BY THE COURT :
1. These two references in respect of the same assessee raise identical issue covering the period asst. yrs. 1977-78 to 1980-81. The assessee-company was in liquidation. During the winding up proceedings, it had income by way of interest accruals. As the company had discontinued its business it was liable to be assessed under the head 'Income from other sources'. The company also had unabsorbed depreciation of the earlier years carried forward for the purpose of being set off against profit and gains of subsequent years. The ITO has disallowed the claim of the assessee on the ground that since the assessee had no profits or gains chargeable under the head 'Income from business' but had his taxable income from other sources, the carry forward unabsorbed depreciation was (sic-not) liable to be set off. That order was not (sic) ultimately affirmed by the Tribunal holding that the assessee was not entitled to set off on depreciation because it has ceased to carry on business.
2. At the instance of the company (in liquidation) in IT Ref. 251 of 1984 for the assessment period 1978-79 to 1980-81 following question of law has been referred to this Court for its opinion :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that set off of unabsorbed depreciation allowance carried forward from earlier years could not be allowed against the income from other sources unless the assessee had income falling under s. 28 of the IT Act, 1961 ?'
3. In IT Ref. 252 of 1984 relating to asst. yr. 1977-78 following question of law has been referred at the instance of CIT :
'Whether, on the facts and circumstances of the case, the Tribunal was right in law in holding that set off of unabsorbed depreciation allowance carried forward from earlier years could not be allowed against the income from other sources unless the assessee, had income falling under s. 28 of the IT Act, 1961 ?'
4. At the time of hearing learned counsel for the Revenue candidly stated that the issue is to be resolved in favour of the assessee in view of the decision of the Supreme Court in CIT vs . Virmani Industries (P) Ltd. : [1995]216ITR607(SC) wherein the Court has held considering the meaning of expression 'profits or gains chargeable within the meaning of s. 32(2) with reference to s. 72(2) and 73(3) :
'On the first impression, the said expression appears to refer only to profits or gains of business or profession chargeable under s. 28. But this Court has repeatedly held that the said expression is not so confined and that it refers to income under all the heads of income specified in s. 14.'
5. The Court reiterated the view expressed in Rajapalayam Mills Ltd. vs . CIT : [1978]115ITR777(SC) and CIT vs . Jaipuria China Clay Mines (P) Ltd. : [1966]59ITR555(SC)
'Now, it is well-settled, as a result of the decisions of this Court that the words 'no profits or gains chargeable for that year' are not confined to profits and gains derived from the business whose income is being computed under s. 10, but they refer to the totality of the profits or gains computed under the various heads and chargeable to tax.'
6. As to the necessity of carrying on the business activity in the succeeding year as a condition for the carried forward only the unabsorbed depreciation to be set off against the income of such subsequent years, the Court negatived the same and held :
'Yet another question which has to be answered before we can answer the question concerned in this appeal is whether it is necessary that in the following year the assessee must carry on business, that is some or other business, to avail of the benefit of the said sub-section Two views are possible in this behalf, viz. (1) since the sub-section speaks of unabsorbed depreciation being carried forward to the next year and 'added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance' the sub-section necessarily contemplates existence of a business in the following year, and (2) inasmuch as the sub-section not only speaks of adding the unabsorbed depreciation to the depreciation allowance allowed in the following year but also says that in the absence of such allowance, the carried forward depreciation allowance shall be the allowance for that year, it means that in the following year the assessee need not carry on any business or profession for availing of the benefit of sub-s. (2) of s. 32. We are inclined to adopt the second of the above two views having regard to the decisions of this Court in CIT vs. Jaipuria China Clay Mines (P) Ltd. (1996) 59 ITR 555 : TC 27R.625 and Rajapalayam Mills Ltd. vs . CIT : [1978]115ITR777(SC) . We have extracted the relevant observations from both the judgments hereinabove, which say that the unabsorbed depreciation allowance has not only to be set off against other heads of income in the relevant previous year but where it is carried forward, it stands on exactly the same footing as the current depreciation.'
7. In view of the aforesaid, we answer the question referred to us in negative, that is to say, in favour of the assessee and against the Revenue by holding that the Tribunal was not right in holding that the set off of unabsorbed depreciation carried forward from earlier years could not be allowed against the income from other sources unless the assessee had income falling under s. 28 of the IT Act.
8. There shall be no order as to costs.