Law:

Section:

Section 32 of the Income-tax Act, 1961 - Depreciation - Allowance/rate of - Assessee suffered loss in business but earned income from interest and dividends - Whether net profit could only be computed after first deducting from business loss aforesaid items of positive income and then deducting depreciation amount there from - Held, yes Section 80M of the Income-tax Act, 1961 - Deductions - In respect of intercorporate dividends - Whether on facts mentioned under head 'Depreciation - Allowance/rate of' assessee was entitled to deduction under section 80M when gross total income was computed to be a loss - Held, no Facts In the relevant assessment year, the assessee was found to have suffered certain business loss. It, however, received certain amounts by way o£ interest and earned income from dividend. The ITO by deducting from the business loss these items of positive income, computed the net profit and then deducted the amount of depreciation claimed. The assessee contended before the Tribunal, on appeal, that the computation of its income was erroneous inasmuch as depreciation had been set off against the balance of all the heads of income. The assessee claimed that its income from business being a loss, a negative income, there could be no further deduction of depreciation which had to be carried forward to subsequent years under section 32(2). The assessee also claimed that the entire amount of dividend income could not be set off against the business loss and that under section 80M, only 40 per cent thereof was assessable and could be so set off. The Tribunal rejected the assessee's claims. On reference: Held Under section 71, the assessee is entitled to have the entirety of its business loss from one head set off against its income under any other head. The section does not permit the assessee to have only a part of the loss to be so set off against income from other heads and carry forward the balance. Such computation would be wholly artificial, contrary to accepted principles of accountancy, and would not reflect the correct income in any particular year computed in accordance with commercial principles. The assessee was not, therefore, entitled to…

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