D.M. Dharmadhikari, J.
1. The judgment in this reference under Section 256(1) of the Income-tax Act, 1961 (for short, 'the Act'), shall also decide Miscellaneous Civil Case No. 584 of 1985 (CIT v. Simplex Auto Industries, Jabalpur), in which also the legal question referred to this court is the same although for a different party and for a different assessment year.
2. The Income-tax Appellate Tribunal, Jabalpur Bench, Jabalpur, has referred to this court for opinion the following question :
'Whether, on a proper construction of Section 32(2) of the Income-tax Act, 1961, the Tribunal was justified in holding that the unabsorbed depreciation of the assessee-registered firm, for the preceding assessment years allocated to the partners, if not wholly set-off in their respective assessment, should be brought back for computation of the total income of the firm in the subsequent years, as if it were the firm's unabsorbed depreciation ?'
3. A few facts, in brief, necessary for deciding the above-referred question is that for the assessment year 1972-73, the assessee which is a registered partnership firm carrying on business as a raising contractor in collieries claimed set-off of the brought forward unabsorbed depreciation against its income for the previous year relevant to the assessment year.
4. The Income-tax Officer disallowed the claim by order dated 7th July, 1979, holding that, in accordance with Section 32(2) of the Act in the case of a registered firm, the unabsorbed depreciation allocated to their partners in the earlier assessment year cannot be carried forward to a subsequent year in the assessment of the, firm. The Income-tax Officer placed reliance on the decision of the Gujarat High Court in CIT v. Garden Silk Weaving Factory : [1975]101ITR658(Guj) . It was held on the basis of the aforesaid decision that once the allocation of unabsorbed depreciation is made to the partners, there remains nothing to carry forward in the hands of the registered firm in the subsequent year.
5. The Appellate Assistant Commissioner also upheld the order of the Income-tax Officer on the above legal question and, relying on the decision of the Gujarat, Allahabad and Delhi High Courts, held that once the unabsorbed-depreciation is allocated to the partners, they alone can carry forward such depreciation and they can get set-off in the subsequent years against income from any sources. As a result, after the unabsorbed depreciation is allocated to the partners, there remains no depreciation with the firm which can be carried forward and set off against any subsequent years. In taking the aforesaid view, the Appellate Assistant Commissioner took the aid of the provisions contained in Section 72(2) of the Act which have been referred to in Section 32 and Section 75 of the Act. Construing the three aforesaid provisions of the Act together, the appellate authority was of the view that as loss can be carried forward only by the partners under Section 75, similarly, the depreciation can be permitted to be carried forward only by the partners and not by the firm itself. It was also held that Section 32(2) of the Act, in the matter of carrying forward of depreciation, is subject to the provisions of Sub-section (2) of Section 72 and Sub-section (3) of Section 73 of the Act and Section 72(2) of the Act gives, priority to the carrying forward of the loss over depreciation. The appellate authority, construing thus, opined that the question of giving priority to brought forward loss over unabsorbed depreciation would arise only if both have been carried forward. In the case of a registered firm, if the loss has to be carried forward by the partners but the unabsorbed depreciation has to be carried forward by the firm itself, then the provision of Section 72(2) would become meaningless, redundant and nugatory. The provision's of Section 72(2) of the Act were construed as assuming that the loss and unabsorbed depreciation are to be carried forward by the same person to give effect to the priority provided in Section 72(2) of the Act. The Appellate Assistant Commissioner, therefore, following the Gujarat and Allahabad view held that it is the same entity which is entitled to carry forward both the loss and unabsorbed depreciation. Since the brought forward loss has admittedly to be carried forward by the partners, unabsorbed depreciation allowance can also be carried forward only by the partner and not by the firm.
6. The Tribunal, however, did not deal with the question in detail and chose to rely on the latest decision of the Gauhati High Court reported in CIT v. Singh Transport Co. which had taken a view in favour of the assessee. Following the aforesaid view of the Gauhati High Court, the Tribunal held that the assessee was entitled to carry forward the unabsorbed depreciation and claim set off of Rs. 1,05,704. As there were conflicting decisions of several High Courts on the question raised before the Tribunal in the matter, the Tribunal has made the present reference for decision of this court.
7. Learned counsel appearing for the Department placed reliance on the following decisions :
Raj Narain Agarwala v. CIT : [1970]75ITR1(Delhi) ; K.T. Wire Products v. Union of India : [1973]92ITR459(All) ; CIT v. Garden Silk Weaving Factory : [1975]101ITR658(Guj) ; Kalani Udyog v. ITO : [1979]117ITR431(MP) ; CIT v. Kailashpat Jutha Lal : [1980]125ITR11(All) ; Sankaranarayana Construction Co. v. CIT : [1984]145ITR467(KAR) ; Garden Silk Weaving Factory v. CIT : [1983]144ITR613(Guj) and CIT v. Pioneer Enterprises : [1990]181ITR218(Ker) .
8. Learned counsel appearing for the assessee placed reliance on Ballarpur Collieries Co. v. CIT : [1973]92ITR219(Bom) ; CIT v. Nagapatinam Import and Export Corporation : [1979]119ITR444(Mad) CIT v. Madras Wire Products : [1979]119ITR454(Mad) ; CIT v. Singh Transport Co. ; CIT v. Madras Wire Products : [1980]123ITR722(Mad) ; CIT v. Srinivasa Sugar Factory : [1988]174ITR178(AP) and Pearl Woollen Mills v. CIT . It may be clarified that the decision of this court in Kalani Udyog v. ITO : [1979]117ITR431(MP) related to the carrying forward of unabsorbed loss under Section 75(1) and (2) of the Act. It was not a case of carrying forward of depreciation under Section 32 of the Act and, therefore, is not a decision directly on the point. There is also no direct decision of the Supreme Court touching on this question.
9. The relevant provisions of the Act for deciding the reference are Sections 32(2), 72(2), 73(3) and 75 of the Act.
'32(2) Where, in the assessment of the assessee full effect cannot be given to any allowance in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of Sub-section (2) of Section 72 and Sub-section (3) of Section 73, the allowance or part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years.
72(2) Where any allowance or part thereof is, under Sub-section (2) of Section 32 or Sub-section (4) of Section 35, to be carried forward, effect shall first be given to the provisions of this section.
73(3) In respect of allowance on account of depreciation or capital expenditure on scientific research, the provisions of Sub-section (2) of Section 72 shall apply in relation to speculation business as they apply in relation to any other business.
75. Losses of registered firms.--(1) Where the assessee is a registered firm, any loss which cannot be set off against any other income of the firm shall be apportioned between the partners of the firm, and they alone shall be entitled to have the amount of the loss set off and carried forward for set off under Sections 70, 71, 72, 73,74 and 74A.
(2) Nothing contained in Sub-section (1) of Section 72, Sub-section (2) of Section 73, Sub-section (1) or Sub-section (3) of Section 74 or Sub-section (3) of Section 74A shall entitle any assessee, being a registered firm, to have its loss carried forward and set off under the provisions of the aforesaid sections.'
10. Having considered the submissions of both the parties and having looked into the relevant case law, it may be stated that the Gujarat view in CIT v. Garden Silk Weaving Factory : [1975]101ITR658(Guj) can be said to be the representative view of the High Courts in favour of the Department and the Andhra Pradesh view in CIT v. Srinivasa Sugar Factory : [1988]174ITR178(AP) can be said to be the representative view of the High Courts in favour of the assessee and need to be considered by this court for the decision of the reference. The said opinion of the Gujarat High Court is supported by reasonings in the following words (at p. 665) :
'Once the allocation of loss of a firm of which depreciation allowance is also a component is made amongst the partners, there remains nothing in the hands of the firm to be carried forward in the first instance. Even if the depreciation allowance retains its original characteristics for all intents and purposes, it none the less is allocated to the partners along with or as a part of the loss of the firm. If that is the correct position of law, and we think that it is so, how can unabsorbed depreciation allowance after the adjustment in the individual assessment of the partners, again revert to the firm . . where do we get in Sub-section (2) that unabsorbed depreciation allowance is to be taken back and added to current depreciation allowance of a firm for the next previous year unless one draws an inference by implication that it is only the firm to which depreciation allowance is available . . . the fiction incorporated in the said sub-section that unabsorbed depreciation would be current depreciation allowance for the next year provides the solution to the conundrum posed on behalf of the assessee . .. The interpretation which has been sought to be placed on behalf of the assessee would secure the benefit of deduction of depreciation allowance twice over in the next year, once for the firm for purposes of firm tax and second time for the purposes of individual assessment of the partners' tax ... The result of the amendment (Section 32(2) of the Act), in our opinion, is to prevent the benefit being claimed twice over, and, as stated above, if once the depreciation allowance is allocated amongst the partners, there remains nothing in the hands of the firm which would be required to be carried forward... On a plain reading of Section 32(2) it appears to us that the benefit of carry forward and set off of unabsorbed depreciation allowance is to be worked out in the case of individual assessment of partners when the assessee is a registered firm.'
11. As against the above representative view of the Gujarat High Court, which is in favour of the Department, the representative view of the Andhra Pradesh High Court in favour of the assessee is contained in CIT v. Srinivasa Sugar Factory : [1988]174ITR178(AP) . The Andhra Pradesh High Court considered the relevant provisions of the Act contained in Sections 32(2), 72(2), 73(3) and Section 75 of the Act and expressed their opinion in the following words (at p. 184, 190) :
'As noted (supra) Section 32(2) of the Act provides for carrying forward of the unabsorbed depreciation of the previous year to the succeeding previous years for purposes of computation of the income of the firm. This provision, however, is subject to Sections 72(2) and 73(3) of the Act. It is to be borne in mind that there is a material omission of reference to Section 75 of the Act in Section 32(2), more so in the face of specific reference therein to Sections 72(2) and 73(3) of the Act. This omission, Mr. Ratnakar submits, is deliberate and very much intended by the Legislature, particularly when Section 182(2) governing the set-off or carry forward of the share of a partner in the losses of the firm is specific in making, a reference to the provisions of Sections 70 to 75 of the Act. . . Thus, a clear distinction is drawn between unabsorbed depreciation and business loss. There are two distinct sections dealing with these two items. Unabsorbed business loss is carried forward and set off against the assessments of the partners exclusively by virtue of Section 72, and that too, only for a period of eight assessment years immediately succeeding the assessment year for which the loss was first computed. So far as the unabsorbed depreciation is concerned, it is on a different footing. Under Section 32(2), unabsorbed depreciation is to be added to the amount of depreciation allowance of the firm for the subsequent year and deemed to be part of the depreciation of the subsequent year. It can be carried forward indefinitely. Further, Section 75(2) bars only the carrying forward of the losses of the registered firm once they are apportioned among the partners again to the firm back, whereas, there is no such bar as regards the depreciation allowance since Section 32(2) is not subjected to the operation of Section 75, though it is specifically subjected to the operation of Sections 72(2) and 73(3). One more distinction to be noticed is that while the business loss inherently takes within it the feature of outgoings, the depreciation allowance is not an actual outgoing. In this view of the matter, we cannot accede to the contention of learned counsel for the Revenue that the business losses as also the depreciation allowance merit the same and identical treatment as regards their absorption.
In view of the foregoing reasons, we hold that in cases where, in the assessment of the registered firm, full effect could not be given to the depreciation allowance in any previous year owing to the reasons stated in Section 32(2) then, subject to the operation of Sections 72(2) and 73(3), the remainder of the unabsorbed depreciation in the hands of the partners shall be brought back and carried forward in the assessment of the firm for the following previous year and this operation shall go on rotating in its cycling as per the mechanism of Section 32(2) of the Act.'
12. In the aforesaid Gujarat case, the other judge constituting the Bench wrote a separate judgment but substantially agreed with the other judge and in favour of the assessee on the construction of the relevant provisions of the Act.
13. Having considered the rival contentions of the parties and the conflicting case-laws on the subject, we are inclined to accept the representative view of the Andhra Pradesh High Court in favour of the assessee and answer the reference accordingly for the reasons which we record hereunder.
14. Depreciation represents the diminution in the value of an asset, when applied to the purpose of making profit or gain (see Webster's New World Dictionary and Workmen of National and Grindlays Bank Ltd. v. National and Grindlays Bank Ltd. : (1976)ILLJ463SC ). Depreciation is thus related to an asset and is a notional loss as against the actual loss in the sense of outgoings of a business. So far as carrying forward of loss is concerned, Section 75 places the restriction that it can be carried forward only in the hands of a partner of a firm. But there is no such restriction so far as carrying forward of depreciation under Section 32 of the Act is concerned. The absence of such restriction or limitation in Section 32 of the Act in permitting carrying forward of depreciation is a clear indication of the legislative intent that depreciation, if not fully absorbed in an earlier assessment year in the case of a registered firm or an unregistered firm assessed as registered firm in the assessment of its partners, can be carried forward to subsequent years subject only to the priority to be given to carrying forward of loss as provided in Section 32(2) read with Section 73(3) of the Act The decisions of the High Courts in favour of the Department, however, take a view that once partners have apportioned losses with depreciation, nothing remains with the firm to carry forward in its subsequent assessment. There appears to us some fallacy in the above argument. Unabsorbed depreciation after apportionment of profits and losses in the hands of the partners remains linked to the assets of the firm and there is nothing in the Act to hold that because part of the depreciation was apportioned with the loss in the hands of the partners, the unabsorbed depreciation cannot be carried forward in the hands of the firm. The limitation or restriction in that regard can be found only in Section 32 which deals with the subject and nowhere else. As has been explained, in the view expressed by the Gujarat High Court, the provisions of Section 32 compared with Section 75 clearly evince the legislative intent that unabsorbed depreciation can be carried forward without any limitation of time as against losses for which the period fixed is eight years under Section 72(3) of the Act. We respectfully differ from the representative view of the Gujarat High Court which is in favour of the Department that if the depreciation is partly absorbed in apportionment of losses by the partners in their hands, the unabsorbed depreciation cannot revert to the firm and cannot be carried forward in the hands of the firm. In our view, the fact that part of the depreciation was absorbed by apportionment of profits and losses in the hands of the partners, does not take away the right of the firm to carry forward unabsorbed depreciation in its hands. In construing a taxing statute, the rule of strict construction has to be applied and only expressed words in the Act can justify an interpretation against the assessee in the matter of carrying forward of depreciation. In construing Section 32, the limits or restrictions contained in Section 75 in the matter of carrying forward of losses cannot be imported to limit or restrict the operation of Section 32 which does not contain any inhibition for carrying forward of depreciation in the hands of the firm or in the hands of the partners. The omission of reference to Section 75 in the provisions of Section 32(2) is, according to us, a conscious omission and an indication of the legislative intent that the depreciation even if absorbed partly in the hands of the partners in an assessment year, the unabsorbed depreciation can be carried forward to the subsequent assessment years without any limitation of time in the hands of the firm. The settled rules of interpretation do not permit the court to read something in a statute which is a clear omission. The rule is known as 'casus omissus' which was first applied by the Privy Council in the decision in Crawford v. Spooner [1846] 6 Moo P C C 1 and relied on in Lord Howard De Walden v. IRC [1948] 2 All ER 825 . It has also been referred to in the representative view of the Andhra Pradesh and in CST v. Parson Tools and Plants : [1975]3SCR743 to which the Gujarat High Court has also made reference in C1T v. National Taj graders [1980] 121 ITR 535. The Supreme Court, applying the maxim 'casus omissus' in construing Sections 33B and 34(3) of the Act, made the following observations (at p. 541) :
'Two principles of construction--one relating to casus omissus and the other in regard to reading the statute as a whole--appear to be well-settled. In regard to the former, the following statement of law appears in Maxwell on the Interpretation of Statutes (12th edition), at page 33 :
'Omissions not to be inferred.' It is a corollary to the general rule of literal construction that nothing is to be added to or taken from a statute unless there are adequate grounds to justify the inference that the legislature intended something which it omitted to express. Lord Mersey said : 'It is a strong thing to, read into an Act of Parliament words which are not there, and in the absence of clear necessity it is a wrong thing to do.' 'We are not entitled', said Lord Loreburn L. C., 'to read words into an Act of Parliament unless clear reason for it is to be found within the four corners of the Act itself. A case not provided for in a statute is not to be dealt with merely because there seems no good reason why it should have been omitted, and the omission appears in consequence to have been unintentional'.'
15. Applying the above maxim, it would be found that the representative view of the Gujarat High Court does violence to the clear provisions of Section 32(2) of the Act by reading into it the restrictions and limitations contained in Section 75 of the Act. Such an interpretation was opposed to the settled canons of interpretation as contained in the above maxim.
16. For the above reasons, we answer the reference in the affirmative, infavour of the assessee and against the Department. In view of the cleavageof opinion in different High Courts on the legal question involved, we leavethe parties to bear their own costs.