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Bihar State Industrial Development Corporation Ltd. v. Commissioner Of Income-Tax
Factual and Procedural Background
This reference arises under section 256(1) of the Income-tax Act, 1961, in respect of assessment year 1967-68. While assessing, the Income-tax Officer determined the assessee's income at Rs. 11,33,617 after giving effect to an order of the Appellate Assistant Commissioner. The officer found large amounts of brought forward unabsorbed depreciation for assessment years 1963-64 to 1966-67, and an unabsorbed development rebate of Rs. 9,85,528 for assessment year 1964-65. The Income-tax Officer set off unabsorbed depreciation of Rs. 11,33,370, reducing the income to nil, and carried forward the unabsorbed development rebate.
The assessee appealed, contending before the appellate authority that the unabsorbed development rebate should have been allowed in preference to unabsorbed depreciation. The Appellate Assistant Commissioner rejected that contention. The same contention was urged before the Income-tax Appellate Tribunal, which also rejected it. The Income-tax Officer, the Appellate Assistant Commissioner and the Tribunal held that unabsorbed depreciation must take precedence over unabsorbed development rebate. Aggrieved by the Tribunal's order, the assessee sought a reference to this Court, leading to the present reference.
Legal Issues Presented
- “Whether, on the facts and in the circumstances of the case, the brought forward unabsorbed development rebate is to be given preference over the brought forward unabsorbed depreciation losses in allowing the setoff against the current year's income?”
Arguments of the Parties
Assessee's Arguments
- The assessee contended that the brought forward unabsorbed development rebate (pertaining to assessment year 1964-65) should be allowed in preference to the set off of brought forward unabsorbed depreciation losses.
Revenue / Authorities' Position
- The Income-tax Officer, the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal all held that brought forward unabsorbed depreciation losses must take precedence over brought forward unabsorbed development rebate.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Calicut Modern Spinning and Weaving Mills Ltd. v. CIT, [1985] 153 ITR 810 | Held that unabsorbed business loss and unabsorbed depreciation must be wiped out before any question of set off of unabsorbed development rebate arises. | The Court relied on the Kerala High Court's elaborate discussion in this case and adopted its conclusion without repeating the detailed reasoning. |
| CIT v. Gujarat State Warehousing Corporation, [1976] 104 ITR 1 (Guj) | One of the decisions relied upon for the proposition that unabsorbed depreciation takes precedence over development rebate (as cited by the Kerala High Court). | Relied upon (via the Kerala High Court) by this Court in concluding that unabsorbed depreciation should be set off before any unabsorbed development rebate is allowed. |
| Mysore Paper Mills Ltd. v. CIT, [1979] 117 ITR 132 (Kar) | One of the decisions relied upon for the same proposition regarding precedence of unabsorbed depreciation. | Relied upon (via the Kerala High Court) by this Court in reaching its conclusion on order of set off. |
| CIT v. Coromandel Steels Ltd., [1981] 130 ITR 856 (Mad) | One of the decisions relied upon for the proposition that unabsorbed depreciation takes precedence over unabsorbed development rebate. | Relied upon (via the Kerala High Court) by this Court to support the conclusion that unabsorbed depreciation must be set off first. |
Court's Reasoning and Analysis
The Court observed that no detailed examination of the law was necessary because the law on the subject was already well settled. It accepted the Kerala High Court's reasoning in Calicut Modern Spinning and Weaving Mills Ltd. v. CIT, which had considered several High Court decisions and held that unabsorbed business losses and unabsorbed depreciation must be wiped out before any question of set off of unabsorbed development rebate arises. The Court noted that the decisions relied upon by the Kerala High Court (including CIT v. Gujarat State Warehousing Corporation, Mysore Paper Mills Ltd. v. CIT and CIT v. Coromandel Steels Ltd.) and standard treatises (Kanga and Palkhivala; Chaiurvedi and Pithisaria's) supported the same position.
Applying that settled principle to the facts of the reference, the Court concluded that the brought forward unabsorbed depreciation loss must be set off first against the current year's income; only thereafter, if any balance remains, may any brought forward unabsorbed development rebate be allowed.
The Court also noted that no decision taking a contrary view was found and that the assessee did not appear in the Court (probable lack of interest).
Holding and Implications
Holding: The question referred was answered in the negative. The Court's core ruling is: the brought forward unabsorbed depreciation loss will first be set off against the current year's income; thereafter, if any balance is left, an allowance may be made for brought forward unabsorbed development rebate.
Implications:
- Direct effect on the parties: The answer is in favour of the Revenue and against the assessee; the assessee's contention that development rebate should take precedence is rejected.
- No broader or novel precedent was pronounced by this Court: the decision follows and adopts the existing line of authority as stated above.
- Procedural consequence: The reference is answered accordingly and there shall be no order as to costs. A copy of the judgment is to be transmitted to the Assistant Registrar, Income-tax Appellate Tribunal, in terms of section 260 of the Income-tax Act, 1961.
1. This is a reference under section 256(1) of the Income-tax Act, 1961, in relation to the assessment year 1967-68. The facts are that while assessing, the Income-tax Officer found that the income of the assessee came to Rs. 11,33,617 after giving effect to the order of the Appellate Assistant Commissioner. It was also found that there was a large amount of unabsorbed depreciation relating to the assessment years 1963-64 to 1966-67. Besides unabsorbad depreciation, there was also unabsorbed development rebate amounting to Rs. 9,85,528 pertaining to the assessment year 1964-65. The Income-tax Officer set off the unabsorbed depreciation to the extent of Rs. 11,33,370. The income thus came to “nil”. The unabsorbed development rebate for the assessment year 1964-65 was carried forward. The assessee, being aggrieved by the refusal of grant of unabsorbed development rebate, filed an appeal. Before the appellate authority, the assessee contended that the unabsorbed development rebate should have been allowed in preference to the grant of unabsorbed depreciation. The submission of the assessee did not find favour with the Appellate Assistant Commissioner. The same contention was agitated before the Income-tax Appellate Tribunal as well with the same result. Thus, the Income-tax Officer, the Appellate Assistant Commissioner and the Tribunal all held that in the matter of allowance, unabsorbed depreciation must take precedence over unabsorbed development rebate. The assessee, being aggrieved by the order of the Tribunal, filed an application for reference to this court. Hence, the present reference before us.
2. On the facts mentioned above, the Tribunal has referred the following question for our opinion:
“Whether, on the facts and in the circumstances of the case, the brought forward unabsorbed development rebate is to be given preference over the brought forward unabsorbed depreciation losses in allowing the setoff against the current year's income?”
3. The question referred to us does not need any detailed examination of the law on the subject. The law is now well settled that brought forward unabsorbed depreciation losses must take precedence over brought forward unabsorbed development rebate. That was the view taken by the Kerala High Court upon a consideration of decisions of several High Courts. Since the matter has been elaborately discussed by the Kerala High Court in Calicut Modern Spinning and Weaving Mills Ltd. v. CIT, [1985] 153 ITR 810, we would refrain from covering the same ground over again. In that case, their Lordships categorically laid down that “it is only after wiping out such (balance) unabsorbed business loss and also the unabsorbed depreciation, the question of any set off of the unabsorbed development rebate can or will arise”. Reference may only be made to the decisions relied on by the Kerala High Court in CIT v. Gujarat State Warehousing Corporation, [1976] 104 ITR 1 (Guj), Mysore Paper Mills Ltd. v. CIT, [1979] 117 ITR 132 (Kar) and CIT v. Coromandel Steels Ltd., [1981] 130 ITR 856 (Mad). The treatise of the law on the subject in Kanga and Palkhivala and Chaiurvedi and Pithisaria's are also the same.
4. In that view of the matter, we have not the least doubt that it is only after setting off of unabsorbed business loss N and unabsorbed depreciation that the question of allowance of unabsorbed development rebate can arise. In terms of the question posed before us, the answer must be that the brought forward unabsorbed depreciation loss will first be set off against the current year's income. Thereafter, if any balance is left, allowance may be made for brought forward unabsorbed development rebate.
5. No decision of any court has come to light taking a view contrary to the view taken by the Kerala, Mysore, Gujarat and Madras High Courts and ourselves.
6. For the reasons stated above, the question referred to us is answered in the negative, in favour of the Revenue and against the assessee.
7. No one has appeared on behalf of the assessee. Probably the assessee is not interested in the reference any more.
8. The reference is answered accordingly. There shall be no order as to costs. Let a copy of this judgment be transmitted to the Assistant Registrar, Income-tax Appellate Tribunal, in terms of section 260 of the Income-tax Act, 1961.
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