COMMISSIONER OF INCOME TAX U.P, LUCKNOW versus J.K. HOSIERY FACTORY, KANPUR

Citation: [1986] 1 S.C.R. 907 · Decided: 19-03-1986 · Supreme Court of India · Bench: R.S. PATHAK · Disposal: Dismissed

Judgment (excerpt)

907 
COMMISSIONER OF INCOME TAX U,P,, WCKNOW 
v. 
J,K, HOSIERY FACTORY, KANPUR 
MARCH 19, 1986 
[R.S. PATHAK AND SABYASACHI MUKHARJI, JJ,] 
Right to carry forward the unabsorbed depreciation and 
to set off by a unregistered firm in one year to the next year 
when it was registered, whether permissible - Income Tax Act, 
1922 sections 10(2)(vi) read with 24(i) and 24(2), 
M/s. 
J.K. 
Hosiery ·Factory, 
Kanpur 
the 
respondent 
assessee firm originally consisted of three Singhania Brothers 
and one J.P. Agarwal as partners. The Singhania brothers 
retired in 1946 and in their place Kamala Town Truat was 
alleged to have become partner. During the assessment year 
1949-SO the unregistered fil'll bad been allowed an unabsorbed 
depreciation of Rs. 43,963. The firm claimed a set off thereof 
in the assessment year 1950-Sl when· it was registered. The 
Tribunal refused to all~,.- ·che carry forward and set off but 
the High Court in t~ . .ri!~erence answered the question against 
Revenue. Hence the appeal by the Revenue. 
,-/ . 
.,.-·· 
-.._---....,,-----rlismissing the appeal, the Court, 
lll!LD : 1.1 Having regard to the 9cheme of the relevant 
provisions and in view of the provisions of sections 10(2) 
(vi) read with section 24(1) and section 24(2) of the 1922 
Act, the deduction of the unabsorbed depreciation should have 
...-., 
been allowed, in as 111.1ch in both the years tbe firm continued 
- in one year it was unregistered, in the next year it got 
itself transferred into registered, but its identity was not 
lost. The firm was one. Further the assessee was entitled to 
an interpretation favourable to him. [915 C-D] 
/ 
1.2 Where two interpretations were possible, the court 
should take the interpretation 
that is favourable to the 
assessee bearing in mind that a tmdng statute is being 
construed. (914 H; 915 A] 
1.3 The proviso (b) below section 10(2)(vi) of the 1922 
A 
B 
c 
D 
E 
F 
G 
H 
A 
B 
c 
D 
E 
F 
908 
SUPREME COURT REPORTS 
[19861 1 s.c.R. 
Act dealt with every assessee. It specified that where the 
assessee was a registered firm, then in the assessment of its 
partners, if full effect 
could 
not 
be 
given to 
any 
depreciation 
allowance 
and 
where 
the 
assessee 
was 
an 
unregistered firm where there was no question of its partners 
being assessed, the depreciation which could be carried 
forward was the unabsorbed depreciation in the assessment of 
the firm itself. There was nothing in the section. which 
indicated that unregistered firm could not get the benefit of 
the carry forward. [911 G-H; 912 A-Bl 
1,4 If section 24 is properly read in conjunction with 
clause (b) of the proviso to sub-section (2) of section 24 
which gives the right to carry forward the loss then the 
effect would be that loss had to be carried forward and 
adjusted first against the profits of the next year. Neither 
of the provisions prohibited that carry forward unabsorbed 
depreciation in case the firm became registered in the 
subsequent year. The entity is the firm, 
registration makes 
no difference in that entity. By registration, the firm gets 
certain additional qualification and puts upon itself certain 
additional burden. The scheme of the.-.Ct does not indicate any 
intention to deprive the subsequently regbtered firm of its 
right 
to 
carry 
forward 
the 
unabsorbed 
.;lepreciation. 
Depreciation is given to the person who. becomes ent! tled to 
it. The subsequently registered firm is composed of him ali>c·-. 
Therefore, in principle, there is no basis for the propositiou 
that he should not be entitled to get the benefit of 
depreciation. [912 B-E] 
Indian Iron & Steel Co. Ltd. v. eo-t.seioner of 1--
tax, llengal, 11 I.T,R. 328 P,C, discussed and distinguished. 
Ballarpar Collieries co. v. eo-issioner of 1- Tm<, 
Poona, 92 l.T.R, 219 held inapplicable. 
.~ . 
-
~- -· 
G 
1.5 It could not be contended that since a registered 
H 
firm was liable to a separate tax called the "firm tax", which 
is over and above the tax payable by the partners, the 
registered firm should be treated like an ordinary assessee 
for the purposes of the assessment of "firm tax" and the , '-.. 
losses of the earlier years computed in the assessment of the 
C. I. T. v. J. K. HOSIERY [ SABYASACHI MUKHARJI, J. ] 
909 
firm should be carried forward and set off against its 
business profits of the subsequent years. Though the "firm 
tax" was levied under the Finance Act each year, it was a part 
and parcel of the income-tax which 

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