Punjab & Haryana H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in allowing carry forward of depreciation of asst. yrs. 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 years ?

Counsel Appeared

B.S. Gupta with Sanjay Bansal, for the Appellant : None, for the Respondent

JUDGMENT

ASHOK BHAN, J. :

This order shall dispose of IT Ref. 19 and 20 of 1986 pertaining of the asst. yrs. 1978-79 and 1979-80. As the Tribunal had disposed of IT appeals 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.

2. The Income-tax Appellate Tribunal, Chandigarh Bench, Chandigarh (hereinafter referred to as the Tribunal) has referred the following questions of law for the asst. yrs. 1978-79 and 1979-80 to this Court for its opinion :

Asst. yr. 1978-79

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in allowing carry forward of depreciation of asst. yrs. 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 years ?”

Asst. yr. 1979-80

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in allowing the carry forward and set off of depreciation for the asst. yrs. 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 asst. yr. 1979-80 and subsequent assessment years ?”

3. 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 years under consideration, ITO did not allow the same and rejected the claim of the assessee. This order was upheld in appeal by the AAC. Assessee carried further appeal before the Tribunal which was accepted. Tribunal relying upon a judgment of Delhi High Court in CIT vs. J. Patel & Co. (1984) 41 CTR (Del) 90 : (1984) 149 ITR 682 (Del) : TC 27R.809, reversed the decision of the ITO and AAC. The ITO was directed to accept the claim of the assessee. On an application filed under s. 256(1) of the IT Act, 1961, Tribunal has referred the question of law for the asst. yrs. 1978-79 and 1979-80 set out in the earlier part of the judgment to this Court for its opinion.

4. 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 vs. CIT (1991) 94 CTR (SC) 136 : (1991) 189 ITR 512 (SC) : TC 27R.787 and CIT vs. Singh Transport Co. (1993) 200 ITR 574 (SC) : TC 27R.808. In these two judgments 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 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. 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.

[Citation : 232 ITR 559]