COMMISSIONER OF INCOME TAX KANPUR HINDUSTAN VACUUM GLASS LIMITED Vs. MOTHER INDIA REFRIGERATION INDUSTRIES P LTD

JUDGEMENT

(1.) In these appeals and the tax reference the common question arising for determination relates to the priority between current depreciation and unabsorbed carried forward business loss that is to say which should be deducted first while computing the total income of an assessee for the concerned assessment year.

(2.) The facts giving rise to the above question in the civil appeals are these. The concerned assessment years are 1951-52 and 1952-53. At the end of assessment year 1950- 51 there was an unabsorbed business loss of Rs. 67534/- and unabsorbed depreciation of Rs. 1,78,154/-. The assessee's income without taking into account the current depreciation was Rs. 50,624/- in 1951-52 and Rs. 64,332/- in 1952-53. The assessee contended before the ITO that before deducting the current depreciation from the above profits the unabsorbed loss of the earlier year 1950-51 should be first set off. The ITO did not accept the contention and what he did was that from the profit of Rs. 50,624/- for 1951-52, the depreciation allowance for that year amounting to Rs. 58,140/- was partially set off and the balance of the depreciation of Rs. 7516/- was ordered to be carried forward with the result that the total unabsorbed depreciation carried forward amounted to Rs. 1,85,670/-. It was further directed that the entire unabsorbed loss amounting to Rs. 67534/- should also be carried forward. Similarly, in 1952-53 the full depreciation allowance of that year amounting to Rs. 44580/- was set off against the income of Rs. 64,232/- the net income of Rs. 19652/- (Rs. 64232/- minus Rs. 44580/-) was utilised for setting off a part of the carried forward business loss of Rs. 67534/- leaving a balance of unabsorbed loss to the extent of Rs. 47832/- Both the unabsorbed amounts (Rs. 1,85,670/- and Rs. 47,832/-) were directed to be carried forward. Aggrieved by the ITO's refusal to give preference in the matter of set off to earlier carried forward business loss before deducting the current year's depreciation, the assessee preferred appeals for both the years and the AAC accepted the assessee's contention and directed that unabsorbed carried forward business loss should be set off first in each year before deducting the current year's depreciation. The Department preferred further appeals to the Appellate Tribunal and relying upon the decision of the Calcutta High Court in Aluminium Corpn. of India Ltd. v. C.I.T. 3.3 ITR 367 the Tribunal accepted the Department's contention and restored the ITO's decision. At the instance of the assessee the following question was referred to the High Court for its opinion:

(3.) The facts in the Tax Reference are briefly these. For the assessment year 1969-70 the assessee-company filed a return on 18-7-1969 disclosing a loss of Rs. 50,736; subsequently a revised return was filed on 20-8-1971 claiming a set off of the carried forward loss of earlier years against the income of that year even before making any allowance for the current year's depreciation. The ITO held that the carried forward loss could. not be, given priority over the current year's depreciation in the matter of set off and completed the assessment determining the unabsorbed depreciation for the year at Rs. 40,255/-, brought forward development rebate at Rs. 8,020/- and the carried forward past losses were allowed to be carried forward in full. In appeal the AAC, following the decision of the Allahabad High Court in the case of Mother India Refrigeration Industries (P) Ltd. (which decision is the subject matter of civil appeals before us) accepted the assessee's contention that the carried forward losses have priority not only over the unabsorbed depreciation of the past years but also over the current year's depreciation in the matter of set off. The Department preferred an appeal to the Appellate Tribunal and the Tribunal took the view that unabsorbed carried forward losses of the earlier years will have priority over unabsorbed depreciation of the earlier years but not over the current year's depreciation. In coming to this conclusion the Tribunal placed certain construction on the relevant provisions of the 1961 Act, namely, Ss. 32(2) and 72(2). In other words it preferred the views of the Calcutta High Court in Aluminium Corporation's case (supra) and of Andhra Pradesh High Court in Addl. Commr. of Income-tax v. Andhra Printers Ltd. 117 ITR 555 in so far as the competition for priority was between unabsorbed carried forward loss and current depreciation. At the instance of the assessee in view of conflict of decisions between various High Courts the Tribunal has referred the following question of law for this Court's opinion under S. 257 of the Income-tax Act, 1961: