1980 PLP 69 (PTD)

SHAFI‑UR‑REHMAN, J. ‑This judgment disposes of the following three Tax References, all filed by the same assessee, under section 66(t) of the Income‑tax Act:‑ (1) T. R. No. 194/72, Pakistan Layallpur‑Samundari Transport Company Ltd. v. Commissioner of Income‑tax Lahore, in respect of the assessment year 1968‑69. (2) T. R. No. 196/72, Pakistan Layallpur‑Samundari Transport Company Ltd. v. Commissioner o; Income‑tax Lahore, in respect of the assessment year 1969‑70. (3) T. R. No. 195/ 72, Pakistan Layallpur‑Samundari Transport Company Ltd. v. Commissioner of Income‑tax, Lahore, in respect of the assess ment year 1970‑71.

2. The petitioner is a private Ltd. Company engaged in the transport business. It had admittedly an unabsorbed depreciation of Rs. 73,708 carried forward from the assessment year 1967‑68 requiring consideration in the profit and loss account of the subsequent years. It was taken into consideration and benefit given by the Income‑tax Officer for the assessment year 1968‑69 of which assessment was finalized by order dated 25‑11‑1968. On 27‑10‑1970 a notice was served on the assessee seeking its rectification by disallowing the benefit of the unabsorbed depreciation carried forward from earlier years on the ground that "since the assets to which the unabsorbed depreciation allowance related had been sold and were not in existence during the year in question, the unabsorbed allowance relating to those assets shall have to be ignored." The petitioner objected to such rectification without disputing that the assets to which the unabsorbed depreciation related had in the meantime been alienated or were not in existence with the petitioner‑Company. Nevertheless, the Income‑tax Officer ignored it on the ground that "the assets from which the said amount of unabsorbed depreciation of Rs. 73,708 have meanwhile been sold and nothing is in existence this amount shall not be carried forward". The petitioner went in appeal to the Tribunal which too came to the conclusion that in view of the amendment introduced in section 10 subsection (2) clause (vi) by Finance Act, 1965, the position could not be any different and "the appellant's representative perhaps lost sight of these provisions and consequently on admitted facts we cannot sustain this objection".

3. For the year 1968‑69 there was similarly a carried forward depreciation allowance amounting to Rs. 96,

824. The Income‑tax Officer while finalizing the assessment for the year 1969‑70 on 22‑10‑1970 held that "the entire amount relates to assets which have been sold. Under clause 10(2)(vii) as amended by the Finance Act of 1965, the depreciation arising from the assets not adjusted against the profits can be carried forward and added to the allowance from the same assets. As the said assets had been sold and were not in existence at the end of the year under assessment, the amount brought forward cannot be adjusted against the profits of this year". An appeal was preferred and the order of the Appellate Tribunal referred is common to the three cases.

4. For the assessment year 1970‑71, the Income‑tax Officer finalized the assessment on 19‑8‑1971. In this case also unabsorbed depreciation carried from the previous years as referred to above was ignored.

5. The question of law raised in these three petitions and arising out of the order of the Appellate Tribunal is whether the unabsorbed depreciation allowance carried forward from the past years could be totally ignored while finalizing the assessments of these years.

6. Before the promulgation of Finance Act of 1965, section 10 which governed this question provided by its subsection (2), clause (vi), proviso (b) as follows: ‑ "Where in the assessment of the assessee or, if the assessee is a registered firm in the assessment of its partners, full effect cannot be given to any such allowance in any year not being a year which ended prior to the 1st day of April, 1939, owing to there being no profits or gains chargeable for that year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of clause (b) of the proviso to subsection (2) of section 24, 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 year and deemed to be part of that allowance or, if there is no such allowance for that year, be deemed to be the allowance for that year, and so on for succeeding years." .

7. Finance Act (Act V of 1965) introduced an amendment in proviso (b) to clause (vi) of subsection (2) of section 10 after which the same provision reads as follows: ‑ "Where in the assessment of the assessee or, if the assessee is a registered firm, in the assessment of its partners, full effect cannot be given to any such allowance in any year not being a year which ended prior to the 1st day of April 1939, owing to there being no profits or gains chargeable for that year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of clause (b) of the proviso to sub section (2) of section 24, 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 year in respect of the same assets or assets and deemed to be part of that allowance or, if there is no such allowance for that year, be deemed to be the allowance for that year, and so on for succeeding years." It was this specific provision which according to the departmental view the Income‑tax Officer at first omitted to give effect to and allowed the benefit of the unabsorbed depreciation without looking for the presence of the assets but subsequently in rectifying the assessment and in subsequent assessments in giving the benefit of unabsorbed depreciation due effect was given to this provision.

8. The first question which requires determination in the cases is whether on the facts before the Appellate Tribunal the interpretation of the law was correct or not. The authorities have taken the view that after this amendment the assets had to be retained for claiming set off against the business accounts of the unabsorbed depreciation of the same assets carried forward from previous years. The only objection that the learned B counsel for the petitioner seems to be taking to such an interpretation is that in that case the clause that follows i.e. "if there is no such allowance for that year be deemed to be the allowance for that year and so on for succeeding years" becomes redundant. This argument is advanced on the assumption that every asset retained must earn a depreciation and there cannot be a situation where the asset is retained but it does not earn depreciation. This assumption itself is not correct for the very succeeding clause i.e. clause (e) places a restriction that "the aggregate of all such allowances made under this Act or any Act repealed hereby, or under the Indian Income‑tax Act, 1886, shall, in no case, exceed the original cost to the assessee of the buildings, machinery, plant, or furniture, as the case may be". Therefore, theoretically a situation may arise where the plant, machinery etc. may be in existence and in the hands of the assessee yet it may not earn depreciation on account of the ceiling on that account having already been reached. Therefore, a situation car, readily be visualised where even after retaining the assets the same may not earn depreciation at all.

9. One of the cardinal rules of interpretation of statutes is that where an amendment in the law takes place there must be implied necessarily an intention on the part of the Legislature to depart from the earlier law in some respects. Redundancy cannot be readily attributed to the Legislature. The position canvassed by the learned counsel for the petitioner would lead us to the conclusion that such ail amendment is redundant because in spite of it the position in regard to the adjustment of unabsorbed deprecia tion carried forward remained as it was before the amendment. This cannot be readily accepted. There must be something in the law to irresistibly indicate that the alteration sought has not been achieved on the words or expressions used in the amending Act.

10. Gong by the plain language of the statute the unabsorbed depreciation is required to be added to the amount of the allowance for depreciation for the following year in respect of the same asset or assets". In what follows the expression "such allowance" would after the amendment be referable to an allowance of the type described. Before the amendment is also referred to the amount described. If the amount described has been altered then "such allowance" would refer to the altered allowance. Not every depreciation allowance is such an allowance. It is only depreciation allowance for the following year in respect of the same assets. It is therefore clear that the intention of the law‑maker was to make it obligatory that the assets be retained. Though ordinarily where the language of the amend ing law is clear and leads to a rational interpretation the Courts are not obliged to look to the background for extracting rationale for such a proposition. However, if one were to look for it in this case, it would not be found Leading. By the time Finance Act, 1965 carne to be promulgated on the subject a controversy had already arisen over the benefit of unabsorbed depreciation carried forward. One view was that it could be set off against and income-even against income front property C. I. T. v. Girdharilal Harivallabhdas Co. Ltd. (1964) 51 I T R

693. The other was that it could be set off only against business income C. I. T. v. Ravi Industries Ltd. (1963) 49 I T R

145. A third view was that its benefit could be extended only if the assessee carried on in subsequent years the same business to which the depreciation related Sahee Rubbers (P.) Ltd. v. C. I. T. (1963) 48 I T R

464. One way of resolving the controversy was as adopted by the Finance Act, 1965 of tying it to the assets themselves to which the depreciation related.

11. After the hearing of the arguments concluded the learned counsel for the petitioner supplied us a detailed list of the vehicles correlating the unabsorbed depreciation starting from the assessment year 1964‑65 and w each of the vehicles was deployed and replaced by another or others. This factual material was not in this form made available to the Income‑tax authorities, It has rot been scrutinized by those who could have scrutinized it. As a matter of fact, we find that when the rectification of the assessment was sought to be done in the first instance and in the proceedings upto the Tribunal and even after it the petitioner at no stage disputed the fact that the assets to which unabsorbed depreciation related were no longer in the hands of the assessee. With such a background and conduct the petitioner cannot reasonably expect us to take into account factual matters of this description muchless making it a basis for the decision.

12. We find that the petitioner was rightly denied the set off and the unabsorbed depreciation carried forward was rightly ignored in the assessment years in question. We answer the question accordingly. The petitioner shall bear the costs of the proceedings. Order accordingly