COMMISSIONER OF INCOME TAX Vs. MAZAGAON DOCK LIMITED

JUDGEMENT

(1.) THE facts giving rise to the Reference admit of no doubt. THE year of assessment is the year 1935-36, so that the previous year expired not he 31st March, 1935. On the 1st April 1835, the assessee, the Mazagaon Dock Ltd., acquired from a firm known as the Mazagaon Dock the assets of that firm. THE assessee made a return of their income for the year ending 31st March 1935, based not the profit and loss account for that year of the vendor firm, the assessee themselves having no income for the year ending 31st March, 1935. THE assessees claimed to deduct from the profits made by the vendor firm during the previous year the allowance for depreciation which would have been permissible to the vendor firm had they not disposed of their business. THE Commissioner of Income-tax disallowed the claim, and the question is whether this decision is right.

(2.) THE position turns upon the construction of Sec. 26(2) read with Sec. 10 of the Income-tax Act. Sec. 26 was introduced by an amending Act passed in the year 1928, the previous section having been couched in much more general terms, though probably its effect was much the same as that of the amending section. By sub-section (2) of the existing section it is provided that where at the time of making an assessment under Sec. 23 it is found that the person carrying on any business, profession or vocation, has been succeeded in such capacity by another person, the assessment shall be made on such person succeeding, as if he had been carrying on the business, profession or vocation throughout the previous year, and as if he had received the whole of the profits for that year. In the absence of authority to the contrary it would certainly seem that in calculating the profits for they previous year, deduction to which the predecessor would have been entitled must be allowed. In the case of a business (and the present assessment relates to a business) Sec. 10(2) provides that the profits or gains shall be computed after making the following allowances. THE income therefor is ascertained only after deduction of the allowance. THE first allowance is in respect of rent paid for the premises in which such business was carried don, which must mean the premises in which the predecessors business was carried on, and there is a proviso that when any substantial part of the premises has been used as a dwelling house but he assessee there is to be a deduction from the allowance. Assessee in that clause must, I think, mean the predecessor of the actual assessee, on whose profits the assessee is being assessed. THE successor in the present case who is being assessed was on not in existence during tree year 1934-35 and could not have occupied the premises. THE next allowance is in respect of repairs where the assessee is tree tenant only of the premises and has undertaken to bear the costs of such repairs. Here again, the assessee must mean the predecessor of the person being assessed, who would be the tenant and person liable for the repairs. THE third allowance is in respect of capital borrowed for the purposes of the business, and there again the business must be that of the predecessor. THEn sub-paragraph (vi) is the one material for the purposes of the present reference. That sub-section authorize an allowance in respect of depreciation of buildings, machinery, plant or furniture, being the property of the assessee, of a sum equivalent to such percentage not the original cost thereof to the assessee as may in any case or class of cases be prescribed. In the absence of authority I should day that assessee in that sub clause, in the case of an assessment under Sec. 26(2) based on the profits of a predecessor, must refer to such predecessor. Other wise in the present case no effect can be given to the alliance, since during the year under assessment, the property did not belong to the actual assessee, nor had the cost thereof to him been ascertained. It is true that the construction which I am suggesting of Sec. 10 involves some extension of the definition of assessee contained in Sec. 2(2) of the Act so as to make the word include not only a person by whom income-tax is payable but also a person on whose income, profits or gains an assessment is being based. It is to be noted that the definitions in the Act are to yield to the context. THE Court has to construe the Income-tax Act as a whole and the only alternative to the construction of Sec. 10 which I suggest is to hold that in the case of an assessment under Sec. 26(2) the assessee can claim no allowance in respect of depreciation of buildings, machinery, plant or furniture. This in my view is not the true meaning of the act. I may observe that a similar difficulty would arise under Sec. 11 in the case of the assessment of the profits of a profession or vocation under Sec. 26(2).

(3.) PER BLACKWELL, J. -