COMMISSIONER OF INCOME TAX Vs. SRINIVASA SUGAR FACTORY

JUDGEMENT

(1.) IN these two references made under S. 256(1) of the IT Act, 1961, the question that arises for our decision is common, namely:

(2.) THE facts being common to both the references, we shall narrate in brief as stated in R.C. No. 202 of 1983. The assessee is a registered firm. The assessee filed a return for the asst. year 1977 78 declaring an income of Rs. 75,010. In the footnote of the statement, the assessee firm claimed set off of carried forward depreciation of earlier year amounting to Rs. 97,175. The ITO did not admit the above claim. On appeal, therefore, by the assessee, the AAC permitted the setting off of the unabsorbed depreciation of the previous year. Aggrieved by that, the Department filed second appeal before the Tribunal. The Tribunal observed that the unabsorbed depreciation of the registered firm for the preceding assessment year allocated to the partners, if not wholly set off in their respective assessments, should be brought back for computation of the total income of the firm in the subsequent years as if it were the firm's unabsorbed depreciation, and thus upheld the order of the AAC. As there are conflicting views on the question expressed by different High Courts, the present references are made.

(3.) LEARNED counsel for the assessee, Mr, Ratankar, on the other hand, contended that when full effect could not be given to set off the unabsorbed depreciation of the previous year, owing to there being no profits or gains chargeable for the previous year, or owing to the profits or gains chargeable being less than the allowance of the firm, the said unabsorbed depreciation has to be made over to the accounts of the partners for purposes of computation of their income. Even then, if full effect could not be given to the made over unabsorbed depreciation in their assessments, the same has got to be brought back for purposes of computation of the firm's assessment for the next succeeding year and so on. Learned counsel also submitted that there is no bar in S. 32 or in any other provision of the Act for such a bringing back of the unabsorbed depreciation for purposes of computation of the firm's assessment in the succeeding year and so on.