B.K Mehta, J.:— The following two questions have been referred to us for our opinion:

“1. Whether, on the the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee, a registered firm, is entitled to carry forward unabsorbed depreciation from earlier years and that it will be deemed to be an allowance in the nature of depreciation in the previous year relevant to the assessment year 1968-69?

2. Whether the claim of the assessee to carry forward and set off loss of Rs. 3,49,242 against its total income for the assessment year 1968-69, has been rightly rejected?”

2. Shortly stated the facts leading to this reference are as under:

The relevant assessment year was 1968-69. The assessee which is a registered firm filed a return of income showing the total income of Rs. 3,94,483. A provisional assessment under section 141 was made on November 18, 1968, on the basis of the income disclosed and tax was paid accordingly. It appears that the Income-tax Officer found subsequently that the assessee had in fact earned a profit of Rs. 11,82,856 in the previous year, but had deducted Rs. 7,87,573 consisting of Rs. 3,49,242 as business loss, Rs. 1,59,181 as depreciation and Rs. 2,79,150 as development rebate, all carried forward from the assessment year 1967-68. The Income-tax Officer, therefore, passed an order under section 154 and section 155 of the Income-tax Act, 1961, and held that business loss and depreciation which were unabsorbed in the earlier years could not be set off against the income of the firm in the year under reference. The matter was carried by the assessee-firm in appeal before the Appellate Assistant Commissioner, who, however, dismissed the appeal and confirmed the order of the Income-tax Officer. The matter was, therefore, carried in appeal by the assessee-firm to the Tribunal. The Tribunal rejected the claim of the assessee-firm so far as the carry-forward and set-off of loss were concerned as, in its opinion, there was a clear bar under section 72(2) of the aforesaid Act. As regards the claim of the assessee-firm, on account of carry-forward and set-off of the depreciation allowance of Rs. 1,59,188, the Tribunal, having regard to the wording of section 32(2) of the aforesaid Act, felt that there was a possibility of two interpretations and, therefore, the assessee-firm must have the benefit of carry-forward and set-off of unabsorbed depreciation allowance against its business income for the assessment year under reference. In this view of the matter, therefore, the Tribunal partially allowed the appeal of the assessee-firm so far as its claim to depreciation allowance was concerned and rejected its appeal so far as its claim for the business loss was concerned. Both the parties, therefore, sought the reference to this court and the Tribunal has referred the two questions set out hereinabove for our opinion.

3. At the time of hearing of this reference it was conceded on behalf of the assessee-firm that, so far as the question of carry-forward and set-off of business loss was concerned, the question is concluded in view of the decision of this court in Commissioner of Income-tax v. Dhanji Shamji [1974] 97 ITR 173 Guj. and, therefore, the second question has to be answered in favour of the revenue and in the affirmative. It is now on the first question that the entire debate in this reference, therefore, turned. The next question which arises for our determination is, whether in the case of an assessee which is a registered firm where full effect cannot be given to depreciation allowances in the assessment of individual partners, the registered firm is entitled to carry forward the unabsorbed depreciation allowance to the next year and set off against its business income. On behalf of the assessee, it has been strenuously urged that but for the amendment which has been made in the relevant section governing this question, namely, section 32(2), in the year 1953, when the words, “where the assessee is a registered firm, in the case of the assessment of partners” were added the position was that both the firm and the partners were entitled to claim the benefit of carry forward and set off of unabsorbed depreciation allowance to the next year of their respective assessments. The only difference which has been made, it was so urged on behalf of the assessee, by addition of the aforesaid words was that the same depreciation allowance could not be claimed by a firm again, if it has been fully effected in the case of assessment of the partners. It was vehemently urged on behalf of the assessee that on the plain reading of the section so much of that depreciation allowance of a registered firm which is not fully effected in the case of partners is to be carried forward and added to the current depreciation allowances of the next year and is deemed to be part of that allowance, or in case if there is no current depreciation allowance for the next year, that unabsorbed depreciation allowance would be deemed to be current depreciation allowance for the said year. In other words, it is urged that unabsorbed depreciation allowance is of the registered firm and, therefore, it is to be added to the depreciation allowances of the firm in the next year. On behalf of the revenue, it is urged that by the amendment effected in 1953, the case of a firm is taken out from the purview of section 10(2)(vi)(b) of the 1922 Act (corresponding to section 32(2) of the 1961 Act) an exception is sought to be carved out and the principle incorporated in the said subsection is to be applied in case of assessment of partners, if the assessee is a registered firm. It was, therefore, urged on behalf on the revenue that the benefit of carry-forward and set-off of the unabsorbed depreciation allowance which has been granted by the said sub-section is to be applied in case of individual assessment of partners, if the assessee concerned is a registered firm, and, therefore, if once depreciation allowance is allocated amongst partners on account of there being insufficient profit or income of the firm, it cannot be again brought back to the assessment of the firm, if full effect could not be given to the depreciation allowance so allocated in the case of partners.

4. In order to understand these rival contentions, we will set out hereunder the relevant provisions of the Income-tax Act as in force from time to time before the 1953 amendment, after 1953 amendment and after the 1961 Act came into force. Deductions permissible to assessee for purposes of computation of profits and gains of business, profession or vocation were contained in section 10 of the Indian Income-tax Act, 1922. section 10(2)(vi)(b) was the relevant provision which permitted the benefit of carry-forward and set-off of unabsorbed depreciation. Before the amendment was incorporated in the said clause in 1953, it read as under:

“(b) where full effect cannot be given to any such allowance in any year not being a year which ended prior to the 1st day of April, 1939, owing to there being no profits or gains chargeable for that year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of clause (b) of the proviso to sub-section (2) of section 24, the allowance or part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following year and deemed to be part of that allowance, or if there is no such allowance for that year, be deemed to be the allowance for that year, and so on for succeeding years.”

5. By section 8 of the Indian Income-tax (Amendment) Act, 1953, which came into force from the 1st day of April, 1953, an amendment was made in the aforesaid clause. After the amendment, the said clause read as under:

“(b) where in the assessment of the assessee, or if the assessee is a registered firm, in the assesement of its partners, full effect cannot be given to any such allowance in any year not being a year which ended prior to the 1st day of April, 1939, owing to there being no profits or gains chargeable for that year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of clause (b) of the proviso to sub-section (2) of section 24, the allowance or part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following year and deemed to be part of that allowance, or if there is no such allowance for that year, be deemed to be the allowance for that year, and so on for succeeding years.”

6. The relevant provision now to be found in the 1961 Act is contained in section 32(2) which reads as under:

“(2) Where, in the assessment of the assessee (or, if the assessee is a registered firm or an unregistered firm assessed as a registered firm, in the assessment of its partners), full effect cannot be given to any allowance under clause (i) or clause (ii) or clause (iv) or clause (v) of sub-section (1) in any previous year, owing to the profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 73, the allowance or part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years.”

7. It is in the context of the provision contained in section 32(2) of the 1961 Act that the question has been referred to us by the Tribunal. The view of the Tribunal is expressed in paragraphs 7 and 8 of its order. The Tribunal had been impressed by the fact that there is no reference in section 32(2) to the provision of section 75 though the provision contained in section 32(2) has been made subject to section 72(2) and section 73(3). In the opinion of the Tribunal, the normal provisions to carry forward unabsorbed depreciation have to operate in this case as the provision contained in section 75 would not govern the question of carry-forward and set-off of unabsorbed depreciation. The Tribunal also considered the language of section 32(2) and was of the opinion that it would as well mean that full effect contemplated under that sub-section should be given in an assessment of the assessee which is a registered firm and also in the assessment of its partners. The Tribunal could not find anything in the structure of the section to uphold the contention of the revenue that if effect cannot be given in assessment of partners, the assessee-registered firm is to be denied this normal right of carry-forward of unabsorbed depreciation since reference to section 75 is conspicuous by its absence in the section itself and though sections 72(2) and 73(3) have been mentioned, the position was not clear and, therefore, the Tribunal should interpret the provision in the manner favourable to the assessee.

8. In the first place, it should be noted that there is no specific provision in the Income-tax Act either of 1922 or 1961, by which depreciation allowance of a firm is to be allocated between the partners except by way of allocating it as component of the loss of the firm. It is no doubt true that depreciation allowance, though allocated either as component of the loss of the firm or along with the loss of the firm of the partners, it retains all its characteristics as a depreciation allowance. But, none the less, the allocation of depreciation allowance is made when profits or income of the firm is not sufficient to absorb depreciation allowance permissible under the Act to the firm. Once allocation is made amongst partners, either of business loss or of depreciation allowance, it is the partners who would be entitled to carry forward that loss or depreciation allowance and set it off against their other income. Once an allocation is made, there remains nothing with the firm which is to be carried forward on account of either there being no income or income being insufficient to absorb depreciation allowance. It is in this context that we have to examine the problem which has been posed before us. On behalf of the assessee, Mr. Shah, the learned advocate, urged before us that section 32(2) is a complete code by itself and if benefit of carry-forward and set-off is permissible, it has got to be upheld by the court and the court cannot read anything more or anything less in the said sub-section. It was pointed out to us by Mr. Shah that before the amendment made in 1953 in sub-section (2)(vi)(b) of section 10, the clear and admitted position was that this benefit of carryforward and set-off of depreciation allowance was permissible in case of firms as well as partners and by the amendment made in 1953, what was sought to be effected was to prevent a firm from claiming benefit again of depreciation allowance which is fully effected in the assessment of its partners. The amendment cannot be read, according to Mr. Shah, to arrive at the conclusion that if there is unabsorbed depreciation in case of assessment of partners, it cannot be carried forward and set off by the firm against its profits or income in the next year. The contention of the revenue that it is only the partners who are entitled to carry forward unabsorbed depreciation allowance and set-off against their income in the next year was sought to be repelled on behalf of the assessee by Mr. Shah, by urging that according to sub-section (2) of section 32 that part of the depreciation allowance of the firm which is not fully effected in its partners' assessments is to be added to the amount of allowance for depreciation claimed by a firm for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be allowance for that previous year and so on for the succeeding previous years. According to Mr. Shah, if full effect is not given to depreciation allowance of the registered firm in the assessment of its partners, the firm cannot be deprived of the legal benefit to which it is entitled under section 10(2)(vi)(b) to carry forward and set-off in the next previous year. To read otherwise would be rewriting the said sub-section itself and would be against the plain reading of the section, which provides for the condition of carry-forward and set-off of unabsorbed depreciation. The only condition, according to Mr. Shah, is that full effect cannot be given to depreciation allowance of registered firm in assessment of its partners and in that case the firm is entitled to carry forward and add to the depreciation allowance of the next year. In support of this contention Mr. Shah strongly relied on the decision of the Bombay High Court in Ballarpur Collieries Co. v. Commissioner Of Income-Tax, Poona., where a Division Bench of that court was concerned with a similar question, viz., what is to happen when full effect to depreciation allowance of a registered firm is not given in assessment of partners? After referring to the decision of the Supreme Court in S. Sankappa v. Income-tax Officer [1968] 68 ITR 760 SC., the Division Bench of the Bombay High Court observed that the proceedings of assessment of a registered firm and proceedings of assessment of partners are independent and separate proceedings. The Division Bench, on the reading of section 10(2xvi), proviso (b), corresponding to section 32(2) was of the opinion that unabsorbed depreciation allowance has to be added to the allowance for depreciation for the following year and depreciation in the following year as contemplated by the proviso is available only to the firm as an assessee whose income is to be computed as required by section 23(5)(a)(i) of the Act since deduction of depreciation allowance is not permissible for computing the income of the partners in their capacity as such. In that view of the matter, the Division Bench held that proviso (b) to section 10(2)(vi) clearly contemplated that assessment of partners is relevant only for the purpose of ascertaining whether full effect has been given to the depreciation allowance contemplated by section 10(2)(vi), and in case of a registered firm if full effect has not been given to the depreciation allowance in the assessment of the partners, the unabsorbed depreciation allowance has to be given effect to in the succeeding year to which it is carried forward before the income of the firm is determined subject to the provisions contained in section 24(2)(b) corresponding to section 72(2) of the 1961 Act.

9. We are afraid we cannot accept the submission of Mr. Shah in the reasoning which he has adopted in support of his submission. The reasons for not agreeing with Mr. Shah are obvious. Once the allocation of loss of a firm of which depreciation allowance is also a component is made amongst the partners, there remains nothing in the hands of the firm to be carried forward in the first instance. Even if the depreciation allowance retains its original characteristics for all intents and purposes, it none the less is allocated to the partners along with or as a part of the loss of the firm. If that is the correct position of law, and we think that it is so, how can unabsorbed depreciation allowance, after the adjustment in the individual assessment of the partners, again revert to a firm? The answer sought to be given by Mr. Shah, partly by relying on the decision of the Bombay High Court, is that under the provisions of section 32(2) the unabsorbed depreciation allowance has to be added to the depreciation allowance of the next previous year, it clearly implies that it can be only to the current depreciation of a firm since it is the firm alone which is entitled to the depreciation allowance. This submission of Mr. Shah postulates that in all cases the firm would be owner of machinery, buildings, etc., and not its partners. If in a case the partners are the owners, can unabsorbed depreciation allowance be carried forward and added to the current depreciation allowance of a firm or to the partners concerned? Apart from this infirmity, where do we get in sub-section (2) that unabsorbed depreciation allowance is to be taken back and added to current depreciation allowance of a firm for the next previous year unless one draws an inference by implication that it is only the firm to which depreciation allowance is available. Is there any warrant for this inference which Mr. Shah wanted to draw? On the contrary, the fiction incorporated in the said sub-section that unabsorbed depreciation would be current depreciation allowance for the next year provides the solution to the conundrum posed on behalf of the assessee's learned advocate relying heavily on the aforsaid decision of the Bombay High Court. The interpretation which has been sought to be placed on behalf of the assessee would secure the benefit of deduction of depreciation allowance twice over in the next year once for the firm for purposes of firm tax, and second time for the purposes of individual assessment of the partners' tax. At one stage an attempt was made on behalf of the assessee by its learned advocate, Mr. Shah, to overcome this infirmity by urging that the benefit of set-off should be restricted for purposes of firm tax only. In that case it would necessarily result in depriving the partners of the benefit of carryforward and set-off of unabsorbed depreciation allowance. But apart from all these infirmities, the interpretation canvassed by Mr. Shah on behalf of the assessee, in our opinion, does not give full effect to the words contained in the brackets in sub-section (2), the relevant portion of which, for purposes of this reference is, “if the assessee is a registered firm, in the assessment of its partners full effect cannot be given to any such allowance.” What is the rationale for making this exceptional provision in the case of an assessee which is a registered firm? Is it for purposes of working out the depreciation allowance and the consequent benefit of carry-forward and set-off in case of individual assessment of the partners or is it merely by way of a condition precedent for effecting the benefit given to the registered firm? The attempt of Mr. Shah, the learned advocate on behalf of the assessee, was to explain away these words by saying that it is merely a condition which must be satisfied before the right to carry-forward and set off of unabsorbed depreciation can be exercised by an assessee which is a registered firm. He strenuously made an attempt by working out different illustrations to impress upon us that his interpretation would not result in any prejudice to the revenue if before the amendment in 1953 in the corresponding provision contained in section 10(2)(vi)(b) this benefit of carry forward and set-off was open to the firm as well as its partners, and if the object and purpose of the amendment made in 1953 was only to prevent the firm from claiming the benefit twice over in respect of unabsorbed depreciation allowance, how can it be urged by merely relying on these words, so contended Mr. Shah, that the firm is deprived of the benefit by this amendment of carry-forward and set-off of unabsorbed depreciation allowance which is not fully effected in the assessment of the partners? In our opinion this interpretation of Mr. Shah is against all the known canons of interpretation of statutes. In the first place, the rule of plain and grammatical reading of the section is violated, in the second place the rule of removal of mischief by the amending section is also not borne in mind, and in the third instance, the interpretation would result in distinct disadvantage to the partners who composed the firm. Mr. Shah, therefore, made an attempt to point out to us the statement of objects and reasons as given by the legislature in introducing the relevant amendment in section 10(2)(vi)(b). Mr. Shah wanted us to refer to this statement of objects and reasons as it is not clear for what purpose these words have been introduced in the relevant section. In [1952] 21 ITR (Statutes) 33 we find the Statement of Objects and Reasons for the Indian Income-tax (Amendment) Bill, 1952, which by clause 8 proposed to introduce two amendments in sections 10(2)(vi)(a) and (b), and the second of which sought to substitute in the proviso to clause (b) for the words, “where full” the words “where, in the assessment of the assessee or, if the assessee is a registered firm, in the assessment of its partners, full”. The objects and reasons for this particular amendment in proviso to clause (b) are to be found at page 57. It reads:

“The second is intended to make it clear that where unabsorbed depreciation has been effectively allowed in the assessment of a partner of a registered firm, it would not be carried forward in the case of the firm.”

10. We have not been able to appreciate how this object of the proposed amendment can be of any assistance to the cause of Mr. Shah's client. If at all it means anything it provides against double benefit of depreciation allowance in case of partners as well as the firm. If it has been effectively allowed in the assessment of a partner of a registered firm, it could not be carried forward in the case of the firm. Mr. Shah emphatically clarified that it is not his intention that this benefit should be claimed twice over. He has laid emphasis on the words in the Statement of Objects and Reasons for the proposed amendment that carrying forward in the case of a firm is prevented where the depreciation allowance has been effectively allowed in the assessment of its partners. It appears that Mr. Shah wants to equate the words “effectively allowed” with “fully allowed”. The result of the amendment, in our opinion, is to prevent the benefit being claimed twice over, and, as stated above, if once the depreciation allowance is allocated amongst the partners, there remains nothing in the hands of the firm which would be required to be carried forward. In our opinion, the interpretation which has been canvassed by Mr. Shah would necessarily result, if the mischief of double benefit is to be discouraged, that the partners would be deprived of the benefit to carry forward unabsorbed depreciation allowance in their assessment proceedings, though it has been already allocated once to the partners. When we say that the interpretation of Mr. Shah would result in double benefit, what we mean is that such unabsorbed depreciation allowance which is allowed to be carried forward would be claimed to be set off by the firm as well as the partners. If that is not the result of the interpretation canvassed by Mr. Shah, then necessarily it would result in the partners being deprived of the benefit of carry-forward which is intended to be given to them under the provision. Mr. Shah, therefore, urged that the interpretation canvassed on behalf of the revenue would leave the registered firm which may be an assessee in a given case in a worse condition while the interpretation canvassed by him would not be prejudicial to the cause of the revenue. In our opinion, this cannot be the test for determining the real intent and scope of the concession sought to be extended to the assessee under the relevant provision. On a plain reading of section 32(2) it appears to us that the benefit of carry-forward and set-off of unabsorbed depreciation allowance is to be worked out in the case of individual assessment of partners when the assessee is a registered firm. Mr. Shah, therefore, urged that there is no ruling on this point except the one of the Bombay High Court in Ballarpur Collieries Company's case and, therefore, on the principle of the comity of judicial decisions, though we may not be completely agreeing with the view taken by the Bombay High Court, we must accept it in the interest of the assessees of these two adjoining States, namely, Maharashtra and Gujarat, which are separated by a common border only, as otherwise it would work to the prejudice of the assessees in these States. We would have been inclined to accept the submission of Mr. Shah provided there are no other views in the field. In K.T Wire Products v. Union of India, a similar question arose before the Allahabad High Court, where a Division Bench of that court held that it was clear that according to the specific provision contained in sub-section (2) of section 32, the unabsorbed depreciation cannot be carried forward by a registered firm for the simple reason that it is allocated between partners, and there remains nothing to carry forward so far as the firm is concerned. Mr. Shah, however, tried to distinguish this decision on the ground that this was on the position conceded by the learned counsel for the revenue and the matter has not been examined on merits. In our opinion, this does not make any difference so far as that view is concerned. The view has been taken by the Allahabad High Court as an undisputed position of law.

11. In Shri Raj Narain Agarwala…Petitioner v. The Income Tax Commissioner, Delhi… [1970] 75 ITR 1 Delhi., a Division Bench of the Delhi High Court made some observations in the nature of obiter that in the case of a registered firm if full effect cannot be given to any depreciation allowance in any past year then the carried forward unabsorbed depreciation becomes depreciation of the current year in the hands of the partners, and if one of such partners is carrying on no other business such partner can necessarily set off the unabsorbed depreciation against income under other heads, and in the language of section 10(2)(vi), proviso (b), is implicit the intention of the legislature that effect can be given to a depreciation allowance in the assessment of a partner. It is also observed that in such a case set-off is permitted under section 24(1) and recourse to section 24(2) is unnecessary. It is true that these observations of the Delhi High Court are in the nature of obiter dicta and the observations were not necessary to be made in the context of the question which was required to be determined by the court. However, when two High Courts are of the view other than that which has been preferred by the High Court of Bombay, we are, with all respect to the learned judges of the Bombay High Court, preferring the other view for the reasons which we have stated in this judgment.

12. Mr. Shah, lastly contended that if the opinion of the Bombay High Court is also a possible view of the matter, this court should adopt that view which is favourable to the assessee. We are of the opinion that Mr. Shah's contention is not well-founded. On the plain reading of the section, the legislative intent appears to be clearly otherwise and in view of the scheme of the Act, namely, that in case where the assessee is a registered firm it is the partners who are entitled to have the benefit of carry-forward and set-off, we do not think that this is a case of another reasonably possible view, which must induce us to prefer one which is favourable to the assessee. In this connection, our attention has been drawn on behalf of the revenue to the Commentary on Income-tax by Kanga and Palkhivala, sixth edition, volume I. In the commentary on sub section (2) of section 32 (clause (b) of proviso to section 10(2)(vi) of the 1922 Act) at page 356, the learned authors have in the first paragraph set out the principles that is contained in the relevant proviso and thereafter they have expressed their view as to how these principles are to be applied in case where the assessee is a registered firm. The relevant portion of the Commentary reads as under:

“The tax is chargeable under section 28 on the aggregate of profits of all the business carried on by the assessee. Therefore, if the profits of a particular business are insufficient to absorb the depreciation allowance permitted by this section, the allowance (like any other business loss) can be set off under section 70 against the profits of any other business. If, however, there are no profits chargeable under this head or if the profits chargeable under this head are insufficient to cover the depreciation allow ance, the amount of the allowance may be set off under section 71 against profits chargeable under any other head for that year. If still some part of the depreciation allowance remains unabsorbed, it may be carried for ward under this sub-section to the following year and set off against that year's profits, and so on for succeeding years. The carried forward depre ciation allowance is deemed to be part of and stands on exactly the same footing as the current depreciation for the assessment year; therefore, the unabsorbed depreciation of past years can (unlike a carried forward business loss) be set off against income chargeable under any head………

13. The sub-section makes it clear that in cases where the assessee is a registered firm the above principles are to be applied in the individual assessments of its partners.”

14. Similarly, in Iyengar's Income-tax, sixth edition, volume I, at page 824, on the commentary under section 32(2) in caption “carry forward of depreciation loss in a firm” it has been observed:

“Where the assessee is an unregistered firm, the carry forward of depreciation losses shall have to be against the profits of the unregistered firm. If the assessee be a registered firm or an unregistered firm treated as a registered firm, the carry forward shall have to be against the profits of the individual partners.”

15. In that view of the matter, therefore, we do not think that Mr. Shah's contention was well founded when he urged that, in view of two possible views, one favourable of the assessee should be preferred. In that view of the matter, therefore, we answer question No. 1 in the negative and against the assessee. The second question is answered in the affirmative and in favour of the revenue. The assessee shall pay costs of this reference to the revenue.