Ajit K. Sengupta, J.
1. In this reference under Section 256(1) of the Income-tax Act, 1961, for the assessment year 1983-84, the following question of law has been referred to this court:
'Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the unabsorbed depreciation carried forward from the earlier years could be allowed to be set off against the assessee's income of the relevant previous year even though the business to which such unabsorbed depreciation related did not exist during the year ?'
2. Shortly stated, the facts are that the assessee was a partner in Shree Mahadeo Jute Mills Co. sharing 45 per cent, of the profit. The assessee was allocated the unabsorbed depreciation of Rs. 3,79,702. Out of the said unabsorbed depreciation, a sum of Rs. 1,21,108 was adjusted against the income from another firm, Partabmull Poonamchand, and the balance depreciation of Rs. 2,58,594 was carried forward under Section 32(2) read with Section 72(2) of the Income-tax Act for the assessment year 1982-83. The assessee claimed carry forward and set off of unabsorbed depreciation during the year under appeal. The Income-tax Officer did not allow the claim of the assessee on the ground that Shree Mahadeo Jute Mills Co. did not carry on any business during the year under appeal.
3. Being dissatisfied, the assessee went in appeal to the Commissioner of Income-tax (Appeals) who allowed the claim of the assessee.
4. The Tribunal, following the decision of this court in the case of CIT v. Kishanlal and Sons (Udyog) Pvt. Ltd. : [1985]154ITR735(Cal) , upheld the findings of the Commissioner of Income-tax (Appeals).
5. At the hearing before us, Mr. Sunil Mitra, learned advocate for the Revenue, argued that the decision of this court requires reconsideration in view of the decisions rendered by the Bombay and Madras High Courts on an identical question.
6. We have not been able to persuade ourselves to accept this contention of Mr. Mitra. In CIT v. Kishanlal and Sons (Udyog) Pvt. Ltd. : [1985]154ITR735(Cal) , the question was whether the unabsorbed depreciation carried forward could be allowed as deduction if the business in respect of which such allowance was given originally is not in existence. This court, after considering several decisions of different High Courts, held that Section 32(2) contains an independent provision for setting off unabsorbed depreciation carried forward from a preceding year. The deeming provision in the section has to be given full effect for all purposes of the Act, Hence, it is not necessary that the business in respect of which depreciation was originally allowed to be carried forward should remain in existence in the succeeding year when set off is claimed.
7. It may be mentioned that one of the decisions which this court considered and approved is in the case of CIT v. Estate and Finance Ltd. : [1978]111ITR119(Bom) .
8. Mr. Mitra has drawn our attention to a decision of the Bombay High Court in the case of Hindustan Chemical Works Ltd. v. CIT : [1980]124ITR561(Bom) . The Bench was consisting of Chandurkar and Desai JJ. and the judgment was delivered by Chandurkar J. (as he then was). In that case, it was held that, where the assessee does not carry on business during the relevant year, it cannot claim the depreciation or i.e allowed to carry forward depreciation in respect of the assets of which the depreciation was allowed originally and remained unabsorbed. Incidentally, the Bombay High Court in Hindustan Chemical Works Ltd. : [1980]124ITR561(Bom) , did not consider the other decisions of different High Courts.
9. Our attention has been drawn to the judgment of the Madras High Court in the case of East Asiatic Co. (India) P. Ltd. v. CIT : [1986]161ITR135(Mad) . The judgment of the Madras High Court was delivered by Chandurkar C. J. There, the Madras High Court held that the benefit of carry forward of unabsorbed depreciation is available only under Section 32(1) of the Income-tax Act, 1961, and, for application of Section 32(1), it has to be established that the assessee was carrying on business in the accounting year in question and, if the business is no more in existence, the unaborbed depreciation cannot, thereafter, be adjusted in the assessment of the future years. The only effect of Section 32(2) is to treat the carried forward unabsorbed depreciation allowance on the same footing as a similar allowance for the relevant previous year. This fiction does not have the effect of dispensing with the substantive condition in Section 32(1) prescribed as a condition for deductibility, namely, that the building, machinery, plant and furniture in respect of the unabsorbed depreciation allowance are used for the purposes of the business or profession. In coming to the said conclusion, the Madras High Court relied, inter alia, on the decision of the Bombay High Court in Hindustan Chemical Works Ltd. : [1980]124ITR561(Bom) and the decisions in CIT v. Dutt's Trust : [1942]10ITR477(Mad) and Sahu Rubbers (P.) Ltd. v. CIT : [1963]48ITR464(Bom) were followed.
10. Although the Madras High Court in East Asiatic Co. (India) P. Ltd. : [1986]161ITR135(Mad) referred to the decision of the Bombay High Court in Estate and Finance Ltd. : [1978]111ITR119(Bom) , the said decision was not followed for the reasons given by the Madras High Court as follows (at page 147) :
'The question as to whether the proviso was a substantive provision of law or not made no difference to the view expressed by the Division Bench that the decision in Dutt's Trust's case : [1942]10ITR477(Mad) laid down the correct law. In Sahu Rubbers Pvt. Ltd.'s case : [1963]48ITR464(Bom) , the Division Bench has laid down a proposition of law that unabsorbed carried forward depreciation cannot be allowed unless the business in respect of which it was claimed continued in the previous year relevant to the assessment year.
There are two reasons why we are unable to agree with the view of the later Division Bench of the Bombay High Court in Estate and Finance Ltd.'s case : [1978]111ITR119(Bom) , in preference to the view taken in Sahu Rubbers Pvt. Ltd.'s case : [1963]48ITR464(Bom) . The first reason is that, as we have pointed out earlier, we are unable to read Sahu Rubbers Pvt. Ltd.'s case : [1963]48ITR464(Bom) , as anything other than an authority for the proposition which is expressly laid down in that decision. The second reason is that the later decision of the Supreme Court in CIT v. Mother India Refrigeration Industries (P.) Ltd. : [1985]155ITR711(SC) , expressly lays down that the provisions in Section 10(2)(vi), proviso (b) and Section 32(2) are identical in character. The Supreme Court in CIT v. Mother India Refrigeration Industries (P.) Ltd. : [1985]155ITR711(SC) was called upon to decide the question whether in computing the profits and gains in a business for the current year, the depreciation for the current year must be deducted first before deducting the unabsorbed carried forward business losses of the earlier years.'
11. Thereafter, the Madras High Court proceeded to observe as follows (at p. 149) :
'It is important to point out that though the decision in Estate and Finance Ltd.'s case : [1978]111ITR119(Bom) is not referred to in this decision, the learned judge who delivered the judgment of the Supreme Court in Mother India Refrigeration Industries Pvt. Ltd.'s case [1985] 155 ITR 713 was himself a party to the decision in the former case, as he then was, in the Bombay High Court. This latter decision of the Supreme Court clearly creates an infirmity in the view which is taken by the Division Bench in Estate and Finance Ltd.'s case : [1978]111ITR119(Bom) , inasmuch as the relevant provisions of the 1922 Act and the 1961 Act have been held to be in pari materia. Further, the Supreme Court, in Mother India Refrigeration Industries (P) Ltd.'s case : [1985]155ITR711(SC) , has expressly laid down the limit to which the fiction created under the provisio (b) to Section 10(2)(vi) of the 1922 Act can be carried. As already pointed out, the fiction created was limited to make the unabsorbed carried forward depreciation partake of the same character as current depreciation in the following year so that it is available unlike unabsorbed carried forward business loss for being set off against the other income of that year. This view taken in the context of proviso (b) to Section 10(2)(vi) of the 1922 Act would also govern the scope of the fiction in Section 32(2) of the 1961 Act and with this decision of the Supreme Court, it would be difficult to carry the fiction beyond what according to the Supreme Court was the limit to which such fiction can be carried. Therefore, with great respect to the learned judges who delivered the decision in Estate and Finance Ltd.'s case : [1978]111ITR119(Bom) , we are reluctant to follow that decision and we are inclined to follow the decision in Sahu Rubbers (P) Ltd.'s case : [1963]48ITR464(Bom) , which in our view, was rightly followed by this court in Tube Suppliers Ltd.'s case : [1985]152ITR694(Mad) .
There are two other decisions which have been referred to us by learned counsel for the assessee. Those decisions are : CIT v. Virmani Industries (P) Ltd. : [1974]97ITR461(All) and CIT v. Kishanlal and Sons (Udyog) Pvt. Ltd. : [1985]154ITR735(Cal) . Having regard to what we have said earlier, we do not think it necessary to deal with these decisions further.'
12. It may, however, be pointed out that the Bombay High Court, in Estate and Finance Pvt. Ltd. : [1978]111ITR119(Bom) , considered the decisions in Sahu Rubbers Pvt. Ltd. : [1963]48ITR464(Bom) as well as Dutt's Trust : [1942]10ITR477(Mad) . There, the Bombay High Court held as follows (at p. 122) :
'Mr. Joshi, on behalf of the Revenue, submitted that as far as this court was concerned, the matter was concluded by a decision of the Division Bench of this High Court consisting of Y. S. Tambe and V. S. Desai JJ. in Sahu Rubbers Pvt. Ltd. v. CIT : [1963]48ITR464(Bom) . According to him, in the said decision the Division Bench of the Bombay High Court had accepted and propounded the same principle which was being contended for on behalf of the Revenue before the Tribunal and that if that principle was applied, as was required to be applied, the -Tribunal was clearly and demonstrably in error in upholding the contention of the assessee. It was further stated by him that in Sahu Rubbers' case : [1963]48ITR464(Bom) , the Division Bench had referred to an earlier decision of -the Madras High Court in CIT v. Dutt's Trust : [1942]10ITR477(Mad) . According to him, there was still another decision of the Bombay High Court, one which is reported earlier than that of the Madras High Court, in which the same rule had been accepted and followed, and this was in In re David Sassoon. and Co. Ltd. : [1940]8ITR7(Bom) . It will become necessary, therefore, to refer to these three decisions. If it is found that in David Sassoon's case : [1940]8ITR7(Bom) or in Sahu Rubbers' case : [1963]48ITR464(Bom) , the Division Benches have clearly accepted and applied the principle contended for by the Revenue, we will be bound by those decisions and it would not be open to us to treat the question as res integra and construe the relevant statutory provisions for ourselves.
13. One of the questions being considered in David Sassoon's case : [1940]8ITR7(Bom) was the proper construction to be put on the proviso to Section 10(2)(vi) of the Indian Income-tax Act, 1922, and, according to Beaumont C.J. (at page 15 of the report), it was plain on the construction of this proviso that the right to set off past depreciation only exists in the person who continues to derive profits in respect of the business concerned. A similar conclusion was also reached by Kania J. who delivered a separate but concurring judgment; according to him, on this question the answer was as stated by Beaumont C. J., and that the right to claim depreciation could not be regarded as a personal right of the party who had parted with the ownership of the property in respect of which depreciation is to be assumed.
14. Undoubtedly, these conclusions have been arrived at by the Division Bench. But a perusal of the judgment in David Sassoon's case : [1940]8ITR7(Bom) does not indicate the process of reasoning by which the two judges concerned arrived at their respective conclusions. According to them, a plain reading of the provisions concerned compelled them to the conclusions which have been indicated and set out earlier. As we shall see later on, there is no warrant for the assumption that the wording is plain and admits of only one conclusion. It will be difficult, therefore, to accept this decision in In re, David Sassoon and Co. Ltd. : [1940]8ITR7(Bom) as binding authority. Indeed, it has not been Mr. Joshi's contention that it was so, although it was certainly, according to him, entitled to the highest respect. Perhaps, the same comment may be made with respect to the decision of the Madras High Court in CIT v. Butt's Trust : [1942]10ITR477(Mad) . There also (at page 483 of the report) the proviso has been interpreted upholding the contention advanced before us on behalf of the Revenue. According to the Division Bench of the Madras High Court, Section 10(2)(vi) could not be read as giving the assessees the right to deduct an allowance for depreciation in a business which has ceased to exist. There also the assessees originally owned a cinema, a saw mill and a rice mill. At a subsequent stage the cinema business was disposed of and the general business was also subsequently sold, but they continued to carry on the saw mill business which proved to be a profitable concern. The question arose whether in subsequent years the assessees were entitled to set off the unabsorbed depreciation of the cinema business against the profits earned from the saw mill. According to the Division Bench of the Madras High Court, the assessees had no right to deduct an allowance for depreciation in a business which had ceased to exist; that if the trustees had continued the cinema business they would have certainly been entitled to an allowance ; but that business having ceased and the assets disposed of before the year of account, they obviously could not ask for any allowance.
15. As stated earlier, it would be permissible to characterise this portion of the decision also as a conclusion without the necessary process of reasoning being indicated in the same.
16. The decision in Sahu Rubbers' case : [1963]48ITR464(Bom) , however, does not suffer from any such infirmity and would, therefore, be required to be considered in greater detail. The assessee before the court in Sahu Rubbers' case : [1963]48ITR464(Bom) was a private limited company which was carrying on the business of manufacture and sale of rubber shoes in its own factory. This factory was closed down on August 1, 1949, by reason of certain demands of labour which were upheld by an award of the Industrial Tribunal. As a result of such demands it was decided by the management that profitable working of the concern was not possible. The assessee thereafter started another business of importing trimobiles, clocks, cement and set itself up in trading in them. The rubber factory was restarted towards the end of April, 1950, but manufacturing was not carried on beyond a year or two. Trading in cement and in other commodities, however, was pushed on vigorously. In respect of the assessment year 1956-57, the assessee claimed for the allowance of the carried forward depreciation of earlier years ; but this was not conceded because the shoe manufacturing business in respect of which the depreciation had been calculated and had been allowed earlier was closed during the entire previous year. Before the Division Bench of the Bombay High Court, it was contended by the learned advocate appearing on behalf of the assessee that on a proper construction of proviso (b) to Clause (vi) of Sub-section (2) of Section 10 of the Indian Income-tax Act, 1922, the assessee was entitled to set off the aforesaid unabsorbed depreciation against the profits and gains of the business for the two assessment years in question although it was not carrying on the business of manufacturing and sale of rubber shoes in those two years. This contention was not accepted by the Division Bench. Mr. Joshi has invited us to follow this very decision and has submitted that the decision being that of a Division Bench of this very High Court is binding on us and is required to be followed irrespective of our view of the provisions contained. On the other hand, Mr. Munim, on behalf of the assessee, submitted that the said decision did not constitute a binding authority inasmuch as it was given on a construction of the proviso to Section 10(2)(vi) of the Indian Income-tax Act, 1922, whereas we were concerned with construing the proper meaning to be given to the provisions contained in Section 32(2) of the Income-tax Act, 1961, which was enacted not as a proviso but as an independent substantive provision. According to Mr. Munim's submission, the decision in Sahu Rubbers' case : [1963]48ITR464(Bom) entirely turned on the question whether the statutory provision under which the assessee claimed the relief and the right to set off the unabsorbed depreciation in respect of the profits of subsequent years was a proviso or a substantive provision of law. He has pointed out that at four different places in the judgment in Sahu Rubbers' case : [1963]48ITR464(Bom) , the Division Bench has taken pains to emphasise this aspect of the matter and has not stated anywhere that the decision would be the same or that its interpretation of the provision would be as given in that decision irrespective of the question whether the statutory provision was enacted as a proviso or as an independent substantive provision. These four places in the report are to be found at pages 468, 471 and 472.
17. We think we will have to accept this contention raised on behalf of the assessee only for the limited purpose that the said decision does not constitute a binding authority on the interpretation to be placed by this court on the true meaning to be given to the statutory provision enacted in Section 32(2) inasmuch as the provision contained in the Act of 1961 has ceased to be a proviso as was the case under the Act of 1922 and the decision in Sahu Rubbers' case : [1963]48ITR464(Bom) principally turned on the question whether the statutory provision was required to be considered and interpreted and given effect to as a proviso or as an independent substantive provision. As a matter of fact, the learned advocate for the asses-sees in Sahu Rubbers' case : [1963]48ITR464(Bom) , based his argument for being allowed the relief on the contention that the provision for relief had to be considered to be a substantive provision to be read with a part of Chapter IV of the Act dealing with deductions and assessment and not as a proviso. In our view, if the Division Bench had wanted to consider the statutory provision irrespective of the question whether the provision was enacted as a proviso or as an independent substantive provision, they could have repelled this submission of Mr. Ramaswamy by stating that even if regarded as an independent substantive provision, the scheme of the Act would suggest that such unabsorbed depreciation could not be claimed in the year of assessment unless the business in respect of which it has arisen earlier was being carried on in that year. This has not been held and, on the other hand, we find repeated pronouncements (as indicated earlier) which seem to suggest that such relief as claimed by the assessee could not be allowed because the statutory provision was enacted as a proviso for calculating depreciation for the relevant year. The chain of arguments which appealed to the Bench and enunciated that decision in Sahu Rubbers' case : [1963]48ITR464(Bom) seems to be that, in the first place, the depreciation allowance for the relevant year has to be computed. Such depreciation can only be computed for a business if the business is in existence in that year. It is only in such a case that the question of giving the benefit of earlier unabsorbed depreciation, which benefit is required to be given by reason of the proviso, comes into the picture. Such benefit cannot be given to the assessee unless the depreciation in that business is required to be calculated for the relevant year. According to us, such conclusion appears to have been arrived at by reason of the fact that the statutory provision for giving this benefit to the assessee (the deeming provision or fiction for carrying forward of an allowance of unabsorbed depreciation) was enacted by way of a proviso and not as an independent substantive provision.'
18. Thus, the Madras High Court in East Asiatic (India) P. Ltd. : [1986]161ITR135(Mad) , followed the decision of the Madras High Court in Dutt's Trust : [1942]10ITR477(Mad) and the decision of the Bombay High Court in Sahu Rubbers P. Ltd. : [1963]48ITR464(Bom) , although the said decisions were expressly dissented from by the Bombay High Court in Estate and Finance Ltd. : [1978]111ITR119(Bom) .
19. We may also point out that in a later decision in CIT v. Sahu Rubbers (P) Ltd. : [1989]179ITR29(Bom) , the Bombay High Court followed the view taken by that court in Estate and Finance Ltd. : [1978]111ITR119(Bom) holding that the assessee is entitled to set off the unabsorbed depreciation allowance against its income under other heads and sources of the assessment year. In other words, it is not necessary that the business should be in existence enabling the assessee to claim unabsorbed depreciation.
20. Our attention has been drawn to a Supreme Court decision in CIT v. J. K. Hosiery Factory : [1986]159ITR85(SC) . There, the Supreme Court was considering a question as regards the allowability of the unabsorbed depreciation of an unregistered firm which was subsequently registered. It was held that such unabsorbed depreciation could be carried forward. There, the Supreme Court considered the decision in Estate and Finance Ltd. : [1978]111ITR119(Bom) as follows (at p. 90) :
'A case converse to the instant case was before the Division Bench of the Bombay High Court in the case of CIT v. Estate and Finance Ltd. : [1978]111ITR119(Bom) , where the Division Bench observed that when enacting the provision regarding carry forward and set off of unabsorbed depreciation under Section 52(2) of the Income-tax Act, 1961, the Legislature could have imposed a condition that unabsorbed depreciation could be set off against the profits of a subsequent year only if the business in relation to which depreciation was allowed continued to exist in such year. The absence of such a restriction had to be construed in favour of the assessee. Where two interpretations were possible, the court should take the interpretation that is favourable to the assessee bearing in mind that a taxing statute is being construed. Therefore, under the provisions of Section 32(2), for the purpose of setting off unabsorbed depreciation carried forward from a preceding year, it was not necessary that the business in respect of which the depreciation allowance was originally worked out should remain in existence in such succeeding year. It dealt with some other aspect with which we are not presently concerned.'
21. Thus it appears to us that the Supreme Court impliedly affirmed and approved the decision of the Bombay High Court in Estate and Finance Ltd.'s case : [1978]111ITR119(Bom) .
22. We may also refer to a decision of the Gujarat High Court in CIT v. Deepak Textile Industries Ltd. : [1987]168ITR773(Guj) . There, the Gujarat High Court, on a construction of the relevant provisions of Section 32(2) and Section 72(2) and Section 73(3) came to the conclusion that the purpose of the Legislature in introducing the legal fiction is to give the benefit of the unabsorbed depreciation in the following year or in the succeeding previous years. It held that unabsorbed depreciation should be allowed to be carried forward and set off against the assessable income of a subsequent year notwithstanding the fact that the business in respect of which it arose ceased to exist in the year of such set off. Moreover, the receipt of income during the relevant previous year is not a sine qua non for the deduction of allowances like depreciation. The Gujarat High Court, in the aforesaid decision, referred to the decision of the Supreme Court in CIT v. Jaipuria China Clay Mines (P) Ltd. : [1966]59ITR555(SC) . There the Supreme Court considered the expression 'in the assessment of the assessee or if the assessee is a registered firm, in the assessment of the partners, full effect cannot be given to any such allowance in any year' for the purpose of giving effect to the unabsorbed depreciation of the past years of the registered firm and the Supreme Court came to the conclusion that the only effect which can be given in the assessment of a partner is by setting it off against the income, profits and gains under other heads and, for that purpose, they considered the case of a partnership firm in which two partners were carrying on other business while the other two partners were carrying on no other business.
23. The Gujam High Court observed (at p. 781) :
'If the unabsorbed depreciation was to be given set off only against the business income, the other two partners who were not carrying on such business could not get the advantage of the unabsorbed depreciation of the past years and they also came to the conclusion that the words used 'no profits or gains chargeable for that year' in Section 10 (which is in pari materia with Sub-section (2) of Section 32) are not confined to the profits and gains derived from the business by a person whose income is being computed under Section 10. It can be noted that the Supreme Court has considered and approved the decision of the Bombay High Court in the case of Ambica Silk Mills Company v. CIT : [1952]22ITR58(Bom) , wherein it was held that when the profits and gains of business are insufficient to cover depreciation allowance under Section 10(2)(vi) of the Indian Income-tax Act, 1922, the excess depreciation can be set off against the capital gains for that year. Similarly, the Supreme Court in that case also considered and approved the case of CIT v. Ravi Industries Ltd. : [1963]49ITR145(Bom) , wherein it was observed that the unabsorbed depreciation does not lose its character when it is carried forward to the following year. Such unabsorbed depreciation of the following year which is carried forward to the current year under the proviso (b) to Section 10(2)(vi) can be set off unlike other business losses against income under other heads.'
24. Then, the Gujarat High Court proceeded to hold (at p. 781) :
'This illustration of the partners given by the Supreme Court in the aforesaid case is good not only for the purpose of giving effect to the unabsorbed depreciation by giving set off against income, profits and gains under other heads, but also it would be useful to consider the legal fiction introduced in Sub-section (2) of Section 32 of the Act. When the other partners who were not carrying on any other business can get set off of the unabsorbed depreciation from the income, profits and gains under other heads, it would naturally mean that it is not necessary to carry on the business in the following previous year or succeeding previous years for the purpose of getting the advantage of set off of urtabsorbed depreciation of past years. That also indicates that for the purpose of giving full effect to the legal fiction under Section 32(2) of the Act, all the facts on which the depreciation allowance can be earned will have to be assumed.'
25. The Supreme Court has considered the provisions of Section 32(2) and Section 72(2) of the Income-tax Act in the case of CIT v. Mother India Refrigeration Industries Pvt. Ltd. : [1985]155ITR711(SC) . In that case, it has been held that, in giving set off while computing the total income of the assessee of any particular year, the current depreciation must be deducted first before deducting the unabsorbed carried forward business losses of the earlier years and the latter cannot be given preference over the former. While considering this point, the Supreme Court has also considered the case of Jaipuria China Clay Mines Pvt. Ltd. : [1966]59ITR555(SC) , but observed that the point that arose for decision in that case was entirely different and the observations cannot be divorced from the point decided therein. While relying on the case of Bengal Immunity Co. Ltd. v. State of Bihar, : [1955]2SCR603 , it is observed that it is well settled as observed therein that legal fictions are created only' for some definite purpose and these must be limited to that purpose and should not be extended beyond their legitimate field.
26. The Gujarat High Court observed thus (at p. 782 of 168 ITR) ;
'However, it may be stated that so far as the principles laid down in Jaipuria China Clay Mines (P.) Ltd.'s case : [1966]59ITR555(SC) are concerned they were distinguished in the said case by observing that the said case dealt with a different point altogether and, as such, the observations made in the context of the points that arose for decision there would be of no avail. It is, therefore, clear that the point involved in the case of Mother India Refrigeration Industries : [1985]155ITR711(SC) was with regard to giving priority to unabsorbed carried forward business losses and it is decided that it cannot have priority over the current year's depreciation in giving set off while computing the total income of an assessee of a particular year. Thus it is clear that in the subsequent case also, the Supreme Court has not doubted the decision in Jaipuria China Clay Mines (P.) Ltd. : [1966]59ITR555(SC) .'
27. The Gujarat High Court has also considered the decision of the Supreme Court in CIT v. Mother India Refrigeration Industries (P) Ltd. : [1985]155ITR711(SC) , and observed as follows (headnote) :
'The avowed purpose of the legal fiction created by the deeming provision contained in proviso (b) to Section 10(2)(vi) of the Indian Income-tax Act, 1922, and in Section 32(2) of the Income-tax Act, 1961, is to make the unabsorbed carried forward depreciation partake of the same character as the current depreciation in the following year so that it is available, unlike unabsorbed carried forward business loss, for being set off against other heads of income of that year. Such being the purpose for which the legal fiction is created, the fiction cannot be extended beyond its legitimate field and will have to be confined to that purpose. It cannot be said that because of the legal fiction, the unabsorbed carried forward losses should be given preference not merely over the unabsorbed carried forward depreciation but also over the current year's depreciation.'
28. Our attention has been drawn to a decision of the Andhra Pradesh High Court in the case of Hyderabad Construction Co. Ltd. v. CIT : [1981]129ITR81(AP) , where the Andhra Pradesh High Court, following the Bombay High Court decision in Estate and Finance Ltd. : [1978]111ITR119(Bom) and dissenting from the Madras decision in Dutt's Trust : [1942]10ITR477(Mad) and the Bombay High Court decision in Sahu Rubbers (P) Ltd. : [1963]48ITR464(Bom) came to the conclusion that, for the purpose of setting off unabsorbed depreciation carried forward from the previous year, it is not necessary that the business in respect of which the depreciation allowance was originally worked out should remain in existence in such succeeding year.
29. Mr. Mitra has drawn our attention to the following passage in : [1983]143ITR67(Bom) :
'Depreciation ; Unabsorbed depreciation whether can be set off against income from other business. 22-8-1983 ; Their Lordships Murtaza Fazal Ali and D. P. Madon JJ. granted special leave to the Department to appeal against the judgment dated March 5, 1980 of the A. P. High Court in R. C. No. 15 of 1977 reported in : [1981]129ITR81(AP) , whereby the High Court, on a reference, held that even where the assessee had sold off during the previous year the business in which there was unabsorbed depreciation, such depreciation could be set off against income from other business : CIT v. Hyderabad Construction Co. Ltd. : S. L. P. (Civil) No, 4945 of 1981.'
30. Section 72(1) provides for carry forward and set off of business losses. The proviso to Section 72(1) lays down that carry forward and set off of business losses shall be allowed against profits and gains, if any, of that business or any other business carried on by the assessee and assessable for the assessment year and the business for which the loss was originally computed was carried on by him in the previous year relevant to the assessment year. But such provision is absent in Section 32. Section 32(2) does not require in terms that, for allowing the setting off of unabsorbed depreciation, the business must be in existence. The reason is clear. Depreciation in one case is allowed for the machinery or plant which the assessee purchased and which was used for the business. Even if the business is not carried on, there will be wear and tear of the machinery and plant and it will, in the normal course, also depreciate in value and until the asses-see sells all the assets, the assessee cannot recover the cost of such asset in the form of depreciation allowance. The condition is that the asset originally purchased on which depreciation was allowed must be in existence to be eligible for -depreciation. But, in case of loss which may arise in the course of carrying on the business, unless the business is in existence, this loss cannot be allowed. It has nothing to do with any asset of the business.
31. Having regard to the views expressed by this court in CIT v. Kishanlal and Sons (Udyog) Pvt. Ltd. : [1985]154ITR735(Cal) ; the Gujarat High Court in Deepak Textile Industries Ltd. : [1987]168ITR773(Guj) and the Bombay High Court in Estate and Finance Ltd. : [1978]111ITR119(Bom) , we are of the opinion that the decision of the Madras High Court in East Asiatic Co. (India) P. Ltd. : [1986]161ITR135(Mad) and the decision of the Bombay High Court in Hindusthan Chemical Works Ltd. : [1980]124ITR561(Bom) do not correctly lay down the correct principles. We, therefore, following the principles laid down by this court in Kishanlal and Sons (Udyog) Pvt. Ltd. : [1985]154ITR735(Cal) , must hold that so long as the partner of a firm has assessable income, the unabsorbed depreciation which was being allocated to the share of the partner being a partner of a registered firm should be allowed to be set off against other income even though the firm in which the assessee was a partner discontinued the business where the assets were used and depreciation was allowed. We, therefore, do not find any merit in the contention raised by Mr. S, K. Mitra on behalf of the Income-tax Department.
32. We, therefore, answer the question in the affirmative and in favour of the assessee.
33. Mr. Mitra prays orally for leave to appeal to the Supreme Court. Inasmuch as the certificate of fitness for leave to appeal to the Supreme Court has been granted against the decision of the Andhra Pradesh High Court in Hyderabad Construction Co. Ltd. : [1981]129ITR81(AP) , we are of the view that this prayer for leave to appeal to the Supreme Court must be granted and, accordingly, we certify that it is a fit case for appeal to the Supreme Court under Section 261 of the Income-tax Act, 1961. Leave is given accordingly. Let the certificate be drawn up separately.
34. The Revenue shall pay the costs of this reference.
Bhagabati Prosad Banerjee, J.
I agree.