Rama Jois, J.
1. The Income-tax appellate Tribunal, Bangalore Bench, has referred the following question for the opinion of this court under s. 256(1) of the I. T. Act, 1961 (hereinafter referred to as 'the Act') :
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the unabsorbed depreciation of past years can be set off against the profit under section 41(2) assessable in the assessment year 1964-65 ?'
2. Briefly stated, the facts of the case are as follows :
The assessee is M/s. Kapila Textiles (P.) Ltd. It ceased to carry on its business in the year 1956 and went into liquidation on June 19, 1958. During the year 1957-58, there was unabsorbed depreciation carried forward which amounted to about Rs. 28.48 lakhs. On March 24, 1961, the liquidator sold the building, plant and machinery in auction. But actually, the sale deed was executed on May 9, 1963. The previous year for the assessment year 1964-65, with which the reference is concerned, was the year ended 30th June, 1963. Before the ITO, the assessee claimed that the unabsorbed depreciation allowance carried forward should be set off against the income of the previous year. This claim was made under sub-s. (2) of s. 32 of the Act. It was rejected by the ITO on the ground that the said provision authorised the allowance of carried forward depreciation only if the business was in existence during the previous year.
3. Aggrieved by the said order, the assessee preferred an appeal to the AAC. The appellate authority held that as the profit was computed under s. 41(2) of the Act, the claim of the assessee for set off of the same against the income during the relevant previous year had to be accepted. In coming to this conclusion he relied upon a decision of the Allahabad High Court in CIT v. Rampur Timber and Turnery Co. Ltd. : 89ITR150(All) . Aggrieved by the said order, the department preferred a second appeal before the Tribunal. Before the Tribunal it was contended for the department that the provision of sub-ss. (1) and (2) of s. 32 were subject to s. 28 of the Act and, consequently, set-off could be permitted only if the business was in existence during the relevant accounting year. The Tribunal rejected the contention of the department and held that the ratio of the decision of the Allahabad High Court in Rampur Timber and Turnery Co.'s case : 89ITR150(All) was applicable to the facts of the present case. Accordingly, it confirmed the order of the AAC. Thereafter, at the instance of the department, the question set out earlier has been referred for our opinion.
4. On the above facts, the precise question which arises for consideration in this reference is :
Is it necessary, that in order to claim the benefit of set-off of carried forward depreciation allowance permitted by s. 32(2) of the Act, that the assessee must have actually carried on the business during the relevant accounting year
(i) There is no dispute that the assessee ceased to carry on its business in the year 1958-59 itself. Then how did the assessee earn income in May, 1963 During the relevant year the assessee had realised amounts by sale of building, plant and machinery. A part of the amount so realised is treated as income in view of sub-s. (2) of s. 41. That sub-section provides that any income derived by the sale of building, plant, machinery or furniture which is owned by an assessee and which was being the money payable in respect of such building, machinery, plant or furniture exceed the written down value, so much of the excess as does not exceed the difference between the actual cost and the written down value shall be chargeable to income-tax as income of the business or profession of the previous year in which the moneys payable for the building, machinery, plant or furniture became due. It is by the application of s. 41(2) that out of the money realised by the sale of the building, plant and machinery, a sum of Rs. 7,58,982 was treated as income during the assessment year 1964-65. To this extent there is no controversy.
(ii) Sub-section (2) of s. 32 provides that if full effect cannot be given to any depreciation allowance permitted under s. 32 in any previous year owing to their being no profits or gains chargeable to tax for that previous year or owing to the profits or gains chargeable to tax being less than the allowance, then, subject to provisions of sub-s. (2) of s. 72 and sub-s. (3) of s. 73, the allowance or part of the allowance to which effect has not been given shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year be deemed to be the allowance for that previous year and so on for the succeeding previous years. There is no dispute that in the case of the assessee the unabsorbed depreciation carried forward, in terms of this provision, was, during the relevant year, a sum of Rs. 28.48 lakhs.
(iii) Section 29 of the Act provides that the income from profits and gains of business or profession referred to in s. 28 shall be computed in accordance with the provisions contained in ss. 30 to 43A. Therefore, once the amount realised by the assessee, by sale of the building, plant and machinery is treated as income arising out of the profits and gains of business by virtue of sub-s. (2) of s. 41 of the Act, notwithstanding the fact that the assessee was not carrying on any business during the relevant year, the provision contained in sub-s. (2) of s. 32 becomes applicable and, consequently, the set-off has to be given for the unabsorbed depreciation allowance of the previous year brought forward in terms of that provision. From the wording of s. 32(2) it may be seen that it is only subject to the provisions of sub-s. (2) of s. 72 and sub-s. (3) of s. 73, which relates to the carry forward and set off of business loss and loss computed in respect of a speculation business, respectively. According to these provisions effect has to be given to s. 72 or s. 73, as the case may be, first before giving effect to s. 32(2). That question does not arise in this case. Similarly, sub-s. (5) of s. 41 on which the revenue relies also deals with regard to set-off of unabsorbed loss and does not deal with the set-off of the unabsorbed depreciation allowance. The requirement that the business should have been carried on during the relevant previous year, is a condition applicable for claiming set-off of unabsorbed losses. Further, carrying forward of losses is not permitted beyond eight years in view of s. 72(4) of the Act. All these conditions are not incorporated in, or made applicable to, the carry forward and set off of depreciation allowance specially provided for in sub- s. (2) of s. 32 of the Act.
5. In the light of the above discussion, we hold that the benefit allowable under sub-s. (2) of s. 32 of the Act is not subject to the condition that the business must have been carried on by the assessee during the relevant accounting year. Therefore, the Tribunal was right in accepting the claim of the assessee and confirming the order of the AAC, applying the ratio of the judgment of the Allahabad High Court in Rampur Timber and Turnery Co.'s case : 89ITR150(All) , with which we respectfully agree. For the reasons aforesaid, we make the following order :
We answer the question referred in the affirmative, i.e., against the department.