HUKUMCHAND MILLS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference made by the Tribunal under S. 66(1) of the Indian IT Act (hereinafter referred to as the Act). The assessee is a limited liability company incorporated in the then State of Indore. It has a textile mill at Indore where the company carried on its business in the relevant years of manufacture and sale of textiles. The relevant asst. yrs. are 1942 -43, 1943 -44, 1945 -46, 1946 -47 and 1947 -48, the previous years being the calendar years 1941,1942, 1944, 1945 and 1946. The facts relating to each year are identical, except that the figures may be different. The statement of case, therefore, refers to the facts relating to the asst. year 1942 -43 only. The question referred to us is in the following terms :

(2.) THE following facts referred to in the statement give rise to this question of law. The income earned by the assessee in British India in the asst. yrs. 1940 -41 and 1941 -42 being more than the income earned by it outside British India, the assessee was treated as a resident for purposes of assessment of income - tax on it. The result was the assessee's total world income, that is, income earned in the Indore State as well as income earned in British India, was treated as its total income. It appears that the amount of depreciation determined for those years could not be completely off -set against the profits of those years. The result was the unabsorbed depreciation amount amounting to Rs. 5,98,482 was carried forward to the asst. year 1942 -43 for being adjusted in that year in accordance with law. In the asst. year 1942 -43 the income earned by the assessee in the Indore State exceeded the income earned by it in British India. The result thereof was that the assessee was treated as a non -resident for the purpose of the income -tax. It is not in dispute that the legal consequences flowing from that position were that the assessee having been treated as a non -resident, the total income of the assessee would include only the income earned by it in British India and not the income earned by it outside British India. It was the assessee's contention that the unabsorbed depreciation allowance amounting to Rs. 5 lakhs and odd was adjustable only against its total income and not its world income. In other words, the unabsorbed depreciation allowance must be adjusted only against the profits earned by it in British India and not against the total world income of the assessee, that is, the entire income earned either in British India or outside British India. This contention of the assessee has not been accepted by the Tribunal and hence the reference.

(3.) IN our opinion on the language of proviso (b) it is clear that the amount of unabsorbed depreciation allowance of the previous year assumes the same character and colour of the depreciation amount determined for the assessment year and the question whether the unabsorbed depreciation amount of the previous year is to be adjusted against the total income or total world income would depend on the determination of the question as to whether the depreciation amount determined for the assessment year is deductible against the total world income of the assessee or the total income of the assessee. It is not in dispute that in the instant case the amount of depreciation determined for the asst. year 1942 -43 was deductible against the total world income of the assessee. That being the position, in our opinion, carried forward depreciation allowance of Rs. 5,98,482 has to be allowed against the total world income of the assessee. The reference is answered accordingly. Assessee shall pay the costs of the Department.