Law:

Section:

Section 32 of the Income-tax Act, 1961 - Depreciation - Unabsorbed depreciation - Assessment year 1983-84 - Whether a partner of a registered firm is entitled to set off of his share of unabsorbed depreciation of firm in which he was a partner against his income of previous year even though firm was not carrying on any business during previous year - Held, yes FACTS The respondent-assessee was a partner in a registered firm. For the assessment year 1983-84, he was assessed to tax on a particular amount as his total income. The Assessing Officer in doing so did not adjust his share of unabsorbed depreciation of the firm brought forward from the earlier years. The unabsorbed depreciation was relating to the assessment years 1973-74 to 1975-76. The partnership firm had closed down its business on 2-5-1974 and it was not carrying on business after the assessment year 1975-76. According to the Assessing Officer, the unabsorbed depreciation could be adjusted against the income of the partners only if the partnership firm was carrying on its business activity during the relevant period. On appeal, the Commissioner (Appeals) confirmed the assessment. On further appeal, the Tribunal, however, allowed the claim of the assessee. On reference: HELD The majority of the High Courts have taken the view that the existence of the business with reference to which depreciation was originally allowed is not necessary for the purpose of carry forward and set off of the unabsorbed depreciation of the earlier years under section 32(2) and that the only decision which has taken a contrary view is of the Madras High Court. The Supreme Court itself has observed inGarden Silk Wvg. Factory v. CIT [1991] 189 ITR 512/56 Taxman 4K that existence of the business or plant and machinery with respect to which depreciation was originally allowed is not relevant for the purpose of section 32(2). Even assuming that two views are possible on the question, it is well settled that where two interpretations are possible, the Court will have to adopt that interpretation on the statutory provision that would be favourable to the assessee bearing in mind that the Court is construing a taxing statute.…

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