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Tube Suppliers Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case Nos. 1275 and 1276 of 1977 (Reference Nos. 902 and 907 of 1977)
Judge
Reported in[1985]152ITR694(Mad)
ActsIncome Tax Act, 1961 - Sections 32, 32(1) and 72
AppellantTube Suppliers Ltd.
RespondentCommissioner of Income-tax
Appellant AdvocateS.V. Subramaniam, Adv.
Respondent AdvocateJ. Jayaraman, Adv.
Cases ReferredIn B. R. Ltd. v. V. P. Gupta
Excerpt:
(i) direct taxation - depreciation - sections 32, 32 (1) and 72 of income tax act, 1961 - whether tribunal right in holding that assessee not entitled to relief under section 32 (1) (iii) - though assets been sold in year of account assets not been used for business as business been closed earlier to accounting year - therefore assessee not entitled to claim depreciation under section 32 (1) (iii) - question answered in favour of revenue. (ii) setting-off - unabsorbed depreciation relating to activity of collapsible tubes and lamp factory related to discontinued businesses - whether tribunal right in holding that it cannot be set off against income from refractory works determined for assessment year 1970-71 - in order to sustain claim under section 32 business should have been carried.....ramanujam, j. 1. the following three questions of law have been referred to this court by the income-tax appellate tribunal, madras, at the instance of the assessee, m/s. tube suppliers limited, madras : '(1) whether, on the facts and circumstances of the case, the tribunal was right in holding that the assessee was not entitled to the unabsorbed losses relating to collapsible tubes factory for the years 1964-65 to 1967-68, being carried forward and set off against the income determined in the business of refractory works for the assessment year 1970-71 (2) whether the tribunal was right in holding that the unabsorbed depreciation relating to the activity of collapsible tubes and lamp factory related to a businesses, which ceased to exist and, hence, it cannot be set off against the.....
Judgment:

Ramanujam, J.

1. The following three questions of law have been referred to this court by the Income-tax Appellate Tribunal, Madras, at the instance of the assessee, M/s. Tube Suppliers Limited, Madras :

'(1) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the assessee was not entitled to the unabsorbed losses relating to collapsible tubes factory for the years 1964-65 to 1967-68, being carried forward and set off against the income determined in the business of refractory works for the assessment year 1970-71

(2) Whether the Tribunal was right in holding that the unabsorbed depreciation relating to the activity of collapsible tubes and lamp factory related to a businesses, which ceased to exist and, hence, it cannot be set off against the income from refractory works determined for the assessment year 1970-71

(3) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the assessee was not entitled to the relief under section 32(1)(iii) ?'

2. The assessee-company carries on business in refractory works to manufacture fire bricks. It also carried on business in lamp factory and collapsible tubes. The ITO took the view that the business relating to lamp works and collapsible tubes did not exist in the assessment year 1970-71 and, therefore, the business losses of the earlier years relating to those businesses cannot be allowed to be set off against the income from the business in refractory works for the assessment year 1970-71. On appeal, the AAC agreed with the ITO that the business losses of earlier years relating to lamp works cannot be carried forward and set off against the income determined for the assessment year 1970-71. However, with regard to the business relating to collapsible tubes, the AAC held that as the assessee sold finished goods worth Rs. 5,610 to Wavin India Limited, relating to the business of collapsible tubes division, that business must be taken to exist in the assessment year 1970-71, and that as such the business losses of the earler years 1964- 65 to 1967-68, relating to collapsible tubes business, should be set off against the income from the business in refractory works determined for the assessment years 1970-71 and 1971-72.

3. Both the assessee and the Revenue went before the Tribunal. The Revenue contended that the collapsible tubes factory was closed on April 8, 1965, that the assessee had decided to sell the collapsible tubes factory unit to M/s. Poysha Industries, Bombay, but the sale could not be finalised and the assets delivered to the buyer as Government's approval for the sale was not received till January, 1968, and that the collapsible tubes factory as a profit-earning apparatus having become extinct, there is no justification for the AAC to hold that the loss relating to the collapsible tubes division can be set off against the income from the business of refractory works determined for the assessment year 1970-71. The assessee, on the other hand, contended that the finished goods from the collapsible tubes division have been sold on July 31, 1969, falling within the assessment year 1970-71, that this clearly shows that the business pertaining to collapsible tubes did exist in the assessment year 1970-71, and, therefore, the business losses relating to the said business can be carried forward and set off against the business income determined for the assessment year 1970-71. On these rival contentions, the Tribunal held that it is not possible for the assessee to contend that the business relating to collapsible tubes existed in the year 1970-71, merely on the basis of some realisation of sales of finished products relating to the collapsible tubes especially when the collapsible tubes plant was closed in 1965 and the production was also stopped and the assessee had sold the factory to a Bombay firm. The Tribunal further held that since the business in which the loss was originally sustained was not continuously carried on by the assessee till the year in which the carried forward loss was sought to be set off, the assessee was not entitled to carry forward the unabsorbed loss in the business of collapsible tubes and set it off against the income determined in the business of refractory works for the assessment year 1970-71. Since the Tribunal's decision was against the assessee, the assessee has sought and obtained a reference on the first question set out above.

4. For the same assessment year 1970-71, the assessee also claimed that the unabsorbed depreciation relating to the collapsible tubes division and lamp factory should be carried forward and set off aginst the income determined for the refractory business for the assessment year 1970-71. That claim having been rejected by the ITO, the assessee went before the AAC who, following the decisions, in CIT v. Rampur Timber and Turnery Co. Ltd. : [1973]89ITR150(All) and CIT v. Virmani Industries (P.) Ltd. : [1974]97ITR461(All) , held that the benefit of unabsorbed depreciation could be availed of by the assessee in any subsequent year, that it is not necessary that in such subsequent year, the assessee should have actually carried on the business and that if there is income from some other business, the unabsorbed depreciation carried forward from the past years will be available for set off against the income. In that view, the AAC allowed the set off of the unabsorbed depreciation relating to the collapsible tubes division and lamp factory against the business income from refractory works determined for the assessment year 1970-71.

5. When an appeal was filed before the Income-tax Appellate Tribunal by the Revenue against the order of the AAC, the Tribunal held that the business of collapsible tubes and lamp factory ceased to exist before the assessment year 1970-71, and, therefore, the unabsorbed depreciation relating to those two businesses cannot be permitted to be carried forward and set off against the income from a totally different business, viz., refractory works. In taking that view, the Tribunal followed the decision of this court in CIT v. Dutt's Trust : [1942]10ITR477(Mad) . In respect of the said decision of the Tribunal, question No. 2 has been referred to us.

6. The assessee also claimed a loss of Rs. 13,231 under s. 32(1)(iii) on the sale of certain assets in the assessment year 1970-71. That claim having been disallowed by the ITO on the ground that the assets sold by the assessee related to the business that was discontinued in October, 1965, and, as such, that cannot be allowed as a deduction in the assessment year 1970-71, the assessee went before the AAC who held that for allowing the loss under s. 32(1)(iii), the business, the assets of which were sold in the year under consideration, need not have been in existence in that particular year and that as such the loss claimed by the assessee on the sale of the assets will have to be allowed under s. 32(1)(iii). Aggrieved by the decision of the AAC, the Revenue went in appeal before the Tribunal. The Tribunal held that in order to get the allowance under s. 32(1)(iii), the business, the assets of which have been sold, should be carried on for at least in some part of the relevant accounting year, that if the business had been discontinued earlier, the allowance cannot be claimed against the profits of another separate and independent business carried on by the assessee. In that view, the Tribunal sustained the disallowance of the loss made by the ITO, after setting aside the order of the AAC. The third question set out above refers to this aspect of the case.

7. For appreciating the questions referred to us, it is necessary to refer to the facts of the case in some detail. In the year of account relevant to the assessment years 1970-71 and 1971-72, the assessee company carried on business in refractory works to manufacture fire bricks besides dealing in pipes and fittings. Previously it also carried on business in lamp factory, hereinafter referred to as the second undertaking, and in collapsible tubes, hereinafter referred to as the third undertaking. For the assessment years 1970-71 and 1971-72, the losses of earlier years, namely, 1964-65 to 1967-68 amounting to Rs. 4,47,779 consisting of business loss of Rs. 2,49,581 and unabsorbed depreciation of Rs. 1,98,198, were not allowed to be adjusted as against the income from refractory works by the ITO on the ground that those losses related to the business of lamps and collapsible tubes which were non-existent during the assessment years. When the matter was taken in appeal by the assessee, the AAC called for a report from the ITO as to when exactly the business of lamp works and collapsible tubes was the stopped by the assessee, and the ITO sent a report to the following effect. From the annual report for the year ended July 31, 1964, it is seen that the production in lamp factor was stopped in February, 1964, and the collapsible tube factory was closed on April 8, 1965, that the company decided to sell the plant of the two units in the best interests of the company as the company felt it would be uneconomical to operate the said plants. The annual report for the year ended July 31, 1967, indicated that the assets of the collapsible tubes factory were not used from December, 1965, and those of the lamp works were not used from October 1963. Though the decision to sell the machinery of both the units to M/s. Poysha Industrial Company Limited, Bombay, was taken by the company on December 2, 1966, yet the sale could not actually be finalised and the assets were not delivered to the Bombay Company, as the Government's approval for the sale was not received till January, 1968. Therefore, the assessee should be taken to have ceased to carry on business in lamps as well as collapsible tubes before 1967. Even assuming that the assessee has made sales of certain left over items of assets during the previous year relating to the business of collapsible tubes in the previous year, that may not by itself be taken to mean that the said business had been continued to be carried on.

8. Thus the facts as found by the authorities below are these : The assessee carried on three businesses, in refractory works, lamp works and collapsible tubes in the earlier years. But it decided to close down the businesses in lamp works and collapsible tubes long before the assessment year and those businesses were not in fact carried on during the assessment year 1970-71, and it carried on the business only in refractory works. The entire income returned for the assessment year 1970-71 was only from that the business. The assessee had admittedly sold some spares of machineries of the lamp works department on July 31, 1969, for Rs. 2,600. He had sold the machinery spares in the collapsible tubes department on July 31, 1969, for Rs. 386.57. Further, on July 31, 1969, the assessee sold finished goods worth about Rs. 5,610 to Wavin India Limited. Loose tools to the extent of Rs. 825 was sold to Poysha Industries on July 31, 1969. The break-up details of the total receipts for the year 1970-71 is given below :

Rs.Refraction Division 5,17,329.54Fitting Division 19,45,257.99Lamp Works Division 678.80Collapsible tubes Division 3,547.50------------24,66,813.83------------

9. On these facts, the AAC held that the business carried on by the assessee in the production of lamps was closed in February, 1964, and merely because some scraps from the lamps works division was sold for a sum of Rs. 678.80, it cannot be held that the company was carrying on business of lamp works during the assessment year 1970-71. So far as the collapsible tubes factory is concerned, the AAC held that since the assessee admittedly sold finished goods worth about Rs. 3,547.50 on July 31, 1969, it should be taken to have carried on the collapsible tubes business in the assessment year 1970-71. So, the business losses relating to the collapsible tubes of the prior years should be set off against the income determined for the assessment year 1970-71. The Tribunal, though it agreed with the AAC that the unabsorbed business loss could not be set off against the income determined in the year 1970-71 in view of the fact that the loss had accrued in respect of a business which has ceased to exist in the year of account, however, disagreed with the AAC and held that, even in respect of the unabsorbed depreciation of the earlier years, the assessee can have benefit only if the business in respect of which depreciation is claimed had been continued in the assessment year, and as the two businesses had been closed long before the accounting year, the disallowance of the unabsorbed depreciation by the ITO was justified. The mere fact that some spare parts remaining with the assessee has been sold during the accounting year will not lead to the inference that the assessee has carried on business during the relevant period. The Tribunal also held that the loss in sale of assets claimed by the assessee under s. 32(1)(iii) cannot also be allowed as the assets sold by the assessee related to the business that was discontinued in December, 1965, and that loss cannot be allowed as deduction in the assessment year 1970-71. Thus the Tribunal has taken the view that carry forward and set off of business losses as also unabsorbed depreciation and the loss in sale of assets can be claimed by the assessee in the assessment year 1970-71 only if the businesses in respect of which the loss had occurred or depreciation is claimed were continued, while the AAC has taken the view that only in respect of unabsorbed loss, the continuation of the concerned business is necessary but for claiming the loss under s. 32(1)(iii), the concerned business need not be shown to have been in existence during the relevant assessment year. The question is whether the view taken by the Tribunal in respect of (1) business losses, (2) unabsorbed depreciation, and (3) loss under s. 32(1)(iii) is correct.

10. We will first dispose of question No. 3 regarding loss arising under s. 32(1)(iii). Section 32(1)(iii) is as follows :

'32.(1) In respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, the following deductions shall, subject to the provisions of section 34, be allowed -

(iii) in the case of any building, machinery, plant or furniture which is sold, discarded, demolished or destroyed in the previous year (other than the previous year in which it is first brought into use), the amount by which the moneys payable in respect of such building, machinery, plant or furniture together with the amount of scrap value, if any, fall short of the written down value thereof :

Provided that such deficiency is actually written off in the books of the assessee.'

11. Section 32(1)(iii) provides that in respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purpose of the business or profession, deduction should be allowed to the extent of the amount by which the moneys payable in respect of such building, machinery, plant or furniture together with the amount of scrap value, if any, fall short of the written down value thereof, subject to the condition that such deficiency is actually written off in the books of the assessee. Thus the allowance under s. 32(1)(iii) is in the nature of the claim for excessive depreciation over and above the depreciation allowed in the earlier years which is represented by the written down value and, therefore, it has to be current year's depreciation. The opening words of s. 32(1) make it clear that for claiming depreciation under sub-s. (1)(iii), the buildings, machinery, plant or furniture in respect of which depreciation is claimed should have been owned by the assessee and used for the purpose of the business. The opening words of s. 32(1) cannot be read in isolation. Therefore, unless the assets in respect of which depreciation is claimed under s. 32(1)(iii) had been owned and used by the assessee for the purpose of his business in the relevant year depreciation under s. 32(1)(iii) cannot be claimed. The object of s. 32(1)(iii) is to see that when the assets used in his business are sold in any assessment year and the sale price falls short of the written down value, then the difference between the written down value and the actual sale value will be treated as a loss in the sale of assets and if that deficiency amount is written off in the books of the assessee, the assessee will get a depreciation allowance to the extent of the deficiency. That mean the assessee can claim the relief under s. 32(1)(iii) only in the year when the assets are owned and used. The allowance granted under s. 32(1)(iii) has to be taken as a balancing allowance in respect of the assets sold or discarded or demolished or destroyed and to claim such a balancing allowance, it is necessary that the business to the assets of which the allowance relates should be carried on for at least some part of the relevant assessment year. If the business had been discontinued earlier, the allowance cannot be claimed against the profit of any separate and independent business carried on by the assessee as has been held in Ganga Glass Works Ltd. v. CIT : [1951]19ITR126(All) . Further, the assets as such should have been used for the purpose of the business for at least a part of the accounting year as has been held by the Supreme Court in Western States Trading Co. (P.) Ltd. v. CIT : [1971]80ITR21(SC) . The analogy drawn by the learned counsel for the assessee from s. 41(2) specifically deems a business to continue, even though it has ceased to exist for the purpose of determination of income and the deeming is not for any losses. This position is made clear in the following decisions : Ganga Glass Works Ltd. v. CIT : [1951]19ITR126(All) , CIT v. National Syndicate : [1961]41ITR225(SC) and CIT v. Ajax Products Ltd. : [1965]55ITR741(SC) . In Ganga Glass Works Ltd. v. CIT : [1951]19ITR126(All) , the assessee who was carrying on two businesses of manufacture of glasses and sugar from 1935-36 stopped the manufacture of sugar and sold part of its machinery in 1939. In the accounting year 1942-43, the rest of the machinery was sold. The assessee claimed that in computing the income from glass business it was entitled to a deduction of the loss incurred in the sale of machinery under s. 10(2)(vii) of the Indian I.T. Act, 1922. This claim was disallowed by the Appellate Tribunal on the ground that the assessee was not carrying on sugar business and the sugar business and glass business were separate businesses and that there was no interdependence or inter-connection between the two businesses. When the assessee questioned the decision of the Tribunal before the Allahabad High Court, the court held that on the finding given by the Tribunal that there are two separate and independent businesses, the loss could not be allowed as a deduction under s. 10(2)(vii) in computing the income from the glass business as the sugar business was closed long before the accounting year. The principle laid down in that case applies to the facts of this case. In this case, though the assets had been sold in the year of account, the assets have not been used for the business as the business has been closed earlier to the accounting year. Therefore, the assessee is not entitled to claim the depreciation under s. 32(1)(iii). Question No. 3 is, therefore, answered in the affirmative and in favour of the Revenue.

12. Coming to question No. 2 relating to the unabsorbed depreciation, we have to see the setting in which s. 32 under which the relief is claimed occurs in the statute. Section 32 occurs in Chapter IV dealing with computation of total income. Section 28 makes specified items of income chargeable to tax under the head 'Profits and gains of business or profession'. Section 29 deals with the computation of income, profits and gains of business. Section 30 provides for certain deductions in the computation of income regarding rent, rates, taxes, repairs and insurance for premises used for the purpose of the business. Section 31 provides for a deduction in respect of repairs and insurance of the machinery and furniture used for the purpose of the business. Then comes s. 32 which says that in respect of depreciation of buildings, machinery, plant for furniture owned by the assessee and used for the purpose of the business, certain deductions are to be allowed. Section 33 deals with the development rebate in respect of new machinery or plant owned by the assessee and wholly used for the purpose of the business carried on by him. All these sections contemplate the user of the asset, whether it is building, plant or machinery for the purpose of the assessee's business and the deductions being allowed only in respect of the building, plant and machinery or furniture which have been used in the business. All the above sections presuppose the existence of a business and the user of the assets in the business. It is no doubt true, unabsorbed depreciation could be adjusted under the statute against the income from other heads, but the continuance of the business is an essential pre-requisite for allowing the assessee to carry forward the unabsorbed depreciation and it set off against the income. In this case, the Tribunal has proceeded on the basis that the three businesses carried on by the assessee originally were separate and independent businesses. Therefore, the profits of each business must be computed separately though tax is chargeable under s. 28(1) not on the separate business but on the aggregate of the profits of all the business carried on by the assessee. Thus, in order to sustain the claim under s. 32, the business should have been carried on in the accounting year and the deduction can be allowed only from the gross profits of specific business to which the business relates. From this it follows that no expenditure or other allowance can be claimed in respect of a business which has been discontinued before the commencement of the accounting year.

13. Sampath Iyengar in his treatise on The Law of Income-tax, 7th edition, Volume II, at page 1294, while dealing with the scope of s. 32(1), refers to the two opposing views expressed by courts, one a liberal view and the other a stricter view, and states that the stricter view is more in accord with the statutory provisions. The liberal view is that s. 32(1) providing for the grant of depreciation specifically postulates the existence of a business and the use of the asset therein. Likewise, when enacting the provision regarding carry forward and set off of unabsorbed depreciation, the Legislature could have imposed a condition that the unabsorbed depreciation could be set off against the profits of a subsequent year only if the business or asset in relation to which depreciation was allowed continued to exist and the asset continues to be used in it in such year. Since the Legislature has not done so and the absence of such a restriction has to be construed in favour of the assessee and, therefore, it should be held that 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 in which the set-off is claimed, and this view has been expressed in CIT v. Estate and Finance Ltd. : [1978]111ITR119(Bom) , CIT v. Rampur Timber and Turnery Co. Ltd. : [1973]89ITR150(All) , CIT v. Virmani Industries (P.) Ltd. : [1974]97ITR461(All) , CIT v. Warangal Industries (P.) Ltd. : [1977]110ITR756(AP) , Hyderabad Construction Co. Ltd. v. CIT : [1981]129ITR81(AP) and Addl. CIT v. Kapila Textiles (P.) Ltd. : [1981]129ITR458(KAR) . The stricter view is that in view of the language of s. 32(2), the business to which the unabsorbed depreciation relates should continue during the year in which the unabsorbed depreciation is sought to be set off, that as there is no deeming provision such as the one contained in s. 41(2), a fiction cannot be imported that the business was being carried on in the relevant assessment year though in fact it has ceased to exist. That view has been taken in a series of cases the last of which is Hindustan Chemical Works Ltd. v. CIT : [1980]124ITR561(Bom) . On these two views, the author has remarked as follows : (1) Section 32(2) makes no departure in language from clause (b) of the proviso to s. 10(2)(vi) of the 1922 Act and, therefore, the earlier decisions cannot really be distinguished on that ground. (2) The liberal view ignores the general principle that the losses of a dead business or of a previous owner should be treated as capital loses which, there is nothing to indicate, was intended to be superseded by s. 32(2). The decisions in CIT v. Dutt's Trust : [1942]10ITR477(Mad) , Sahu Rubbers (P.) Ltd. v. CIT : [1963]48ITR464(Bom) and Hindustan Chemical Works Ltd. v. CIT : [1980]124ITR561(Bom) , have taken the view that the continuation of the business is a condition precedent for carrying forward and set off of the unabsorbed depreciation of the previous years. This court has taken the so-called stricter view in CIT v. Dutt's Trust : [1942]10ITR477(Mad) which was accepted as correct and followed in Sahu Rubbers (P.) Ltd. v. CIT : [1963]48ITR464(Bom) .

14. Thus, we find that there is conflict of judicial opinion on the question whether the existence of the business is a sine qua non for carrying forward and set off of the unabsorbed depreciation in relation to that business. We are of the view that the decision in CIT v. Dutt's Trust : [1942]10ITR477(Mad) , lays down the correct legal position. The said decision, as already stated, has been followed in Sahur Rubbers (P.) Ltd. v. CIT : [1963]48ITR464(Bom) . But these two decisions have not been followed in the later decision of the Bombay High Court in CIT v. Estate and Finance Ltd. : [1978]111ITR119(Bom) , on the ground that the said two decisions are not supported by any reasoning. However, we find that in two later decisions in Kishandas Dilberdas v. CIT [1974] 96 ITR 639 and Hindustan Chemical Works Ltd. v. CIT : [1980]124ITR561(Bom) , the Bombay High Court has held that the existence of the business in the accounting year is necessary for allowing set off of the unabsorbed depreciation carried forward. In our view, the view taken in CIT v. Dutt's Trust : [1942]10ITR477(Mad) and Hindustan Chemical Works Ltd. v. CIT : [1980]124ITR561(Bom) are consistent with the statutory provisions and, therefore, the Tribunal appears to be right in holding that the assessee in this case is not entitled to carry forward and set off the unabsorbed depreciation of the earlier years in the accounting year as the business in respect of which depreciation was claimed to longer exists.

15. The learned counsel for the assessee, however, refers to the following three decisions of the Supreme Court : (1) Produce Exchange Corporation Ltd. v. CIT : [1970]77ITR739(SC) , (2) Standard Refinery & Distillery Ltd. v. CIT : [1971]79ITR589(SC) and (3) B. R. Ltd. v. V. P. Gupta, CIT : [1978]113ITR647(SC) . In all these cases, it has been found that the business which has been stopped is an integral part of the business which has bene continued and as such the assessee is entitled to claim the benefit of carry forward and set off of the unabsorbed depreciation. But such is not the position here. Here the business have been held to be separate and independent without any interconnection between the two. In Produce Exchange Corporation Ltd. v. CIT : [1970]77ITR739(SC) , the Supreme Court held that the share business and the other businesses carried on by the assessee-company constituted the same business within the meaning of s. 24(2) of the 1922 Act and, therefore, the assessee was entitled to set off the unabsorbed loss in the sale of shares against the income from sugar manufacturing and distillery for the assessment year 1949-50, as against the profits of the subsequent years from transactions in other commodities. In B. R. Ltd. v. V. P. Gupta, CIT : [1978]113ITR647(SC) , again the Supreme Court pointed out that in view of common management and common control of the businesses, the assessee was entitled to carry forward the loss in the import business in the assessment year 1953-54, and set it off against the profits of the export business of the assessment years 1954-55 to 1956-57.

16. Thus, the Supreme Court has proceeded in all these cases on the basis that since the business, not being separate and independent ones, continued to exist, the assessee was held entitled to carry forward and set off the unabsorbed depreciation of the earlier years and they have not dealt with the question that has arisen in this case. We have to, therefore, answer question No. 2 in the affirmative and against the assessee.

17. Coming to question No. 1, it is seen that it involved the scope and ambit of s. 72 of the I.T. Act. Section 72 deals with a situation when an assessee is entitled to carry forward and set off business losses. That section enables the assessee who has sustained a loss and that loss has not bene wholly set off against the income under any head of income in accordance with the provisions of s. 71, so much of the loss as has not been so set off, such loss can be carried forward and set off against the profits and gains, if any, of any business carried on by him and assessable for that assessment year. But the grant of benefit to carry forward and set off the losses in the subsequent years is subject to the proviso contained in s. 72 which is as follows :

'Provided that the business or profession for which the loss was originally computed continued to be carried on by him in the previous year relevant for that assessment year.'

18. Therefore, the benefit of s. 72 can be claimed only when the business in respect of which the loss has occurred and which is sought to be carried forward and set off is carried on in the previous year relevant to the assessment year in which the benefit to carry forward and set off is claimed. Having regard to the said explanation, we are of the view that the Tribunal is right in its decision that unless the business is continued, the losses incurred in that business cannot be carried forward and set off as against the profits and gains of another business. As a matter of fact, the importance of the proviso to s. 72 has been pointed out in Kishandas Dillberdas v. CIT : [1974]96ITR638(Bom) . Having regard to the language used in the proviso the assessee is not entitled to carry forward the losses relating to the collapsible tubes factory against the income from refractory works in the assessment year 1970-71, as the business which have resulted in losses was not being continued in the assessment year 1970-71. Question No. 1 is, therefore, answered in the affirmative and against the assessee. The assessee will pay the costs of the Revenue. Counsel's fee Rs. 500 (one set).


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