COMMISSIONER OF INCOME TAX, CALCUTTA vs. JAIPURIA CHINA CLAY MINES (P) LTD.

CIVIL APPEAL No. 307/1964Supreme Court[1966] 2 S.C.R. 44901 November 1965Bench: 3 JudgesAuthor: K. SUBBA RAO, J.C. SHAH, S.M. SIKRI8 pages
AI SummaryDismissed

What were the facts?

The assessee, Jaipuria China Clay Mines (P) Ltd., for assessment year 1952-53, had its business income assessed as nil after deducting current year's depreciation and losses. The Income Tax Officer then computed dividend income at Rs. 2,01,130 and levied tax. The assessee claimed that unabsorbed depreciation of Rs. 76,857 from earlier years should be set off against this dividend income. The Income Tax Officer, Appellant Assistant Commissioner, and Appellate Tribunal rejected this claim. However, the Calcutta High Court, on reference, decided in favour of the assessee. The Revenue appealed this decision to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that the assessee was entitled to have the unabsorbed depreciation of past years set off against income from sources other than the business, and therefore, against the dividend income. The Court reasoned that the provisions, particularly proviso (b) to Section 10(2)(vi), allowed for the carry-forward of unabsorbed depreciation by adding it to the allowance for the following year. This effectively made it a deductible allowance in subsequent years. The Court reviewed several High Court judgments that supported the view that depreciation could be set off against income from other heads. It found that the legislative intent, as reflected in the pre-amendment provisions and judicial interpretations, was to allow such set-off. The Court disagreed with the contrary view expressed by the Madras High Court in Commissioner of Income-Tax Madras v. B. Nagi Reddy. The appeal was dismissed.

What were the issues?

1. Whether, in the facts and circumstances of the case, the unabsorbed depreciation of past years should be added to the depreciation of the current year and the aggregate deducted from the total income for the assessment year 1952-53, specifically from dividend income? (Question of law and fact, turning on Sections 10(2)(vi) proviso (b) and 24(1) of the Income Tax Act, 1922). Assessee's contention: The unabsorbed depreciation of past years should be set off against income from other sources, including dividend income, as it represents a loss of capital which can be compensated by income from any head. They relied on various High Court judgments interpreting the provisions before amendment. Revenue's contention: Depreciation is a charge on the profits of a business and compensates for capital loss. The expression 'loss of profits and gains' in Section 24(1) does not include deficiencies from depreciation, and therefore, it cannot be set off against income from other heads like dividends. They implicitly argued against the High Court's interpretation.

Which sections of the Income-tax Act were involved?

Section 10(2)(vi),Section 24(1),Section 24(2),Section 6

AI-generated summary — verify with the full judgment below

t • A COMMISSIONER OF INCOME TAX, CALCUTTA B c D E v. JAIPURIA CHINA CLAY MINES (P) LTD.

November 1, 1965 [K. SUBBA RAo, J. C. SHAH AND S. M. SIKRI, JJ.] Income Tax Act 1922-s. 10(2) (vi), proviso (b)-Unahsorbed de- preciation for previous years~Whether can be set off against profits under other heads than those of the business-.1'. 24(2) Effect of.

The Income Tax Officer, after deducting depreciation for the year and an amount in respect of losses, assessed the income of the assessee for 1952-53 as nil.

He then computed the dividend income at Rs. 2,01,130 and determined the total income at this figure and levied tax on it. The assessee had in its favour unabsorbed depreciation relating to earlier year aggregating to Rs. 76,857 and contended that this amount should be de- ducted from the dividend income; but the Income Tax Officer rejected !hi,, contention and, in appeal, the Appellant Assistant Commissioner as well as the Tribunal upheld his view. The High Court, however, upon a reference. decided the issue in favour of the assessee.

In the appeal to this Court, it was also contended, inter alia, on behalf of the revenue that depreciation, although a

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 24(1)

All 68 judgments and leading authorities on Section 24(1) →

Recent GST High Court judgments

Search GST case law →