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

2. The facts which are material for the purpose of deciding this appeal, may be briefly stated as followsrespondent, Messrs. Isthmian Steamship Lines (hereinafter referred to as " the company ") is a company incorporated in the united States of America and owns steamships which visit India. The companys Indian profits which are computed on the basis of " days on round voyage " are assessed to tax under the IndianAct as a " company " through its agents, Messrs. Angus Co., Ltd. In the course of the assessment for the years4, the company claimed that its unabsorbed depreciation at the end ofshould be deemed to be a part of the depreciation allowance forand therefore such unabsorbed depreciation should be allowed to be further carried forward under section 10(2)(vi) of theAct. This claim was negatived by theOfficer, the Appellate Assistant Commissioner oftax Appellate Tribunal. The Tribunal however, at the instance of the company, referred the following question to the High Court for its opinionWhether on the facts and in the circumstances of this case the Tribunal was right in holding that the unabsorbed depreciation at the end of the yearwhich was not given effect to, in the subsequent years, could not be treated as part of the allowable depreciation for the relevant assessment years which are assessment years3. The High Court answered the question in favour of the company, and gave a certificate to the Commissioner ofunder section 66A(2) of the Act to appeal to this Court and hence this appeal

Reasoning:
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