LexCOMMISSIONER OF INCOME TAX, KANPUR ETC. versus M/S. MOTHER INDIA REFRIGERATION INDUSTRIES (P) LTD. ETC.
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A B c D E F G 556 • COMMISSIONER OF INCOME TAX; KANPUR ETC. v. M/S. MOTHER INDIA REFRIGERATION INDUSTRIES (P) LTD. ETC. AUGUST 14, 1985 [V.D. TULZAPURKAR, SABYASACHI MUKliARJI AND RANGANATH MISRA, JJ. J Indian Income Tax • .ct, 1922, ss. 10(2) (vi) proviso (b) and 24 (2) proviso (b) - Income Tax Act, 1961. ss. 32(2) and 72 (2). - '. Unabsorbed carried forward losses and current deprecia- tion - Deduction of - Unabsorbed carried forward losses cannot be given preference over current depreciation while computing the total inc~ of an assessee in an assessment year. The Respondent-assessee in the Civil Appeals had an unabsorbed business loss of Rs. 67534 and unabsorbed depreciation of Rs. l,78,154 at the end of assessment year 1950-51. The respondent's income without taking into account the current depreciation was Rs. 50,624 in 1951-52 and Rs. 64332 in 1952-53. The amount of current depreciation was, however, Rs. 58,140 in 1951-52 and Rs. 44,580 in 1952-53. The respondent contended before I.T.o. that before deducting the current depreciation from the above profits the unabsorbed loss of the earlier year 1950-51 should be first set oft. The I.T.O. held that the carried forward loss could not be given priority over the current year's depre- ciation· in the matter of set off and completed the assessment accordingly. Aggrieved by the order of I •. T .o., the respondent preferred appeals for both the years before the A.A.C. who accep- ted the same holding that unabsorbed carried forward business loss should be set off fl.rat in each year before deducting the, current year's depreciation. On further appeals by the appellant- Revenue the Appellate Tribunal restored the order of the I.T.O. But, the High Court in a reference at the instance of the respondent-assessee answered the question in favour of the assessee. Similar question of law arose for decision in the Tax Reference Case. Counsel for the Revenue contended before the Supreme Court H that on proper construction of the proviso (b) to s. 10(2) (vi) read with the proviso (b) to s. 24(2) of the .. 1922 Act (equivalent -.. •• ·'/ C.I.T. v. MOTHER INDIA INDUSTRIES 557 to s.32(2) read with s.72(2) of the l96l Act), it is apparent that unabsorbed carried forward losses of the earlier years have been given priority over unabsorbed depreciation of the earlier years but not over the current year's depreciation for, under proviso (b) to s. l0(2) . (vi)· it is the carry forward (actual words used are 'added to') of unabsorbed depreciation to the following previous year that is made subject to the proviso (b) to s •. 24(2), that is to say, the preference given to the un- absorbed carried forward losses of the earlier years under pro- viso (b) to s. 24(2) is over the Unabsorbed depreciation and not over the current depreciation. On the other hand, counsel for the assessees strongly relied upon the legal fiction arising from the deeming provision contained in priviso (b) to s. 10(2) (vi) of the 1922 Act and s. 32(2) of the 1961 Act as a result whereof the unabsorbed depreciation is not merely carried forward to the following previous year but is deemed to be the depreciation for that year and, therefore, contended that this entire aggregate depreciation is made subject to proviso (b) to s. 24(2) of the 1922 Act or to s. 72(2) (of the 1961 Act). Co•msel urged that his legal fiction must be given full effect without any reserva- tion and, therefore, between the aggregate amount of' depreciation and the unabsorbed carried forward losses priority has to be· given to the latter in the matter of set off. Allowing the appeals and answering the question in the Tax Reference against ~he assessee, IDW>: l. l The unabsorbed carried forward losses cannot be given preference over current depreciation in the matter of set off in computing an assessee's income for any particular assess- ment year. [567 H] 1.2 A close scrutiny of the relevant pro~isions of the 1922 Act as also the l961 Act clearly shows that the computation of income under the head "profits and gains of .business" of any particular assessment year is required to be done after making certain allowances specified. in sub-a. (2) of s.10 of the 1922 Act and after allowing certain deductions in accordance with the provisions contained in ss. 30 to 43-A of the 1961 Ait; in other words it is the net profits and gains after the specified deduc- tions are made tha
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