1. The following question is involved in this reference under Section 256(1) of the I.T. Act, 1961 :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in rejecting the assessee's claim for. adjustment of unabsorbed depreciation of the earlier years against the income of the assessment years 1969-70 and 1970-71 ?'
2. The assessment years involved are 1969-70 and 1970-71, for which the relevant previous years ended on 31st December, 1968, and 31st December, 1969, respectively. The assessee is a company. In earlier years, the assessee ran a cotton mill at Morvi in the State of Gujarat. The said business was closed long long ago and in those earlier years there was some unabsorbed depreciation which remained unadjusted.
3. During the relevant accounting years the assessee earned income from rent collected in respect of workers' chawls, sale of scrap, machinery, articles, etc., and also income under Section 41(2) of the Act in the assessment year 1969-70. The assessee also claimed certain losses from the business which were disallowed by the ITO with a rinding that the assessee did not carry on any business in the accounting years.
4. The assessee filed appeals. Before the AAC the assessee took an additional ground, namely, that the ITO should have set off the aforesaid unabsorbed depreciation against the profits for the years under reference. The AAC found that in the earlier assessment orders unabsorbed depreciation was not carried forward from year to year. The assessee admitted before the AAC that no business was done by the assessee for the last several years. In those circumstances, the AAC rejected the claim of the assessee.
5. The Tribunal also dismissed the appeals filed by the assessee. Mr. Sanjay Bhattacharjee, learned counsel for the assessee, argues before us that under Section 32(2) read with Section 72 of the Act, the unabsorbed depreciation of the earlier years is liable to be set off against the income of the assessment years notwithstanding the fact that the aforesaid business of the assessee was closed long before the start of the accounting years. In support of this contention he cites the case of CIT v. Rampur Timber & Turnery Co. Ltd. : 89ITR150(All) .
6. In the aforesaid case, the assessee was carrying on business of manufacture of bobbins. Electric charges paid by the assessee in the accounting years relevant to the assessment years 1951-52 to 1954-55 were allowed as revenue expenditure in those assessment years. The assessee, however, stopped that business with effect from the previous year relevant to the assessment year 1955-56. There was some unabsorbed depreciation and the income from house property was assessed to tax. During the previous year relevant to the assessment year 1962-63, the assessee received certain sums from the electricity department out of electricity charges already paid by the assessee in the aforesaid years and the ITO included the aforesaid sums as the business income of the assessee in view of Section 41(1) of the I.T. Act, 1961. The Tribunal held that the aforesaid unabsorbed depreciation should be set off against the said sums. The High Court held that the unabsorbed depreciation carried forward by the assessee from the assessment year 1954-55 was liable to be set off against the income of the assessee from the house property.
7. Unabsorbed depreciation of an earlier year can be set off against the income under the other heads as held by the Supreme Court in the case of CIT v. Jaipuria China Clay Mines (P.) Ltd. : 59ITR555(SC) . But wo are not concerned with the question as to whether the unabsorbed depreciation should have been set off against the income from other sources in the earlier years. The finding of the Tribunal is that the unabsorbed depreciation was not adjusted in any of the earlier years and this fact has not been challenged by the assessee.
8. It is also unnecessary for us to go into the question as to whether the unabsorbed depreciation can be adjusted in the absence of any business being carried on by the assessee in the earlier years in view of the provisions of Section 32(2) of the Act.
9. Section 32(2) of the Act, inter alia, provides that where there is an excess depreciation in the accounting year, such excess depreciation shall, subject to Sections 72(2) and 73(3), be added to the amount of the allowance for depreciation for the next 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. The provisions of Section 32(2) read with Sections 72 and 73 of the Act and Clause (v) of Annexure I of App. II to the I.T. Rules, 1962, clearly show that unless the unabsorbed depreciation is adjusted in the next previous accounting year it cannot be taken into account later on for the purpose of computation of the total income of the assessee in any subsequent year.
10. Therefore, on the facts and the circumstances of the case, we are not impressed by the argument of Mr. Bhattacharjee and we answer the question in the affirmative and in favour of the revenue.
11. There will be no order as to costs.
Sudhindra Mohan Guha, J.
12. I agree.