N KRISHNAMMAL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee in this case is an individual deriving income from interest on securities, house property, lorry business and other sources. She is also a partner in a firm, Messers. Pioneer Transports. For the assessment year 1971-72, the ITO determined the profit in respect of the income from the lorry business at Rs. 8, 347 after negative the claim of the assessee for set off of unabsorbed depreciation of Rs. 47, 644 in the firm of Meesrs.

(2.) PIONEER Transports relating to the assessment years 1967-68 and 1968-69, on the ground that the assessee has not satisfied the mandatory requirements of the relevant provisions of the I.T. Act, 1961, herein after referred to as "to be eligible for the set-off claimed.The said disallowance of the assessee's claim of unabsorbed depreciation was taken in appeal to the AAC : but without success. The assessee, therefore, took the matter further to the Income-tax Appellate Tribunal. The Tribunal concurred with the view of the AAC and rejected the assessee's appeal. The assessee thereafter sought and obtained a reference to this court under s. 256(1) of the Act on the following question of law :" *Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was not entitled to set off against the business income of the assessee for the assessment year 1971-72, the unabsorbed depreciation determined in the assessment of the firm, of which the assessee was a partner for assessment years 1967-68 and 1968-69, and carried forward".It is seen from the order of the Tribunal that in the firm's assessment for the year 1967-68, the assessee's share of loss has been determined at Rs. 36, 333 and for the year 1968-69, hear share of loss has been determined at Rs. 44, 519. Up to the assessment year 1968-69, the firm has been treated as a registered firm and the allocation of loss has been made to the partners on that basis.

(3.) THE firm appealed to the AAC contending that the aggregate losses of the earlier years should be set off against the income of Rs. 5, 24, 035 before tax was levied on the registered firm. This contention having been rejected by the appellate authority, the matter was taken to the Income-tax Appellate Tribunal contending that the unabsorbed depreciation of Rs. 1, 12, 283 in respect of the assessment year 1956-57 and of Rs. 2, 15, 911 in respect of the assessment year 1957-58 should be deducted from the income of Rs. 5, 24, 035 to arrive at the income of the firm for 1958-59 THE Tribunal held that the unabsorbed depreciation in the partner's hands was available for set off by the firm itself in the following year in view of the provisions of proviso (b) to s. 10(2) (vi) of the 1922 Act and that the depreciation for 1956-57 could be set off by the firm against the income for the year 1958-59. At the instance of the Revenue, the matter was referred to the High Court. Before the High Court it was urged by the Revenue that once the loss resulting on account of unabsorbed depreciation is allocated to the shares of the partners, the firm itself cannot claim a right to carry forward the unabsorbed depreciation so as to have it deducted from its income before the taxable income of the firm is determined. On the other hand, the assessee contended that the right to carry forward unabsorbed depreciation by s. 32(2) which says that depreciation which remained unabsorbed has to be taken into account before the income of the firm in question is computed. THE court rejected the contention of the Revenue and held that even though for certain purposes of set off, losses occasioned on account of unabsorbed depreciation is dealt with under s. 24 of the Act, it does not lose its character or nature as unabsorbed depreciation and is carried forward not by virtue of the provisions of s. 32(2) but by virtue of the express provisions of s. 10(2) (vi), proviso (b), of the Act of 1922. THE Allahabad High Court in K. T. Wire products v. Union of India, has, however, taken a different view. It has held that in the case of a registered firm, the net loss including the depreciation allowance, if any, is allocated to the partners who alone are entitled to set off the loss allocated to them in their individual assessments and to carry forward any loss which remains unabsorbed, as provided in ss. 32(2) and 72(2) of the Act and that the firm as such is not entitled to carry forward the losses determined in its assessment. However, the question that arose in those two decisions is entirely different.