K. Shivashankar Bhat, J.The question referred to us u/s 256 of the Income Tax Act, 1961 (" the"), read thus :

"(1) Whether on the facts and in the circumstances of the case, the Appellate Tribunal is right in law while holding that when once a valid revised return was filed by the assessee, it completely effaces and obliterates the original return and, therefore, it is only the revised return that has to be taken into account for the purpose of making the assessment

(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that for purposes of allowing the entertainment expenses u/s 37(2A) of the Income Tax Act, the profits and gains of the business should be taken to be the income without setting off the brought forward losses and unabsorbed depreciation of earlier years and right in granting relief or Rs. 25,000 to the assesses-company "

2. An answer to the second question would aid in solving the problem under the first question and, therefore, we proceed to consider the second question with reference to the facts.

3. The assessment year in question is 1979-80. The assessee claimed certain entertainment allowance under the provisions of section 37(2A) of the. The Income Tax Officer, however, held that the carried forward depreciation allowance of the previous year will have to be set off along with other allowances before arriving at the income under the head "Profits and gains of business" in question. The assessee appealed to the Commissioner of Income Tax (Appeals). The assessee contended before the Commissioner that the assessee has not claimed this allowance while computing the profits from business and, therefore it cannot be thrust upon the assessee. The Commissioner of Income Tax (Appeals) did not accept this contention and dismissed the appeal under this head. The assessee appealed to the Appellate Tribunal. Para 4 of the order of the appellate Tribunal itself shows that the appeal pertained to the disallowance of entertainment expenditure claimed by the assessee to the extent of Rs. 29,615 and this question was linked with the question of allowing depreciation allowance which was carried forward from the previous year, actually, the assesses-company had claimed this allowance in the original return but, while filing the revised return, the assessee had omitted to claim the same. The Income Tax Officer has ignored the omission made by the assessee and allowed the allowance of depreciation on the ground that he has to tax the real income of the assessee for which purpose the statutory allowance will have to be granted. The assessee had contended that, when the revised return was a valid return, the Income Tax Officer could not have referred to the withdrawn original return. That is how the first question referred to us has arisen. Independently of the first question, the Revenue also contended before us that, for the purpose of section 37(2A), while computing the profits from the business, the statutory allowance will have to be reckoned and should be deducted from the receipts even though the assessee fails to claim the deduction. The Appellate Tribunal held that the Income Tax Officer should not have referred to the original return at all since the assessee had filed a revised return and the original return stands obliterated. Regarding the interpretation of sub-clause (i) of section 37(2A) the Tribunal observes :

"If it were the intention of the Legislature that the profits and gains of business or profession over which the entertainment expenditure is allowable should be the figure after allowing the brought forward losses and carried forward depreciation, then it would have stated so in section 37(2A) itself. The taxing statute should always be strictly construed and whenever there is any ambiguity the benefit of doubt should go to the assessee."

4. The Appellate Tribunal refers to the Income Tax return form which supported its conclusion. The Appellate Tribunal also referred to section 72(1) which governs cases of brought forward losses. Accordingly, the Tribunal held the claim of the assessee.

5. Mr. Chandrakumar, learned counsel for the Revenue, contended that the approach of the Appellate Tribunal was erroneous when it said that section 37(2A) in no way refers to section 32(2) (that is, the depreciation allowance) specifically for exclusion while computing the profits and gains. It is true as rightly pointed out by learned counsel that section 37(2A)(i) does not in terms state that the depreciation allowance shall be considered and deducted before arriving at the profits and gains of the business. The said provision specifically mentions exclusion of the allowances u/s 32A, 33 and 33A from being deducted before arriving at the profits. Therefore, learned counsel for the Revenue is certainly right when he contends that all other provisions governing the allowance would operate and whatever allowances are deductible will have to be deducted.

6. u/s 14, the "Heads of income" are stated against A and C to F. Profits and gains of business or profession comes under D. Chapter IV of the has been further sub-divided providing for the computation of various heads of income from A and C to F. Under sub-division D commencing with section 28 onwards and before reaching section 45, there are several provisions which govern the computation of profits and gains of business or profession. Section 29, in clear terms, directs as to how the income thereunder will have to be computed and that is to be in accordance with the provisions contained from section 30 onwards and before reaching section 45. The depreciation as an allowance deductible is referred to in section 32. Sub-section (1) of the said section provides for the computation of the depreciation allowance. Sub-section (2) thereof provides for the carrying forward of the said allowance if, during a particular year, the allowance cannot be deducted because of want of sufficient profits or gains to the extent the depreciation allowance cannot be deducted for want of sufficient profits. It is to be carried forward during the subsequent years. For this purpose, the carried forward unabsorbed allowance is deemed to be part of the next years allowance and so on. In other words, sub-section (2) of section 32 creates a legal fiction to the effect that the unabsorbed depreciation allowance of the previous year is part of the current years allowance. The fiction nowhere goes beyond this declaration. Further, sub-section (2) of section 32 is subjected to the provisions of section 72(2) [reference to section 73 is omitted here as unnecessary]. To understand section 72(2), the main provision of section 72 stated in its sub-section (1) will have to be referred to. According to sub-section (1) of section 72, where the net result of the computation under the head "Profits and gains of business or profession" is a loss to the assessee and such a loss cannot be set off against the income from any other head of income in accordance with section 71, the balance of such a loss may be carried forward to the following assessment year to be set off as stated in the said sub-section (1), that is, firstly, it shall be set off against the profits and gains, if any, of any business or profession and if it is not possible to do so, then it shall be carried forward to the following assessment year and so on. As per section 72(3), this carrying forward is limited to a period of eight assessment years.

7. The subject-matter of section 72(1) is business loss. The concept of business loss is entirely different from depreciation allowance. This distinction will have to be necessarily noted to understand the scheme of the relevant provisions. It is in this context that section 71 says that if the net result of the computation of the income from all sources, that is under all heads stated in section 14, is a loss, the assessee shall be entitled to have the amount of such loss set off against his income under any other head. In other words, the loss suffered by an assessee under any particular head is not kept separately to be set off only from the income of that head, subject to section 72 and other provisions of Chapter VI. Therefore, in a particular year, if the business loss, is say a lakh of rupees, which could not be deducted out of the business income completely (very concept of law indicates the same), then this loss of one lakh rupees can be set off against the income under other heads, that is, income from house property or any other income from other sources coming under Head-F, etc. Since the scope for deducting a business lost therefore, is wider and operates against the totality of the income, section 72(3) limits its operation for only eight assessment years. It is in this context that section 72(2) gives priority to the business loss over the carried forward depreciation allowance. Whenever there is a business loss as well as a depreciation allowance to be carried forward, effect shall first be given to the business loss as provided u/s 72(1). It is only thereafter that the carried forward depreciation allowance could be worked out. That is not the case regarding the current depreciation allowance. The current depreciation allowance by its own force is to be allowed as an allowance from the profits and gains of the business of the current year. It is only when the full allowance cannot be given, the balance left over is to be carried forward and, by a legal fiction, the carried forward depreciation allowance is given the status of "the subsequent years depreciation allowance". Learned counsel for the Revenue, by relying upon section 32(2), pointed out that, w hen this provision declares that the carried forward depreciation allowance is to be part of the current years depreciation allowance, full effect should be given to the declaration and fiction created by the statute and, therefore, it was contended that the Income Tax Officer was justified in allowing this depreciation allowance before arriving at the profits and gains for the purpose of section 37(2A). No doubt, the question is problematic. It is in the sphere of accountancy rather than in the sphere of any jurisprudence that we have to solve the problem. The nature of the legal fiction which was created under a similar situation in the Indian Income Tax Act. 1922, under proviso (b) to section 10(2)(vi) came up before the Supreme Court in Commissioner of Income Tax, Calcutta Vs. Jaipuria China Clay Mines (P) Ltd., . For the sake of convenience, we are referring to the report found in Commissioner of Income Tax, Calcutta Vs. Jaipuria China Clay Mines (P) Ltd., . Section 10(2)(vi) of the earlier Act is in pari materia with section 32(2) and similarly section 24(2) of the earlier Act is in pari materia with the present section 72(1). As regards the scheme of the, the Supreme Court pointed out that the underlying idea of the is to assess the total income of the assessee. Therefore, it would be unfair to compute the total income of an assessee carrying on business without pooling its other income as well as the loss under other heads. Similarly, the therein did not draw any express distinction between the various allowances mentioned in section 10(2). All will have to be deducted from the gross profits and grains of a business. It was further pointed out that, according to commercial principles, depreciation would be shown in the accounts and the profits and loss account would reflect the depreciation accounted for in the accounts.

8. At page 1189, it is stated (at p. 559 of 59 ITR) :

"If the profits are not large enough to wipe off depreciation, the profit and loss account would show a loss. Therefore, apart from proviso (b) to section 10(2)(vi), neither the nor commercial principles draw any distinction between the various allowances mentioned in section 10(2); the only distinction is that while the other allowance may be outgoing, depreciation is not an actual outgoing."

9. At page 1190 (at p. 561 of 59 ITR), the scheme of carrying forward of the depreciation loss is summarised thus :

"The unabsorbed depreciation allowance is carried forward under proviso (b) to section 10(2)(vi) and the method of carrying if forward is to add it to the amount of the allowance or depreciation in the following year and deeming it to be part of that allowance; the effect of deeming it to be part of that allowance is that it falls in the following year within clause (vi) and has to be deducted as allowance. If the Legislature had not enacted proviso (b) to section 24(2), the result would have been that depreciation allowance would have been deducted first out of the profits and gains in preference to any losses which might have been carried forward u/s 24, but as the losses can be carried forward only for six years u/s 24(2), the assessee would in certain circumstances have in his books losses which he would not be able to set off. It seems to us that the Legislature, in view of this, gave a preference to the deduction of losses first. But it is wrong to assume that section 24(2) also deals with the carrying forward of depreciation. This carry forward having been provided in section 10(2)(vi) and in a different manner, section 24(2) only deals with losses other than the losses due to depreciation."

10. Thus, it is clear that the purpose of giving preference to the losses u/s 72(1) (old section 24(2)) was mainly because of the limited years during which alone, the said losses can be carried forward. As far as depreciation is concerned, there is no limitation under the. It can be carried forward year after year.

11. In Commissioner of Income Tax, Kanpur Vs. Mother India Refrigeration Industries P Ltd., , the Supreme Court had once against explained the relevant provisions, wherein the provisions both under the old Act and the present Act were considered. Regarding current depreciation, it was held that it must be deducted first before deducting the unabsorbed carried forward business loss of the earlier years and, to that extent only, unabsorbed carried forward losses cannot be given preference over current depreciation in the matter of set off in computing an assessees income. The conclusion in the said case by implication shows that the carried forward depreciation allowance cannot be treated for all purposes as the current years depreciation. Regarding the legal fiction u/s 10(2)(vi), proviso (b), similar to the present section 32(2), the Supreme Court stated at page 1725 (at p. 718 of 155 ITR) :

"It is true that proviso (b) to section 10(2)(vi) creates a legal fiction and under that fiction, unabsorbed depreciation either with or without the current years depreciation is deemed to be the current years depreciation but it is well settled as has been observed by this court in The Bengal Immunity Company Limited Vs. The State of Bihar and Others, that the legal fictions are created only for some definite purpose and these must be limited to that purpose and should not be extended beyond that legitimate field. Clearly, the avowed purpose of the legal fiction created by the deeming provision contained in proviso (b) to section 10(2)(vi) 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."

12. In the light of the above observations, it is not possible to accept the contention of learned counsel for the Revenue that the unabsorbed depreciation allowance is part of computing the current years gain from business or profession along with the current years depreciation allowance. As a matter of course, the unabsorbed depreciation allowance will have to wait in the queue an could seek recognition only after due deductions given to the carried forward business loss. Therefore, it is to the Income Tax Officer just to thrust upon the assessee the carried forward depreciation allowance without reference to these statutory provision. To what extent the depreciation allowance carried forward from the previous year will go into the computation of the profits and gains of the business of the company would depend upon the availability of the surplus of the gross income after deducting the carried forward business loss u/s 72(1). This is a matter for computation.

13. Regarding question No. 1, much discussion is not necessary because once the original return is withdrawn or is substituted by filing a valid revised return, the natural consequences is that the earlier return would be effaced or obliterated or all purposes under the. The answer to the first question is, therefore, necessarily in the affirmative and against the Revenue. Similarly, the answer to the second question will be in the affirmative and against the Revenue.

14. Reference answered accordingly.