VEERASWAMI J. - The assessee is a private limited company carrying on business in batteries and automobile partes. We are concerned in this reference with the assessment year 1960-61, the corresponding accounting year having ended on 30th April, 1960. It filed a return admitting an income of Rs. 20,927 under the head of property and Rs. 24,828 under business. The assessee showed a loss of Rs. 24,828 for 1952-53 which was brought forward and set off against the income under the head of business. The Income-tax Officer after allowing the loss against the business income determined the total income at Rs. 20,927. On the carry-forward accounts, there was a substantial business loss and unabsorbed depreciation amounting to Rs. 2,12,903 and Rs. 1,77,906 respectively. The assessee sought to deduct part of the unabsorbed depreciation under the head of business from the profits referable to property for the accounting year. This the Income-tax Officer declined to allow and with him the Appellate Assistant Commissioner of Income-tax concurred. This is upon the view they took of the scope of proviso (b) to section 10(2)(vi) and proviso (b) to section 24(2). They thought that the deeming of brought-forward depreciation as depreciation of the year had to be done only after set off of brought-forward losses of prior years. On a further appeal by the assessee, the Tribunal disagreed with that view and was of opinion that depreciation carried forward should be allowed against the income from all heads. The Tribunal, however, at the instance of the revenue, has under section 66(1) of the Indian Income-tax Act referred to us the following question for decision :
'Whether the unabsorbed depreciation of the past years should be added to the depreciation of the current year and the aggregate should be set off only against the business income of the assessment year 1960-61 or the income from all other sources ?'
The substantial contention for the revenue is that the effect of the proviso to section 10(2)(vi) is that the unabsorbed depreciation which is carried forward and deemed under the proviso to be part of the depreciation for the following year cannot be regarded as loss in the sense of unabsorbed items of allowances under the other provisions of section 10(2). It is therefore said that neither sub-section (1) nor sub-section (2) of section 24 will apply to it. Such unabsorbed depreciation carried forward under proviso (b) to section 10(2)(vi) can only be deducted from profits pertaining to business and not from the other heads of profits. This contention is urged both on the strength of the proviso to section 10(2)(vi) as also proviso (b) to section 24(2). On the other hand the contention for the assessee is that the proviso to section 24(2). On the other hand, the contention for the assessee is that the proviso to section 10(2)(vi) does not have that effect as contended for by the revenue and does not stand in the way of treating the unabsorbed depreciation under the head of business being set off under section 24 as a loss against other heads of income or profits.
To appreciate the rival arguments it is necessary to briefly notice the scheme of the Act which, as we think, will have a bearing upon the construction of the two provisos. Section 3 of the Income-tax Act, subject to the yearly Finance Acts, is the charging section. The charge is in respect of the total income of the previous year. Section 4 provides how the total income is to be computed. Section 6 mentions the heads of income which shall be chargeable to income-tax in the manner specifically provided for by the provisions relatable to particular heads. There are six heads of income, profits and gains listed by the section which include income from property and profits and gains of business, profession or vocation. Some of the following sections deal with each of these heads and state how the income under each of the heads has to be determined. One of such sections is section 10 which relates to the head of business. Sub-section (1) of that section says that tax shall be payable by an assessee under this head in respect of the profits or gains of such business and sub-section (2) provides that such profits or gains shall be computed after making the allowances mentioned thereunder. There are several items of allowances listed by this sub-section most of which are in the nature of expenditure in connection with the business or properties or other things used in the business or for the purpose of it, like rent paid for premises, expenditure in connection with repairs, interest paid on loans, depreciation of buildings, plant or furniture used for the purpose of the business, profession or vocation. Clause (vi) of sub-section (2) of section 10 relates to depreciation of buildings, machinery, plant or furniture. It has three provisos of which proviso (b), which comes in for construction, reads :
'Where, in the assessment of the assessee or, if the assessee is a registered firm, in the assessment of its partners, full effect cannot be given to any such allowance in any year not being a year which ended prior to the 1st day of April, 1939, owing to there being no profits or gains chargeable for that year, or owing to the profits or gains chargeable being being less than the allowance, then, subject to the provisions of clause (b) of the proviso to sub-section (2) of section 24, the allowance, or part of the allowance, to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following year and deemed to be part of that allowance, or if there is not such allowance for that year, be deemed to be the allowance for the year, and so on for succeedings years.'
Section 16 provides for certain exemptions and exclusions in determining the total income. Then we come to sections 22 and 23 which respectively relate to notice for submission of returns and assessment of total income and determination of tax. Section 24 is concerned with set-off of losses in computing aggregate income. Sub-section (1) of this section allows a loss of profits or gains in any of the six heads to be set off against the income, profits or gains under any other head in that year. Where the loss under the head of business is not absorbed wholly in any particular year, sub-section (2) of section 24 permits the unabsorbed loss to be carried forward and set off against the income under that head in the following year. Proviso (b) to this sub-section says :
'Where depreciation allowance is, under clause (b) of the proviso to clause (vi) of sub-section (2) of section 10, also to be carried forward, effect shall first be given to the provisions of this sub-section.'
It may be seen from the foregoing provisions that the scheme of the Act is that the charge to tax is in respect of the total income and the total income is the aggregate of the income, profits or gains under each of the six heads and the income, profits or gains under each of the heads should be arrived at after making eligible allowances. If as a result of allowing the allowance in computing business income, the resultant is a loss, it can be set off against the profits of other heads of income and thus the total income, if any, which is chargeable to tax is determined. If the profits are less than the totality of the allowance in a given year, then the loss under the business head can be carried forward and set off against the income under that head for the following year. But this is subject to the time-limit so far as the allowances under section 10(2) are concerned unlike the carried-forward depreciation.
In the light of this scheme of the Act, we have to see what precisely is the effect of the proviso to section 10(2)(vi). In construing this proviso, as we are inclined to think, it should be remembered that depreciation of buildings, machinery, plant or furniture under clause (vi) stands on the same footing and is of the same nature as the rest of the allowances permitted by sub-section (2) of section 10. This is also reflected in sub-section (1) of section 24 which allows depreciation under clause (vi) to be deducted like the other allowances in that sub-section from the profits or gains under the other heads under section 6. Does the proviso make any difference to this position Mr. Balasubrahmanyan for the revenue contends, and forcibly, that it does. He relies on the language employed by the proviso and submits that it is only consistent with the view that when once the profits under the head of business are insufficient to absorb the depreciation, the unabsorbed depreciation which is to be added to the amount of the allowance for depreciation for the following year and deemed part of depreciation for the following year cannot be treated as a business loss. But for the proviso, according to him, the position would be different. For, then the depreciation under clause (vi) will be indistincuishable in the context from the allowance contemplated by the rest of the provisions of sub-section (2) of section 10. Where there is unabsorbed depreciation left under the head of business, says learned counsel for the revenue, the proviso directs as to what should be done with it, namely, that it should be added to the depreciation for the following year and deemed part of that allowance. If this direction is to be carried out he asks how can there be a loss under the head of business. He reinforces this construction by reference to proviso (b) to section 24(2) and contends that in effect proviso (b) to section 24(2) proceeds on the assumption that the unabsorbed depreciation under the proviso to section 10(2)(vi) is not a business loss and, therefore, business loss excluding the unabsorbed depreciation should have priority in the matter of set-off. In the light of the rest of the provisions of sections 10 and 24 as also the general scheme of the Act, we are unable to accept the contention of the revenue.
We can find no indication in proviso (b) to section 10(2)(vi) that the unabsorbed depreciation taken to the following year should be treated in any way different from the depreciation which is allowed and deducted in the current year. The whole object of the proviso is only to enable addition of the unabsorbed depreciation to the depreciation in the following year and treat it by the deeming provision as part of it. Once that object is achieved, one should not boggle with ones imagination, but regard the depreciation in the following year of which the previous years unabsorbed depreciation is a part as factually a depreciation for the current year and deal with it as such. If that is done, the proviso can make no difference to the application of section 24. It is true, the language of the proviso is somewhat, in the first blush, involved, but its intention is clear, namely, to add the unabsorbed depreciation is a part as factually a depreciation for the current year and deal with it as such. If that is down, the proviso can make no difference to the application of section 24. It is true, the language of the proviso is somewhat, in the first blush, involved, but its intention is clear, namely, to add the unabsorbed depreciation to the depreciation of the following year and treat it as part of it. Once it is treated that way, the depreciation for the following year including the unabsorbed depreciation of the previous year will, in our opinion, be entitled to deduction under clause (vi), just in the same way as current depreciation. It should be remembered that section 10 is exclusively concerned with the profits and gains under the head of business, profession or vocation. It has nothing to do with the other heads of income. It is natural, therefore, that when the proviso speaks of adding the unabsorbed depreciation of any particular year to the depreciation for the following year, it does not think of other heads of income, profits or gains. The proviso does not say that it is not concerned with the question that such unabsorbed depreciation in any particular year under the head of business cannot or should not be set off against income, profits or gains under other heads of income. A proviso cannot be read as withdrawing the very substance of the main provision or of a substantive provision. The main provision, which is clause (vi) in sub-section (2) of section 10 allows deduction of depreciation. Proviso (b), as we read it, does not say anything to the contrary, but only directs that, if there is any depreciation left unabsorbed by the 'profits or gains chargeable for that year', the direction in respect of the addition and the deeming in respect of it should take effect. Those words 'profits or gains chargeable for the year' obviously are confined to the profits or gains chargeable for that year under the head of business. The words 'full effect cannot be given' in the proviso should be understood in that context.
We are also of the view that there is nothing in proviso (b) to section 24(2) which affects the construction we have placed on the proviso to section 10(2)(vi). Section 24(2) is merely concerned with priorities and does not have the effect of nullifying or modifying the provision for allowing carried-forward depreciation, so to speak, as a loss to be set off against other heads of income, profits or gains. All that proviso (b) to section 24(2) provides for is that business losses other than carried-forward depreciation should be first set off and they will have priority over depreciation within the scope of proviso (b) to section 10(2)(vi).
We find that our view of the scope and effect of the two provisos is supported by ample authority. So far as this court is concerned, the question first came up before three learned judges in Suppan Chettiar & Co. v. Commissioner of Income-tax. They held that where the profits and gains of a business were insufficient to cover the full depreciation allowance under section 10(2)(vi) of the Income-tax Act on the machinery, plant, etc., used for the purposes of the business, the excess depreciation could be set off against the profits and gains of other businesses or from other sources. That was of course a case of several businesses carried on by an unregistered firm and the profits under the business of motor service were insufficient to absorb the depreciation in that business. The court held that the unabsorbed depreciation could be set off against the profits under the other business. The contention for the revenue in that case was that so much of the depreciation as could not be neutralised by the profits of the particular business must not figure as an actual loss but must be carried forward into the next years account. The learned judges rejecting that contention were of the view :
'But neither from the language used, nor from any general considerations arising from the nature of the charge are we satisfied that this construction is correct. But for the proviso, depreciation stands upon the same footing, and should, so far as any intention to the contrary appears, be dealt with in the same way, as the other charges enumerated in the section; and it is a well-known principle of construction (see West Derby Union v. Metropolitan Life Assurance Society) that a proviso should not, by mere implication, withdraw any part of what the main provision has given. We do not think, therefore, that upon the terms of the section an assessee is precluded from adding the whole charge for depreciation to his other business charges, even though the result is to show a loss, and then claiming under section 24 to set off the loss against profit from other sources. Nor have we been shown that there is anything in the nature of this allowance for depreciation to render such a course inadmissible.'
We are aware that as the proviso stood then, it did not say that the adding of the unabsorbed depreciation was subject to section 24(2), proviso (b). But this can make, in our opinion, no difference to the construction of the proviso. Mr. Balasubrahmanyan for the revenue contends that on facts this was not a case of actual set off of unabsorbed depreciation of any particular year being added to the depreciation for the following year and the same treated as part of it and allowed set off against other heads of profits, gains or income. That is perfectly true. But the learned judges in that case were concerned with the construction of the proviso and the question they answered was whether or not unabsorbed depreciation under the head of business could be treated as loss. Their answer was in the negative. That is precisely the question which arises here and pressed before us for the revenue. This view of the proviso has been followed in a number of subsequent decisions. In Ambika Silk Mills Co. Ltd. v. Commissioner of Income-tax, the question was directly in issue as to whether the unabsorbed depreciation under the head of business could be set off against another head, namely, capital gains in the following year. The answer that it could be set off, though, of course, it was in that case against the assessee, in the particular circumstances of the case. The argument for the assessee in that case was that proviso (b) to section 10(2)(vi) contained a separate and independent provision with regard to depreciation and that whereas a loss, other than a loss represented by depreciation, could be set off under section 24, sub-section (1) or (2), depreciation as such could only be carried forward from year to year and could only be absorbed when there were profits in the particular business in respect of which depreciation had been allowed. That is precisely the argument of Mr. Balasubrahmanyan in the case before us as well. Chagla C. J. and Tendolkar J. rejected that contention and for doing that they gave three different reasons, the first of which was that a proviso should never be construed in a manner which would nullify the effect of the main section, of which it merely was a proviso. They were of the view that deemed depreciation under proviso (b) to section 10(2)(vi) should be regarded as a loss in the same sense as business loss in other respects. They also held that 'profits or gains' was 'profits or gains' not merely from the particular business in respect of which depreciation was claimed nor profits or gains from any business conducted by the assessee, but the profits or gains which might accrue or arise to the assessee under any of the heads referred to in section 6. The learned judges summed up their view in these words :
'Therefore, by enacting section 10(2)(vi) and the proviso and section 24(2)(b) what the legislature had in mind was this : If a business was worked at a loss in any particular year, the loss can be set off against any other head under section 24(1); if the loss cannot be fully set off, then it can be carried forward to the next year, but then it can be only set off against the profits of that particular business and that set-off would be permissible to the assessee for a period of six years only. After six years the right to set-off would come to an end. But in the case of depreciation and to the extent that the loss was caused by depreciation being not fully absorbed there would be no limit to the carrying forward of that depreciation and that depreciation can be set off at any time so long as the business showed a profit in the future. Any difficulties of construction apart, the scheme that we are suggesting is a consistent scheme which fits in with the other provisions of the Act.'
The High Courts of Punjab, Calcutta and Gujarat have taken much the same view in Lakshmichand Jaiporia Spinning & Weaving Mills, In re, in Jaipuria China Clay Mines (Private) Ltd. v. Commissioner of Income-tax and in Commissioner of Income-tax v. Girdharlal Harivallabhadas Mills Co. Ltd. The Punjab High Court pointed out that the object of proviso (b) to sub-section (2) of section 24 was merely to give preference to ordinary losses incurred by an assessee in regard to set-off over the loss which comes under clause (b) of section 10(2)(vi) and that the proviso in section 10(2)(vi_ did not stand in the way of set-off of the deemed depreciation under that proviso against other heads of income. After referring to earlier authorities and construing the relevant sections, the learned judges in that case opined :
'A perusal of these authorities and a careful study of the relevant sections show that in section 10 the word any means all the heads of income which come within section 6 of the Income-tax Act, and for the purposes of computing the profits or gains which are chargeable to income-tax certain allowances have to be made which are enumerated in clauses (i) to (xvi) and out of these, clause (vi) deals with depreciation. There is no reason why the allowance for depreciation in clause (vi) should be treated differently for the purpose of computing from that given in other clauses. Section 24 provides for the set-off which is allowable to an assessee and the whole income is to be determined after the profits and losses including allowances in section 10(2) have been all added together and where the assessee is a registered firm and the loss cannot be wholly set off against the income of the firm, this loss shall be apportioned as between the partners constituting the firm. Where set-off is to be given for different kinds of losses other than those due to depreciation they shall be first set off and then the loss due to depreciation.'
The Calcutta High Court in Jaipuria China Clay Mines (Private) Ltd. v. Commissioner of Income-tax also held that under section 10(2)(vi), read with proviso (b) thereto, an assessee was entitled to have unabsorbed depreciation of past years added to the depreciation of the current year and the aggregate of the unabsorbed depreciation and the current years depreciation deducted from the total income of the previous year relevant to the year of assessment including income falling under heads other than business. The Gujarat High court in Commissioner of Income-tax v. Girdharlal Harivallabhadas Mills Co. Ltd. was also of the same view that unabsorbed depreciation allowance of earlier years deemed to be part of the depreciation allowance of the current year under section 10(2)(vi) could be set off against income under heads other than business. The Bombay High Court in Commissioner of Income-tax v. Ravi Industries Ltd., in effect, followed its ealier view in Ambika Silk Mills Co. Ltd. v. Commissioner of Income-tax and expressed itself in the same manner as the Gujarat High Court.
But in Commissioner of Income-tax v. Nagi Reddy Jagadisan and Srinivasan JJ. dissented from Ambika Silk Mills Co. Ltd. v. Commissioner of Income-tax. The learned judges were of the view that the deemed depreciation under proviso (b) to section 10(2)(vi) could not be regarded as a loss to which section 24 could be applied. With respect, we are not able to share their view. In fact, we feel that we are bound by the view taken by the three learned Judges of this court in Suppan Chettiar and Co. v. Commissioner of Income-tax. As we said, the precise question as to whether the deemed depreciation under the proviso could be regarded as a loss was answered by the three learned Judges in the affirmative. We do not think that this view expressed by them in that case was merely an obiter, but formed the basis for their decision. In view of this, we think that no useful purpose will be served by referring the matter to a Full Bench as Suppan Chettiar and Co. v. Commissioner of Income-tax will also be binding on such a Full Bench. If we may say so with respect, the weight of authority in the High Court is all in favour of the view we are inclined to take of the scope of the two provisos and the nature of the deemed depreciation under proviso (b) to section 10(2)(vi).
We answer the question referred to us in favour of the assessee with costs. Counsels fee Rs. 250.
Question answered in favour of the assessee.