COMMISSIONER OF INCOME TAX U.P, LUCKNOW vs. J.K. HOSIERY FACTORY, KANPUR

CIVIL APPEAL No. 1371/1974Supreme Court[1986] 1 S.C.R. 90719 March 1986Bench: 2 JudgesAuthor: R.S. PATHAK, SABYASACHI MUKHERJI COMMISSIONER OF9 pages
AI SummaryDismissed

What were the facts?

The assessee, M/s. J.K. Hosiery Factory, Kanpur, was an unregistered firm in the assessment year 1949-50 and was allowed unabsorbed depreciation of Rs. 43,963. For the assessment year 1950-51, the firm became registered. The assessee claimed a set-off of the unabsorbed depreciation from the previous year in the assessment year 1950-51. The Income Tax Officer (ITO) refused this set-off. The Tribunal upheld the ITO's decision, holding that unabsorbed depreciation of an unregistered firm could not be carried forward to a subsequent year when the firm became registered. The High Court, on a reference, answered the question in favour of the assessee. The Revenue has appealed this decision to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that the deduction of unabsorbed depreciation should have been allowed. The Court reasoned that the identity of the firm remained the same in both assessment years; it was an unregistered firm in 1949-50 and became a registered firm in 1950-51, but it was still the same entity. The Court emphasized that the scheme of the Income-tax Act, particularly sections 10(2)(vi) read with sections 24(1) and 24(2) of the 1922 Act, did not prohibit the carry forward of unabsorbed depreciation simply because the firm changed its registration status. The Court also reiterated the principle that when two interpretations are possible in a taxing statute, the one favourable to the assessee should be adopted. The Court found no basis for the proposition that a subsequently registered firm should be deprived of the benefit of unabsorbed depreciation from its unregistered period. The appeals were dismissed.

What were the issues?

1. Whether, under the provisions of section 10(2)(vi), proviso (b) of the Income-tax Act, 1922, the unabsorbed depreciation of an unregistered firm in assessment year 1949-50 can be allowed as a deduction in the assessment of the registered firm in assessment year 1950-51? Assessee's Contentions: The assessee argued that the identity of the firm remained the same despite the change in registration status. They relied on the principle that in case of doubt, a taxing statute should be interpreted in favour of the assessee. They also referred to the scheme of the Act and the provisions of sections 10(2)(vi), 24(1), and 24(2) of the 1922 Act, suggesting no prohibition against carrying forward unabsorbed depreciation when the firm became registered. Revenue's Contentions: The Revenue contended that the unabsorbed depreciation of an unregistered firm could not be carried forward to a subsequent year when the firm was registered. They argued that the change in registration status fundamentally altered the assessee's position for the purpose of carrying forward losses or unabsorbed depreciation. The judgment does not explicitly record the Revenue's specific reliance on any authorities or precedents.

Which sections of the Income-tax Act were involved?

Section 10(2)(vi),Section 24(1),Section 24(2),Section 32(2),Section 75(2)

AI-generated summary — verify with the full judgment below

907 COMMISSIONER OF INCOME TAX U,P,, WCKNOW v. J,K, HOSIERY FACTORY, KANPUR MARCH 19, 1986 [R.S. PATHAK AND SABYASACHI MUKHARJI, JJ,] Right to carry forward the unabsorbed depreciation and to set off by a unregistered firm in one year to the next year when it was registered, whether permissible - Income Tax Act, 1922 sections 10(2)(vi) read with 24(i) and 24(2), M/s. J.K.

Hosiery ·Factory, Kanpur the respondent assessee firm originally consisted of three Singhania Brothers and one J.P. Agarwal as partners. The Singhania brothers retired in 1946 and in their place Kamala Town Truat was alleged to have become partner. During the assessment year 1949-SO the unregistered fil'll bad been allowed an unabsorbed depreciation of Rs. 43,963. The firm claimed a set off thereof in the assessment year 1950-Sl when· it was registered. The Tribunal refused to all~,.- ·che carry forward and set off but the High Court in t~ . .ri!~erence answered the question against Revenue. Hence the appeal by the Revenue. ,-/ . .,.-·· -.._---....,,-----rlismissing the appeal, the Court, lll!LD : 1.1 Having regard to the 9cheme of the relevant provisions and in view of the provisions

The order continues below.

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