COMOF INCOME-TAX Vs. BALLARPUR COLLIERIES

JUDGEMENT

(1.) MACNAIR , A.J.C. 1. Rai Bahadur Bansilal Abirchand and Sir Maneckji Dadabhoy are partners in a firm designated the Ballarpur Colliery. The return of income for the year 1928-1920 shows that the firm had suffered a loss of over six lakhs including an amount of over two lakhs on account of depreciation of buildings, machinery, etc. used for the purposes of the business of the firm. The income-tax authorities in calculating the net business loss of the firm made no allowance for depreciation stating that as the firm had suffered a loss, depreciation could not be allowed for the calculation of that year, but would be carried forward for being allowed in future. The firm desires that the allowance for depreciation should be taken into consideration for the purpose of calculating the loss for the year in question. The members' of the firm have other income against which the loss of the firm, as it is registered, can be set off under the provisions of Section 24, Income-tax Act and therefore desire that the net business loss of the firm; should be held to be as large as possible. The question which arises has been thus stated by the Income-tax Commissioner: In view of the provisions of Section 10(2)(6), Income-tax Act, 1922, can an assessee claim, in the case of a business which has resulted in a loss, that the amount of that loss shall be increased by adding the amount of depreciation calculated in the prescribed manner?

(2.) THE question does not refer to the fact that the assessee is a registered firm and it has been argued before us that a registered firm cannot be described as an assessee. Section 24(2) of the Act shows that a registered firm can be an assessee. The fact that the assessee is a registered firm will be taken into consideration in my discussion of the question, I note that the word "loss" in the question means a loss of profits or gains which makes the provisions of Section 21 applicable.

(3.) NOW , Section 10(2) states that the profits or gains of any business carried on by an assessee shall be computed after making certain allowances. It gives no definite instructions for computing the loss of any business and it cannot be assumed that loss is calculated in exactly the same way as profits or gains. Clause 6(b) of the sub-section enunciates a special proviso regarding the allowance for depreciation: Provided that, where full effect cannot be given to any such allowance in any year owing to there being no profits or gains chargeable for that year, or owing to the profits or game chargeable being less than the allows ice, the allowance or part of the allowance to which effect has not been given, as tin case may be, shall be added to the amount of the allowance for depreciation for the following years deemed to be part of that allowance, or if there is no such allowance for that year, be deemed to be the allowance for that year, and so on for succeeding years.