Sri Rajarathinam Transports Pvt. Ltd. vs Commissioner of Income Tax

Ratnam, J.—In this tax case reference u/s 256(1) of the Income Tax Act, 1961 (hereinafter referred to as ""the Act""), at the instance of the

assessee, the following question of law have been referred to this court for its opinion :

Whether, on the fact and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee is not entitled to set-off

the depreciation claimed to the extent of Rs. 13,016, Rs. 18,012, Rs. 2,304 and Rs. 19,487 in the assessment years 1960-61, 1961-62, 1962-63

and 1964-65, respectively inasmuch as the amount was not determined for the respective assessment years ?

Whether, on the facts and in the circumstances of this case, the Appellate Tribunal was right in holding that since the assessment for the earlier

years had become final, the assessee would not be entitled to re-agitate the same in the subsequent year, namely the assessment year in question ?

Whether on the facts and in the circumstances of this case, the Tribunal''s decision that the assessee in not entitled to in view of section 80 of the

Income Tax Act, 1961, the depreciation and allowance in 1965-66 of depreciation relating to the earlier years even though they were not

quantified and notified for carry forward in those assessment years is correct ?

The assessee is private limited company. In respect of the assessment year 1965-66 for the previous year ending on March 31, 1965, originally

an assessment u/s 144 of the Act was made on a total income of Rs. 35,000. However as result of the proceedings u/s 144 of the Act, the

assessment was set aside with a direction to pass a fresh assessment order by reopening the assessment. The assessee filed a return disclosing an

income of Rs. 26,017. In the course of the assessment proceedings, the assessee claimed that inabsorbed depreciation totaling Rs. 78,984 in

respect of the assessment years 1960-61 to 1964-65 should be allowed to be set off in the assessment year 1965-66. However the Income Tax

Officer took the view that the unabsorbed depreciation of Rs. 78,984 cannot be allowed to be set off by the assessee as claimed in view of the

clear and specific finding in the respective assessment years that depreciation had not been determined for the purpose of being carried forward

and those assessment order had not been set aside, but remained in force and therefore the set-off of the unabsorbed depreciation cannot be

allowed. In that view, the Income Tax Officer accepted income returned by the assessee and completed the assessment A direction regarding the

initiation of penalty proceedings u/s 271(1)(a) and 273(b) of the Act was who also given. On appeal by the assessee before the Appellate

Assistance Commissioner, he found that the assessments for the assessment years 1960-61 to 1964-65 had become final and as no finding of the

unabsorbed depreciation or carry forward of the unabsorbed depreciation the claim of the assessee for set-off the unabsorbed depreciation

relating to the earlier years had been rightly rejected. Consequently, the assessment was affirmed and the appeal was dismissed. On further appeal

by the assessee before the Tribunal, on a consideration of the details furnished by the assessee with reference to the claim made and orders passed

in the several assessment years, it found that the assessee filed the return for the assessment year 1960-61 beyond the four year''s limit and as

such, it was rightly not taken cognizance of. In respect of the assessment year 1961-62, though the assessee filed the return in time, the Income

Tax Officer made an assessment closing it as ""not assessable"" with finding that the assessee was not entitled to carry forward of the assessee had

filed a loss return out of time and at the return was rightly ignored. In respect of the assessment year 1962-63, the Tribunal found that the assessee

had filed a loss return out of time and that the return was rightly ignored. In respect of the assessment year 1963-64, the Tribunal found that an

assessment was made on positive income of Rs. 700, allowing the claim of depreciation made by the assessee to the extent of Rs. 27,197, but the

unabsorbed depreciation of the earlier year had not been treated as the depreciation for the assessment year 1963-64 and that entitled the

assessee to prefer an appeal which however, was not done and that it led to the finality of the assessment in respect of the assessment year 1963-

64 precluding the assessee from questioning its correctness. For the assessment year 1964-65, the Income Tax Officer completed the assessment,

according to the Tribunal as ""not assessable"" on August 28, 1967. With reference to this assessment year also, the Tribunal pointed out that the

assessee has not preferred an appeal. Considering the claim of the assessee for set-off the unabsorbed depreciation of the assessment year 1965-

66, the Tribunal was of the opinion that, in view of the prior assessment orders which had attained finality, it was not open to the assessee to

reopen concluded matters. The Tribunal also adverted to section 80 of the Act of conclude that no loss inclusive of depreciation can be carried

forward and set off, unless it had been determined in pursuance of a return and having regard to the assessment orders passed already which had

become final, it would not be open to the assessee to re-agitate the same. In that view the Tribunal dismissed the appeal of the assessee and that is

how the questions of law set out earlier have come up before this court.

In order to consider the correctness of the view taken by the Tribunal, it would be necessary to refer to the particulars furnished by the assessee

before the Tribunal in the extract set out hereunder the correctness of which not been challenged by either side.

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Asst. Return Return Loss Depre- Unabsorbed Remarks

year due on filed on claimed ciation depreciation

claimed

----------------------------------------------------------------------

1 2 3 4 5 6 7

----------------------------------------------------------------------

Rs. Rs. Rs.

1960-61 30-9-60 29-4-66 29,160 13,016 13,016 No asse-

ssment

made

1961-62 30-9-61 31-3-66 18,012 20,991 18,012 do.

1962-63 30-9-62 29-4-66 2.304 21,242 2,304 do.

1963-64 30-9-63 29-4-66 9,078 28,241 9,078 Assessment

made on

21-8-67.

Income de-

termined

Rs. 700. De-

ciation cl-

aimed all-

owed to

the extent

of

Rs. 27,197

1964-65 30-9-64 29-4-44 19,659 21,740 19,659 Assessment

closed as

on 28-8-67

1965-66 30-9-65 29-4-66 26,017 28,111 ---- Assessment

made under

section 144

on a total

income of

Rs. 35,000.

AAC direc-

ted the

ITO to

redo the

assessment.

Fresh ass-

essment

made on

22-3-75,

unabsorbed

depreciation

claimed

was

disallowed.

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As could be seen from the particulars extracted above, in so far as the assessment year 1960-61 is concerned, the assessee had filed the return

beyond time as prescribed in sections 139(1)(a), 139(4) and 139(1)(b)(i) of the Act. By the time the return was filed, a period of four years from

the end of the assessment year had expired and u/s 153(1)(a) of the Act, no assessment could be made. That was also the reason why the Income

Tax Officer had proceeded to ignore the return. In other words, in respect of the assessment year 1960-61, no assessment could be made and

there was therefore on question of determining the depreciation or making any directed for the carry forward of unabsorbed depreciation. For the

assessment year 1961-62, though the assessee filed a return in time, an assessment was made to the effect ""not assessable with a finding that the

assessee was not entitled to the carry forward of any depreciation. For the assessment year 1962-63, it appears that the assessee filed a loss

return and that not having been filed ignored. That order could not have determined dither the depreciation or directed the carry forward of

unabsorbed depreciation. In respect of the assessment year 1963-64 it is seen that the assessment was completed on August 21, 1967, on

positive income of Rs. 700, after allowing depreciation to the extent of Rs. 27,197 claimed by the assessee. The unabsorbed depreciation of the

earlier assessment years 1960-61 to 1963-64 could have property treated as the depreciation for the assessment year 1963-64 and to the extent

to which the allowance of depreciation was restricted to Rs. 27,197 and there was no direction regarding the carry forward of the unabsorbed

depreciation the assessee was certainly a person aggrieved by the assessment order to that extent. However, the assessee did not challenge the

correctness of that order and that order had become final. For the assessment year 1964-65, the Income Tax Officer had completed the

assessment as not assessable on August 28, 1967, and if the assessee felt aggrieved by this order, it should not have allowed the order to attain

finality, if it desired to claim the unabsorbed depreciation of the earlier years or for the carry forward of the depredation. It is thus seen that, for the

assessment years 1960-61 to 1962-63, the claim of the assessee for depreciation and carry forward of unabsorbed depreciation were not

countenanced and the orders passed in that regard had become final. At the time of the assessment for the assessment year 1963-64, when the

income of the assessee was determined at Rs. 700 after allowing depreciation to the extent of Rs. 27,197, it was the appropriate time for the

assessee to have urged the carry forward of the unabsorbed depreciation for the assessment years 1960-61 to 1962-63 and urged it before the

Income Tax Officer and to have pursued his further remedies against the order of the Income Tax Officer, if decided against the assessee. That has

also not been done. For the assessment year 1964-65, the assessment has been completed as not assessable and at least in the course of the

proceedings then, the assessee should have urged that the unabsorbed depreciation should be carried forward or set off. That was also not done,

with the result that, by the assessment orders passed in respect of the assessment years 1960-61 to 1964-65, the claim of the assessee either for

depreciation or for carry forward of the depreciation had been constantly negatived and these orders have become final. Under these

circumstances, in the absence of specific orders of the assessing authority determining the depreciation not only for the purpose of assessment but

also for its carry forward from assessment year to assessment year, the assessee cannot be permitted to claim set-off the unabsorbed depreciation

for the assessment year 1965-66. We may also point out that u/s 32(2) read with section 34 of the Act, the depreciation or part of the

depreciation in a previous year to which effect has not been given, shall be added to the amount of depreciation for the following previous year and

deemed to be part of that allowance, of if there is not such allowance for that previous year, it should deemed to be the allowance for the previous

year and so on for the succeeding previous years. But this can be done only in the assessment where full effect cannot be given to the depreciation

as claimed in any previous year owing to there being no profits or gains chargeable being less that the allowance, subject, of course to sections

72(2) and 73(3) of the Act. In the absence, therefore of any specific and clear findings the course of the assessment orders regarding the claim for

depreciation, its allowance either in full or in part, as the case may be and the carry forward of the unabsorbed depreciation in accordance with

section 32(2) of the Act, it would be futile for the assessee to claim that it can have the benefit of set-off the unabsorbed depreciation in the course

of the proceedings relating to the assessment year 1965-66. We may also observe that with reference to section D of the return applicable to

companies, the adjustment to be made with reference to the income shown in sections A and B of Part I of the return had been indicated (vide

[1962] 45 ITR 81) and accordingly, on account of depreciation or capital expenditure on scientific research carried forward from earlier

assessment year-sections 32(2), 35(4) read with sections 72(2) and 73(3) of the Act should be indicated. If, in spite of the details having been to

indicated, the depreciation or the carry forward of unabsorbed depreciation is disallowed, then it is for the assessee to further agitate its entitlement

to the same and if it is not so done and the order of assessment is allowed to attain finality, then, the assessee cannot turn round in later assessment

year and claim to have the benefit of set-off of unabsorbed depreciation, which is not in accordance with section 32(2) read with section 34 of the

Act. However, learned counsel for the assessee strenuously contended, relying upon the decision in Western India Oil Distribution Co. Ltd. Vs.

Commissioner of Income Tax, Bombay-I, that the principle of res judicata is inapplicable in matters of taxation and the attainment of finality of the

assessment orders for the assessment years 1960-61 to 1964-65 would not preclude the assessee from claiming the benefit of carry forward of

the unabsorbed depreciation for the assessment year 1965-66. The decision relied on by learned counsel for the assessee may at first sight appear

to support the stand of the assessee, but, a careful consideration of the facts would show that the principal of the decision is inapplicable. In that

case the assessment orders referred to the carry forward of the depreciation. That would mean that the depreciation had been ascertained and

directed to the carried forward in accordance with the provisions of the Act. Such is not the case here. Further, it had been pointed out that, if, in

an earlier order, the benefit of carry forward of unabsorbed depreciation is denied to the assessee on the ground that the correct head of income

applicable to the assessee in income from other sources, that would not preclude the assessee from claiming the benefit of allowance of the

unabsorbed depreciation in a later year, when the correct head of income from business, profession or vacation, even through the assessee had not

preferred appeal against the orders of the Income Tax Officer in respect of the earlier years and had rested content with those orders, In this case,

there is no question of any change or alteration in the head or the source in income to justify the application of the principle laid down in Western

India Oil Distribution Co. Ltd. Vs. Commissioner of Income Tax, Bombay-I, . Thus, on due consideration of the facts and circumstances, we

answer question Nos. 1 and 2 in the affirmative and against the assessee.

In so far as the third question is concerned, it is seem from the opening paragraph of the orders of the Tribunal that the controversy before it was

restricted to the set off of the unabsorbed depreciation of the earlier years and in that context, it was really not necessary for the Tribunal to have

referred to section 80 of the Act. Presumably for the purpose of emphasising the importance of the determination of the claim for depreciation and

a direction for its carry forward in the course of the assessment order itself, as in the case of loss, casual reference to section 80 had been made.

We find that the reasoning of the Tribunal had proceeded entirely on the basis of the claim of the assessee for depreciation allowance and carry

forward of the unabsorbed depreciation and the question of carry forward and set-off of loss as such does not appear to have figured and, under

these circumstances it was unnecessary for the Tribunal to have referred to section 80 of the Act for the purpose of arriving at the conclusion it did.

We, therefore, hold that it is unnecessary to answer the third question referred to us and we return the reference on the third question unanswered.

The Revenue will be entitled to the costs of this reference. Counsel''s fee Rs. 500.