ORDER
Harries, C.J.
1. This is a reference made by the Income-Tax Appellate Tribunal Under section 66 of the Indian Income-tax Act at the instance of the assessees.
2. The question which has been formulated for the opinion of this Court is as follows :
“Whether on the facts and in the circumstances of this case the Tribunal was right in holding that the unabsorbed depreciation at the end of the year 1938-39 which was not given effect to in the subsequent years, could not be treated as part of the allowable depreciation for the relevant assessment years which are assessment years 1941-42, 1942-43 and 1943-44.”
3. The assessees, Messrs. Isthmian Steamship Co. of New York, are assessed in India as a company through their agents, Messrs. Angus & Co. Ltd. In the three relevant assessment years which are referred to in the question as also for the assessment year 1940-41, the unabsorbed depreciation as at the end of the assessment year 1938-39 was not allowed to be carried forward by the Income-Tax Officer. For the assessment year 1940-41 the assessees did not appeal against this order and that assessment became final. In the three assessments from 1941 onwards appeals were filed and assessees contended that their unabsorbed depreciation at the end of the assessment year 1938-39 should be carried forward for the purposes of the depreciation allowance in the assessment year 1939-40. The claim was rejected by the Income-Tax Officer and the Appellate Assistant Commissioner. The latter was of opinion that this question should have been raised in the assessment for 1940-41 and as the disallowance of the unabsorbed depreciation had not been appealed from the matter could not be raised in subsequent assessments. It is to be observed that the Appellate Tribunal disagreed with the Appellate Assistant Commissioner on this question and held that though the assessment for the year 1940-41 had been allowed to become final, nevertheless the matter could still be raised in subsequent assessments and they heard the case upon that basis. It is to be observed that the Income-Tax authorities have accepted that view and they have not asked the Appellate Tribunal to state a case giving rise to the contention which had found favour in the Court of the Appellate Commissioner, but had been rejected by the Income-Tax Appellate Tribunal.
4. As I have stated, the assessees are a company incorporated in the United States and that own steamships which visit India. They have been assessed to Indian Income-Tax.
5. The Indian profit of the assessee company is computed on the basis of ‘days on round voyage’, and it would appear from their returns that there was each year a large amount as unabsorbed depreciation as the annual depreciation far exceeded their profits and gains.
6. The only question which was agitated before the Income-Tax authorities was whether or not the assessee company was allowed to add the unabsorbed depreciation for the year 1938 to the depreciation allowed by statute for the year 1939. The contention of the assessees was that the depreciation permitted for the year 1939 was not only the percentage allowed by statute for that year, but that percentage plus the unabsorbed depreciation brought forward from the previous year. The taxing authorities on the other hand contended that all that could be allowed as depreciation in the year 1939 was the statutory percentage allowed for that particular year. The question which has to be decided is what allowance can be properly allowed for depreciation for the year 1939.
7. The matter turns out on the construction to be given to a proviso to Section 10 (2) (vi) of the Indian Income-tax Act. The proviso has been materially changed by the Income-Tax Amendment Acts 1939 and 1940 and it will be better if I set out the relevant provisions of the Act before the amendment and the provisions after the amendment.
8. Previous to 1939 amendment the relevant portion of Section 10 (2) (vi) of the Act read as follows :
“Such profits or gains shall be computed after making the following allowances, namely: in respect of depreciation of such buildings, machinery, plant or furniture being the property of the assessee, a sum equivalent to such percentage on the original cost thereof to the assessee as may in any case or class of cases be prescribed:
Provided that (a) the prescribed particulars have been duly furnished;
(b) where full effect cannot be given to any such allowance in any year 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, 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 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; and
(c) 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.”
9. It is to be observed that Indian oceangoing vessels are treated as “plant”, although that word is hardly a suitable one.
10. This section was amended by the Indian Income-Tax Amendment Act, 1939. For the words “original cost” the words “written down value” were substituted and also the words “not being a year which ended prior to the 1st day of April 1939” were inserted between the words “any year” and “owing” in the second line of proviso (b); but it was provided that this amendment was to take effect only from April 1, 1940. Thus for assessment for the year 1939-40 the unabsorbed depreciation as at the end of 1938-39 was to be brought forward.
11. A further amendment was made by the Income-Tax (Amendment) Act, 1940 and Section 10 (2) (vi) now reads as follows :
In respect of depreciation of such buildings, machinery, plant or furniture, being the property of the assessee,. a sum equivalent, (where the assets are ships other than ships ordinarily plying on inland waters) to such percentage on the original cost thereof to the assessee as may in any case or class of cases be prescribed (and in any other case, to such percentage on the written down value thereof as may in any case or class of cases be prescribed).
Provided that (a) No change.
(b) Where 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, 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 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.”
(c) No change.
12. It will be seen that as a result of these amendments whereas before 1939 depreciation was based on original cost it was thereafter to be based on the written down value for all assets except ocean-going steamers for which the old basis of original cost was retained. Further, by the amendments a limit was placed to the carrying forward of unabsorbed depreciations.
13. The short point in this case is what allowance for depreciation must be made for the year 1939? The amending Act did not come into force until 1-4-1940 and it appears to me that the Act before amendment governs the matter. There can be no doubt that before the amending Act to the depreciation allowed for a particular year, namely, a percentage of the cost, there had to be added, the unabsorbed depreciation of the previous year. Proviso (b) to Section 10(2) (vi) before the amendment makes that clear. The unabsorbed depreciation had to be added. The words used were “shall be added to the amount of the allowance for depreciation”. In other words, the provision was mandatory and the depreciation allowance for a particular year was not only the amount allowed by the statute to be calculated for that particular year, but to that had to be added the unabsorbed depreciation for the previous year. It was the sum total of both that formed the allowance for a particular year. That being so it appears to me that the allowance for depreciation for the year 1939 was the amount allowed by statute for that year plus the unabsorbed depreciation for the previous year 1938.
14. The case is not affected by the amendment to proviso (b) in the 1940 Amendment Act. What that amendment provides is that where 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 etc., the unabsorbed depreciation must be added. However, the unabsorbed depreciation for any year ending prior to 1-4-1939, cannot be added.
15. It is common ground that the accounting year in question in this case ended on 31-12-1939. Therefore it is not a year which ended prior to 1-4-1939. The unabsorbed allowance for depreciation for 1939 can therefore be added to the allowance for the succeeding years. But that leaves the question as to what was the allowance for 1939 still to be answered. As I have already said the allowance for depreciation for 1939 has to be calculated in accordance with the Act before the 1939 amendment and the mandatory provisions of the Act require that the allowance for 1939 should be not only the percentage allowed for 1939 but that percentage together with the unabsorbed depreciation for 1938. It appears to me that the view of the Appellate Tribunal that the allowance for 1939 referred to in the section means only the percentage allowed for that year is erroneous. That to my mind overlooks the mandatory provisions of proviso (b) that the allowance for a particular year was the percentage allowed for that year together with the unabsorbed depreciation for the previous year. In my view it is quite clear that the allowance for the year 1939 was not only the percentage permitted by the statute for that year, but that percentage together with the unabsorbed depreciation for the previous year. When it is stated in proviso (b) “where full effect cannot be given to any such allowance in any year” the word “allowance” there means not only the percentage, but the percentage plus anything which had to be added to it as unabsorbed depreciation for the previous year.
16. It seems to me that the view of the assessees was undoubtedly right and that being so the question formulated by the Tribunal must be answered in the negative.
17. The assessees are entitled to the costs of these proceedings. Certified for two counsel.
Sinha, J.
18. I agree.