Anant Mills Co. Ltd. (In Liquidation) vs Commissioner of Income Tax

R.K. Abichandani J.

The Income Tax Appellate Tribunal, Ahmedabad Bench "B", has referred for the opinion of this court, the following questions u/s 256(1) of the Income Tax Act, 1961 :

"1. Whether, on the facts and in the circumstances of the case having regard to the corporate nature of the assessee the entire expenditure of Rs. 25,159 for the assessment year 1974-75 and Rs. 26,079 for the assessment year 1975-76 was allowable ?

Whether, on the facts and in the circumstances of the case, the assessee was entitled to set off carried forward unabsorbed depreciation allowance against its interest income ?"

The relevant assessment years are 1974-75 and 1975-76. The assessee-company went in liquidation in September, 1967, and sold the machinery and plant for a sum of Rs. 34,00,011. The sale proceeds were deposited in a bank. For the assessment year 1974-75, the assessee received interest amount of Rs. 1,31,866 on the bank deposits. For the assessment year 1975-76, the interest income increased to Rs. 2,20,635. The assessee-company claimed deduction of Rs. 25,159 against the abovesaid income for the assessment year 1974-75 and a deduction of Rs. 26,079 against the interest income for the year 1975-76. The Income Tax Officer allowed only a sum of Rs. 9,500 for the assessment year 1974-75 and a sum of Rs. 3,000 for the assessment year 1975-76 as deduction. On appeal, the Commissioner (Appeals) allowed an estimated deduction equivalent to 20 per cent. of the interest income derived by the company as a deduction u/s 57(iii) of the Act in computing the net interest income of the assessee chargeable under the head "Income from other sources". On appeal, the Tribunal had held that for the assessment year 1974-75, the assessee was entitled to a deduction in respect of six out of eight items u/s 57(iii) of the Act. Two items which were held as not allowable for deduction were advertisement expenditure of Rs. 1,358 and advocate''s fees of Rs. 3,500 for the assessment year 1974-75. Similarly, for the assessment year 1975-76, items of Rs. 14 in respect of court fees stamp and Rs. 10,000 in respect of provisional fees were held to be inallowable for deduction. There is no material on record to show that these items which were not allowed by the Tribunal were expended wholly and exclusively for the purpose of earning the interest income. We, therefore, find no valid reason for taking a different view of the matter on this aspect and hence, we answer question No. 1 referred to us in the negative against the assessee and in favour of the Revenue.

Question No. 2 :

The assessee had claimed set off of unabsorbed depreciation to the extent of the income available under the head "Interest", which claim was rejected by the Income Tax Officer. The Commissioner of Income Tax (Appeals), however, allowed the claim. On appeal, the Tribunal found that the assessee had completely stopped its business in 1967 and was not entitled to claim set off of its unabsorbed depreciation against its interest income.

An identical question pertaining to the same assessee was referred to this court for the assessment year 1972-73. Answering the question in favour of the assessee, this court in Anant Mills Ltd. Vs. Commissioner of Income Tax, has held as under (at page 598) :

"The Tribunal has held that, when there was no business, the unabsorbed depreciation could not be set off in the subsequent year against the income under the head "Other sources". On this question, the matter is no longer res integra so far as this court is concerned. In the case of Commissioner of Income Tax Vs. Deepak Textile Industries Ltd., the Division Bench of this High Court, speaking through Justice B. S. Kapadia, held categorically that (headnote) :

"On reading section 32(2) of the Act, it is clear that the purpose of the Legislature in introducing the legal fiction is to give the benefit of the unabsorbed depreciation in the following previous year or in the succeeding previous years and when that is the purpose of the legal fiction, all the facts necessary for the purpose of earning depreciation u/s 32(1) of the Act must be secured and, therefore, for the following previous year, the ownership of machinery, user of machinery and user of machinery for the purpose of business and existence of business also will be required to be assumed for giving effect to the legal fiction. Hence, unabsorbed depreciation should be allowed to be carried forward and set off against assessable income of a subsequent year notwithstanding the fact that the business in respect of which it arose ceased to exist in the year of such set off. Moreover, receipt of income during the relevant previous year is not a sine qua non for the deduction of allowances like depreciation."

In this view of the matter, question No. 2 referred to us is answered in the affirmative, in favour of the assessee and against the Revenue.

The reference stands disposed of accordingly with no order as to costs.