GARDEN SILK WEAVING FACTORY, SURAT vs. COMMISSIONER OF INCOME TAX, GUJARAT, AHMEDABAD

CIVIL APPEAL No. 1249/1975Supreme Court[1991] 1 S.C.R. 90922 March 1991Bench: 2 JudgesAuthor: S. RANGANATHAN, K. RAMASWAMY29 pages
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What were the facts?

The assessee, a registered firm, appealed against the Commissioner of Income Tax's order for assessment years 1967-68 and 1968-69. For AY 1968-69, the Income Tax Officer disallowed the carry forward of unabsorbed depreciation (Rs. 1,59,181) and unabsorbed business loss (Rs. 3,49,242) from AY 1967-68, adding them back to the returned income. The AAC confirmed this. The ITAT upheld the disallowance of business loss but allowed the carry forward of unabsorbed depreciation. The High Court ruled against the assessee on both issues. For AY 1967-68, the ITAT confirmed the disallowance of carrying forward business loss, following the High Court's decision for AY 1968-69. The assessee appealed to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court allowed the appeal for AY 1968-69, holding that the assessee firm is entitled to carry forward unabsorbed depreciation computed for AY 1967-68 and set it off against its income for AY 1968-69. The Court reasoned that unabsorbed depreciation is a part of 'loss' and, unlike business loss, there is no specific statutory prohibition preventing a registered firm from carrying forward unabsorbed depreciation. The amendment to Section 10(2)(vib) in 1953 was interpreted to clarify that carry forward is not permitted only to the extent it has been effectively allowed to partners, implying it continues to be available otherwise. The Court dismissed the appeal for AY 1967-68, upholding the High Court's decision that unabsorbed business loss of one year cannot be carried forward and set off by the firm in a subsequent year. The Court noted that unabsorbed depreciation can be carried forward indefinitely, whereas unabsorbed losses are limited to eight years.

What were the issues?

1. Whether, for AY 1968-69, the assessee firm is entitled to carry forward and set off unabsorbed depreciation computed for AY 1967-68. The assessee argued that since no part of the unabsorbed depreciation was set off in the partners' hands, it should be retained and carried forward by the firm. The revenue contended that after apportionment among partners, nothing remained in the firm's assessment to carry forward, and there was no difference between unabsorbed loss and unabsorbed depreciation. 2. Whether, for AY 1967-68, the assessee firm is entitled to carry forward and set off unabsorbed business loss. The assessee's claim was rejected by the ITO, AAC, and ITAT, with the ITAT following the High Court's decision for AY 1968-69. The High Court had answered this question in the affirmative against the assessee.

Which sections of the Income-tax Act were involved?

Section 32(2),Section 72(2),Section 35,Section 10(2)(vib),Section 70,Section 71,Section 67(2),Section 67(4)

AI-generated summary — verify with the full judgment below

.. -- - GARDEN SILK WEAVING FACTORY, SURAT A >.( V. COMMISSIONER OF INCOME TAX, GUJARAT, AHMEDABAD MARCH 22, 1991 B . [S. RANGANATHAN AND K. RAMASWAMY, JJ] ~ ..

Income Tax Act, 1961-Sections 32(2), 72(2)-"Depreciation"- - y· Meaning of-Unabsorbed loss and unabsorbed depreciation-Diffe- rence of-Carry forward and set off of unabsorbed depreciation- Principle and distinction of. c Income Tax Act, 1961-Sections 72(2), 32(2), 35-Unabsorbed depreciation computed in assessment of registered firm-Carry forward of-Alternatives indicated.

Income Tax Act, 1961-Section 32(2)-Unabsorbed depreciation D allocated to partners of registered firm-Firm whether entitled to carry forward the depreciation and set off.

Income Tax Act, 1961-Section 32(2)-Construction and object of-Assessee-Registered firm-Steps to be taken to carry forward of )... ·unabsorbed depreciation to successive assessment years, indicated. E ·~ Income Tax Act, 1922-Section 10(2)(vib), proviso (as amended in 1953)-Effect and application of For the assessment year of 1968-69, the assessee appellant, a registered firm, returned a total income of Rs.3,94,483 and a provi- sional assessment was made.

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