Kerala High Court
Commissioner Of Income-Tax vs Pioneer Enterprises on 17 July, 1989
Equivalent citations: [1990]181ITR218(KER)
Author: K.S. Paripoornan
Bench: K.S. Paripoornan
JUDGMENT K.A. Nayar, J.
1. At the instance of the Commissioner of Income-tax, the Income-tax Appellate Tribunal, Cochin Bench, has referred the following question of law said to arise out of the order of the Tribunal dated April 24, 1984, in I. T. A. No. 361(Coch) of 1982 :
"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the unabsorbed depreciation of a registered firm should not be allocated among the partners but should be carried forward for being adjusted against the future profits of the firm ?"
2. The matter arises out of the income-tax assessment for the assessment year 1979-80, for which the previous year ended on March 31, 1979. The respondent-assessee is a partnership firm originally constituted under an instrument of partnership executed on February 17, 1978 as "Kerala Enterprises". The name was changed by an agreement executed on March 1, 1978 as "Pioneer Enterprises", the respondent herein. The firm was given registration for the assessment year 1979-80. The Income-tax Officer, while completing the assessment, allocated the unabsorbed depreciation among the partners of the assessee-firm.
3. On appeal, the Appellate Assistant Commissioner held that the Income-tax Officer was not justified in so allocating the unabsorbed depreciation. He directed the Income-tax Officer to carry forward the unabsorbed depreciation in the hands of the firm and set it off against the profit of the firm in the subsequent assessment year. On further appeal before the Tribunal, the Appellate Tribunal held that the unabsorbed depreciation of a registered firm should not be allocated among the partners, but should be carried forward for being adjusted against the future profits of the firm. It is thereafter that the above question was referred at the instance of the Commissioner of Income-tax.
4. We heard counsel for the Revenue as well as for the assessee-respondent. We feel that the Appellate Assistant Commissioner as well as the Tribunal proceeded on an erroneous appreciation of facts and considered the question as to whether the unabsorbed depreciation of a registered firm of the previous year should not be allocated among the partners but should be carried forward for being adjusted against the futue profits of the firm. The appellate authority thus posed a wrong question and laboured to answer the question so posed. On a perusal of the facts, it is seen that the assessment related to the first year of the firm, viz., 1979-80. Before the Income-tax Officer, the assessee claimed that the unabsorbed depreciation of that year has also to be carried forward along with the unabsorbed investment allowance and that the net loss (excluding these items) has to be approtioned among the partners. The Income-tax Officer rejected the claim that the unabsorbed depreciation has also to be carried forward. He stated that the provisions relating to carry forward of investment allowance or depreciation are entirely different. Section 32(2) of the Income-tax Act authorises carry forward of depreciation in the hands of the partners where full allowance is not possible in any year. In short, the question was whether unabsorbed depreciation of the assessee in the year in question is to be allocated among the partners or not. It cannot be disputed that in the case of a registered firm, the net loss including depreciation allowance, if any, is allocated to the partners who alone were entitled to set off the loss allocated to them in their individual assessments and to carry forward any loss which remained unabsorbed, as provided in Sections 32(2) and 75(2) of the Income-tax Act, 1961. In the case of a registered firm, unabsorbed depreciation of the current year will have to be apportioned among the partners and adjusted against their income. If, after such adjustment, there still remains some unabsorbed depreciation to be set off, what exactly is the position has been the subject-matter of conflicting decisions. Some High Courts have held that unabsorbed depreciation of "the previous year" would be brought back in the assessment of the firm under Section 32(2) of the Income-tax Act. (See CIT v. Srinivasa Sugar Factory [1988] 174 ITR 178 (AP), CIT v. J. Patel and Co. [1984] 149 ITR 682 (Delhi), CIT v. Nagapatinam Import and Export Corporation [1979] 119 ITR 444 (Mad), CIT v. Madras Wire Products [1979] 119 ITR 454 (Mad), Ballarpur Collieries Co. v. CIT [1973] 92 ITR 219 (Bom), CIT v. Singh Transport Co. [1980] 123 ITR 698 (Gauhati) and CIT v. Madras Wire Products [1980] 123 ITR 722 (Mad)). A contrary view was taken by other High Courts in favour of the Revenue holding that the unabsorbed depreciation and the business loss of earlier years which had been allocated to the partners, against the income of the year cannot be carried forward or set off against the subsequent years' profits of the firm. This view is taken in the decisions in Garden Silk Weaving Factory v. CIT [1983] 144 ITR 613 (Guj), Sankaranarayana Construction Co. v. CIT [1984] 145 ITR 467 (Kar), CIT v. Garden Silk Weaving Factory [1975] 101 ITR 658 (Guj), CIT v. Ram Swarup Gupta [1973] 92 ITR 495 (Delhi) and Raj Narain Agarwala v. CIT [1970] 75 ITR 1 (Delhi). Even though the aforesaid decisions have been cited before us, the question whether the unabsorbed depreciation of the "previous year" could be carried forward and set off against the profits of "the subsequent year" in the case of a registered firm does not arise for consideration in this case. The question that arises for consideration in this case is whether the unabsorbed depreciation of a registered firm of "the current year" is to be allocated among the partners or not. There is no dispute that it has to be done so. Therefore, we are not giving any opinion regarding the larger question posed before us which, after discussion, counsel also agreed, does not arise for consideration in the year in question. We hold that the unabsorbed depreciation of a registered firm for "the current year" should be allocated among the partners and the assessment made by the Income-tax Officer on the assessee is correct.
5. In the light of the above, we answer the question referred to us in the negative, in favour of the Revenue and against the assessee.
6. A copy of this judgment under the seal of this court and the signature of the Registrar will be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.