that question No. 2 seemed to arise out of the contention rejected by the Tribunal in paragraph of the order which related to a claim proportionate deduction in respect of depreciation. Now, on reading the question it is impossible for us to related that question to that part of the order of the Tribunal in paragraph 12. Apart from the discussion in paragraph 12 of the order of the Tribunal, it was not possible for Mr. Trivedi to point out any other discussion in the order of the Tribunal which could be said to be relevant to second question referred by the Tribunal.
5. It was then contended by Mr. Trivedi what in order to clear the down raised, namely, that the question does not arise out of any part of the order of Tribunal, a supplementary statement the case should be called for. We are not inclined to adopt such course as it is clear from the Tribunals order that the contention on which the second question was framed was not argued before the Tribunal at all. We, therefore, decline to answer question No. 2 on the ground that a does not arise at all out of the order of the Tribunal.
6. In the result, question No. 1 is answered in the affirmative and against the assessee. Question No. 2 does not arise out of the order of the Tribunal and, therefore, need not be answered. The assessee must pay the cost of the Revenue.