Case: Commissioner of Income-Tax, West Bengal Vs. Isthmian Steamship Lines

1940-41. The Appellate Assistant Commissioner of Income-tax answered the question in the negative and gave two reasons for not giving effect to the contention of the assessee. Firstly, he pointed out that in the course of the assessment for the year 1940-41, the question whether the unabsorbed depreciation remaining at the end of the year 1938-39 could or could not be carried forward and allowed in subsequent years had come up for consideration before the Income-tax Officer but he had decided that it could not be so carried forward. Nevertheless, the company did not appeal against the order and hence the matter could not be reopened in subsequent assessments. Secondly, by reason of the amendment of the section, the respondent-company was not entitled to carry forward the unabsorbed depreciation at the end of 1938-39The income-tax Appellate Tribunal did not accept the first ground but based its decision only on the second ground. In this appeal, we are not concerned with the first ground, because, as has been pointed out by the learned Chief Justice in the order granting leave to appeal, the Income-tax authorities appear to have accepted the view of the Tribunal on the first point since they did not ask the Tribunal to state a case giving rise to the contention which had found favour with the Appellate Assistant Commissioner but had been rejected by the Tribunal5. The only question with which we are thus concerned is whether or not the company was entitled to carry forward the unabsorbed depreciation at the end of 1938-39. In our opinion, this question has been rightly answered by the High Court in favour of the assessee6. It will be observed that we are here concerned with to datum lines : (1) the 1st of April, 1940, when the Act came into force and (2) the 1st of April, 1939, which is the date mentioned in the amended proviso. The first question to be answered is whether these dates are to apply to the accounting year or the year of assessment. They must be held to apply to the assessment year, because in income-tax matters the law to be applied is the law in force in the assessment year unless otherwise stated or implied. The first datum line therefore affected only the assessment year of 1940-41, because the amendment did not come into force till the 1st of April, 1940. That means that the old law applied to every assessment year up to and including the assessment year 1939-407. In the assessment year 1938-39, the assessee showed a certain unabsorbed depreciation in its accounts for the calendar year 1937, that being the assessees accounting year for the assessment year 1938-39. Under the unamended section, he was permitted to carry that amount forward into the accounting year 1938, add it to the depreciation for 1938 and treat the total amount as the " allowance for the assessment year 1939-40The Income-tax Officer refused to allow that amount, but, for the reasons already stated, we have to disregard that fact and therefore, for the purpose of the present reference, must treat the unabsorbed depreciation which was carried forward from the assessment year 193839 into the accounts of the assessment year 1939-40 as the unabsorbed depreciation in the assessment year 1939-40 and treat it as unabsorbed for the reason that the profits in that year were not sufficient to absorb this sum, that being the position which would have resulted had the Income-tax Officer not disallowed the sum. In other words, in answering the reference, we have to accept the position which the accounts would have revealed had the Income-tax Officer not wrongly refused to allow the unabsorbed depreciation of 1938-39 to be carried forward to 1939-40. It follows from this, as the learned Chief Justice has pointed in the judgment under appeal, that according to the mandatory provisions of the old section, the allowance for 1939-40 is not only the percentage allowed for that year but also the unabsorbed depreciation for 1938-398. Now we come to the assessment year 1940-41. The amended ,section applied here and the question is whether under the new law this figure could be carried forward into 1940-41. The first question which arises is whether the assessment year 1939-40 is an assessment year which ended prior to the 1st of April, 1939. It is evident that it is not, because it ended on the 31st of March, 1940. Therefore, it is not one of the excluded years. As it is not, and as, on the facts set out above, what must be regarded as the unabsorbed depreciation for the year 1939-40 could not be absorbed for the reason given in the amended section, it follows that it can be carried forward into the accounts of the assessment year 1940-41 and from there on to the accounts of the succeeding assessment years, if it is not absorbed meanwhile for the reasons given in the provisoAs has been pointed out already, the section provides that in order to enable the unabsorbed depreciation to be carried forward to the succeeding year, it must be shown that full effect was not given in the previous year, owing to there being no profits or gains chargeable for the year, or, owing to the profits or gains chargeable being less ,than the allowance. It was argued on behalf of the appellant that in the present case full effect could not be given to the unabsorbed depreciation not for the reasons stated in the section but on account of the failure of the assessee to take the matter in appeal against the assessment for 1940-41. In our opinion, this view is based on a misreading of the section. The words used in the section are :--" where full effect cannot be given ", and not "where full effect has not been given." It is not denied that the profits or gains were less than the depreciation allowance, and that being so the requirements of the section were satisfied

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]In our opinion, this question has been rightly answered by the High Court in favour of the assessee6. It will be observed that we are here concerned with to datum lines : (1) the 1st of April, 1940, when the Act came into force and (2) the 1st of April, 1939, which is the date mentioned in the amended proviso. The first question to be answered is whether these dates are to apply to the accounting year or the year of assessment. They must be held to apply to the assessment year, because inmatters the law to be applied is the law in force in the assessment year unless otherwise stated or implied. The first datum line therefore affected only the assessment year ofbecause the amendment did not come into force till the 1st of April, 1940. That means that the old law applied to every assessment year up to and including the assessment yearIn the assessment yearthe assessee showed a certain unabsorbed depreciation in its accounts for the calendar year 1937, that being the assessees accounting year for the assessment yearUnder the unamended section, he was permitted to carry that amount forward into the accounting year 1938, add it to the depreciation for 1938 and treat the total amount as the " allowance for the assessment yearx Officer refused to allow that amount, but, for the reasons already stated, we have to disregard that fact and therefore, for the purpose of the present reference, must treat the unabsorbed depreciation which was carried forward from the assessment year 193839 into the accounts of the assessment yearas the unabsorbed depreciation in the assessment yearand treat it as unabsorbed for the reason that the profits in that year were not sufficient to absorb this sum, that being the position which would have resulted had theOfficer not disallowed the sum. In other words, in answering the reference, we have to accept the position which the accounts would have revealed had theOfficer not wrongly refused to allow the unabsorbed depreciation ofto be carried forward toIt follows from this, as the learned Chief Justice has pointed in the judgment under appeal, that according to the mandatory provisions of the old section, the allowance foris not only the percentage allowed for that year but also the unabsorbed depreciation foris evident that it is not, because it ended on the 31st of March, 1940. Therefore, it is not one of the excluded years. As it is not, and as, on the facts set out above, what must be regarded as the unabsorbed depreciation for the yearcould not be absorbed for the reason given in the amended section, it follows that it can be carried forward into the accounts of the assessment yearand from there on to the accounts of the succeeding assessment years, if it is not absorbed meanwhile for the reasons given in the provisoAs has been pointed out already, the section provides that in order to enable the unabsorbed depreciationto be carried forward tothe succeeding year, it must be shown that full effect was not given in the previous year, owing to there being no profits or gains chargeable for the year, or, owing to the profits or gains chargeable being less ,than theour opinion, this view is based on a misreading of the section. The words used in the section arewhere full effect cannot be given ", and not "where full effect has not been given." It is not denied that the profits or gains were less than the depreciation allowance, and that being so the requirements of the section were satisfied