Law:

Section:

Section 44B, read with section 32(2) and section 72, of the Income-tax Act, 1961 - Shipping business of non-residents - Computation of profits and gains of - Assessees, non-resident shipping companies, had unabsorbed depreciation as also business loss from previous year which had yet to be adjusted - Whether in view of section 44B assessees could claim adjustment of carried forward business loss against profits and gains computed under section 44B but could not claim adjustment of unabsorbed depreciation allowance against such profits - Held, yes Facts The assessees, non-resident shipping companies, claimed that unabsorbed depreciation as also business loss suffered by them in previous years had been carried forward and should be adjusted against their profits and gains as computed under section 44B. The ITO held that section 32 which provided for carrying forward of unabsorbed depreciation could not be brought into operation in view of the new section 44B and as such the assessees were not entitled to adjustment of unabsorbed depreciation brought forward from earlier years. On appeal, the Tribunal also rejected the assessees' claim. On reference : Held Business loss as contemplated in section 72 is the net result of a particular computation under the head 'Profits and gains of business or profession'. So far as depreciation is concerned, the Act provides for compensation of the same by an allowance. Such allowance by itself is not a loss but if it cannot be absorbed in a particular year against business income, then it is carried forward as an absorbed depreciation allowance under section 32(2). This unabsorbed depreciation allowance does not enter into the computation of the business loss of the assessee in that particular year and such unabsorbed depreciation allowance is treated to be part of the depreciation allowance of the succeeding year. On a strict reading of section 72 it cannot be said that unabsorbed depreciation allowance is a business loss particularly as it does not enter into the computation contemplated under that section. If depreciation allowance cannot be and is not absorbed in a particular year for the purpose of enabling the assessee to…

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