Income-tax---

----Depreciation---Registered firm---Unabsorbed depreciation of firm allocated to partners and not wholly set off; in their individual assessments-- Allowable in the hands of registered firm in subsequent year---Indian Income Tax Act, 1961, S. 32.

The unabsorbed depreciation of a registered firm for the preceding assessment years allocated to its partners, not wholly set off in their respective assessments, should be brought back for computation of the total income for the subsequent years as if the balance after set off, were the firm's unabsorbed depreciation.

Garden Silk Weaving Factory v. CIT (1991) 189 ITR 512 (SC) and CIT v. Singh Transport Co. (1993) 200 ITR 574 (SC) fol.

CIT v. J. Patel & Co. (1984) 149 ITR 682 (Delhi) ref.

B. S. Gupta, Senior Advocate with Sanjay Barisal for the Commissioner.

Nemo for the Assessee.

JUDGMENT

ASHOK BRAN, J.---This order shall dispose of Income-tax References Nos. 19 and 20 of 1986 pertaining to the assessment years 1978-79 and 1979-80. As the Tribunal had disposed of Income-tax Appeals Nos. 234 and 262 of 1983 together, the two references arising out of these two appeals are also being disposed of by one and the same order.

The Income-tax Appellate Tribunal, Chandigarh Bench, Chandigarh (hereinafter referred to as the Tribunal), has referred the following question of law for the assessment years 1978-79 and 1979-80 to this Court for its opinion:

"Assessment year 1978-79:

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in allowing carry forward of depreciation of the assessment years 1976-77 to 1978-79, which could not be set off against the income of the partners of the assessee's firm in the hands of the firm for the purposes of set off against its income in the subsequent assessment years?

Assessment year 1979-80:

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in allowing the carry forward and set off of depreciation for the assessment years 1976-77 to 1978-79, which could not be set off against the income of the partners of the assessee's firm against its income for the assessment year 1979-80 and subsequent assessment years?"

There was a loss in the case of the assessee on- account of unabsorbed depreciation. The loss was allocated amongst the partners. It appears that the loss could not be set off against other income of the partners. It was urged on behalf of the assessee that unabsorbed loss in the hands of the partners should be reverted to the firm and treated as the loss of the firm and set off against its income for the year's under consideration. The Income tax Officer did not allow the same and rejected the claim of the assessee. This order was upheld in appeal by the Appellate Assistant Commissioner. The assessee carried further appeal before the Tribunal which was accepted. The Tribunal relying upon a judgment of the Delhi High Court in CIT v. J. Patel and Co. (1984) 149 ITR 682, reversed the decision of the Income-tax Officer and the Appellate Assistant Commissioner. The Income-tax Officer was directed to accept the claim of the assessee.

On an application filed under section 256(1) of the Income Tax Act, 1961, the Tribunal has referred the questions of law for the assessment years 1978-79 and 1979-80 set out in the earlier part of the judgment to this Court for its opinion.

The controversy stands concluded against the Revenue and in favour of the assessee by two judgments of the Supreme Court in Garden Silk Weaving Factory v. CIT (1991) 189 ITR 512 and CIT v. Singh Transport Co. (1993) 200 ITR 574. In these two judgements, it has been held that the unabsorbed depreciation of a registered firm for the preceding assessment years allocated to its partners, not wholly set off in their respective assessment, should be brought back for computation of the total income for the subsequent years as if the balance after set off were the firm's unabsorbed depreciation. In view of the law laid down by their Lordships of the Supreme Court in these judgments, the questions referred to us are answered in the affirmative, that is, against the Revenue and in favour of the assessee.

M.B.A./3252/FC Order accordingly.