The officer has invoked s.79 after a change in our shareholding and struck out everything brought forward, including unabsorbed depreciation. Does s.79 reach unabsorbed depreciation?
No. The Supreme Court agreed with the Gujarat High Court that when s.79 speaks of loss, it does not include unabsorbed depreciation or unabsorbed development rebate. Only the brought forward business loss is at risk under s.79; unabsorbed depreciation continues to be governed by s.32(2).
Decided by the Supreme Court (B.P. Jeevan Reddy J and S.B. Majmudar J) on 1995-09-20, reported as [2001] 249 ITR 795 (SC); (2001) 119 Taxman 281; 2001 (10) SCC 658; (2001) 169 Cur Tax Rep 89; AIRONLINE 1995 SC 148. It bears on section 79, section 32(2), section 33(2), section 72, section 261 of the Income Tax Act 1961, in How Tax Law Is Read and Assessment & Scrutiny matters.
This is the practitioner's single most valuable answer on s.79 and it comes from the Supreme Court. In most companies with a change in control the unabsorbed depreciation is the larger of the two figures, so the difference between conceding the whole brought forward pool and conceding only the business loss is usually the whole dispute. The reasoning turns on the word 'loss' and on the words 'loss incurred', and those words survive in s.79(1) as substituted by the Finance (No. 2) Act 2019 with effect from 1 April 2020, which I checked against the statute. Two cautions. The order is short — three working paragraphs — and gives no reasoning of its own beyond agreeing with the High Court, so the reasoning you argue is the Gujarat High Court's. And the version of s.79 before the Court also contained a clause (b) that has since been omitted; the other two questions in the appeal were disposed of on that clause and are of no present use.
Binding on every court and authority in India.
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The assessee was a mills company in which the public were not substantially interested. Up to 1961 the Sayaji Mills group was managed jointly by two families; on separation of the managements the Vadilal Lallubhai group was left without a textile unit in Ahmedabad or Bombay, learnt that the Somani group wished to sell its shareholding in the assessee, and on 14 December 1961 purchased the entire subscribed share capital of 21,000 shares at Rs. 105 per share. The assessee carried forward business loss, unabsorbed depreciation allowance and unabsorbed development rebate from years before that change. In the assessment for 1966-67 the Income-tax Officer took the view that s.79 applied, and for 1965-66 the Additional Commissioner invoked s.263 by order dated 22 March 1972 to bring s.79 to bear on that year as well. The Tribunal held that s.79 forms part of Chapter VI, which provides for carry forward and set off of business losses, and that 'loss' in s.79 must be restricted to brought forward business loss. On the reference the Gujarat High Court (B.J. Divan CJ) answered on 27 January 1976, holding among other things that s.79 cannot apply to unabsorbed depreciation allowance. The High Court granted a certificate under s.261 limited to three questions, of which question 2 was whether in applying s.79 only the business loss should be taken into account and not the unabsorbed depreciation or unabsorbed development rebate.
The appeals were dismissed with no order as to costs. On questions 3 and 4 counsel for the Revenue accepted that the position was concluded against the Revenue by the Supreme Court's decision in CIT v. Italindia Cotton Co. P. Ltd. [1988] 174 ITR 160, which had expressly approved the judgment under appeal. On question 2 the Court held that when s.79 speaks of loss it does not include unabsorbed depreciation or unabsorbed development rebate, agreeing with the High Court (paras 2 to 4).
The Supreme Court gave no reasoning of its own beyond stating its agreement with the High Court. The reasoning is that of the Gujarat High Court, which held that s.79 itself gives the answer: the section speaks of no 'loss incurred' in any year prior to the previous year being carried forward, it forms part of Chapter VI and is connected with the carry forward and set off of losses provided for from s.72 onwards, whereas s.32(2) deals with the carrying forward of unabsorbed depreciation allowance and s.33(2) with the carrying forward of development rebate, and those are allowances made in computing income from business which it is difficult to describe as 'incurred' by the assessee. The High Court concluded that on a pure grammatical construction, given the words 'loss incurred', the chapter in which s.79 occurs and the scheme from s.72 onwards, the Revenue's contention had to be rejected, and it recorded its conclusion that 'So far as depreciation allowance is concerned the provisions of section 79 cannot apply to unabsorbed depreciation allowance.'
The High Court has answered the question saying that when Section 79 speaks of loss, it does not include unabsorbed depreciation or unabsorbed development rebate. We agree with the High Court.
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Handle my notice → Ask a CA on WhatsAppNo. The Supreme Court agreed with the Gujarat High Court that when s.79 speaks of loss, it does not include unabsorbed depreciation or unabsorbed development rebate. Only the brought forward business loss is at risk under s.79; unabsorbed depreciation continues to be governed by s.32(2). This was decided by the Supreme Court (B.P. Jeevan Reddy J and S.B. Majmudar J) and bears on section 79, section 32(2), section 33(2), section 72, section 261 of the Income Tax Act 1961. It is reported as [2001] 249 ITR 795 (SC); (2001) 119 Taxman 281; 2001 (10) SCC 658; (2001) 169 Cur Tax Rep 89; AIRONLINE 1995 SC 148. This is the practitioner's single most valuable answer on s.79 and it comes from the Supreme Court. In most companies with a change in control the unabsorbed depreciation is the larger of the two figures, so the difference between conceding the whole brought forward pool and conceding only the business loss is usually the whole dispute. The reasoning turns on the word 'loss' and on the words 'loss incurred', and those words survive in s.79(1) as substituted by the Finance (No. 2) Act 2019 with effect from 1 April 2020, which I checked against the statute. Two cautions. The order is short — three working paragraphs — and gives no reasoning of its own beyond agreeing with the High Court, so the reasoning you argue is the Gujarat High Court's. And the version of s.79 before the Court also contained a clause (b) that has since been omitted; the other two questions in the appeal were disposed of on that clause and are of no present use. If it applies to you, the first step is this: Split the brought forward figure into business loss under s.72, unabsorbed depreciation under s.32(2) and capital loss under s.74 before you reply to the notice; s.79 bites only on the first.
The assessee was a mills company in which the public were not substantially interested. Up to 1961 the Sayaji Mills group was managed jointly by two families; on separation of the managements the Vadilal Lallubhai group was left without a textile unit in Ahmedabad or Bombay, learnt that the Somani group wished to sell its shareholding in the assessee, and on 14 December 1961 purchased the entire subscribed share capital of 21,000 shares at Rs. 105 per share. The assessee carried forward business loss, unabsorbed depreciation allowance and unabsorbed development rebate from years before that change. In the assessment for 1966-67 the Income-tax Officer took the view that s.79 applied, and for 1965-66 the Additional Commissioner invoked s.263 by order dated 22 March 1972 to bring s.79 to bear on that year as well. The Tribunal held that s.79 forms part of Chapter VI, which provides for carry forward and set off of business losses, and that 'loss' in s.79 must be restricted to brought forward business loss. On the reference the Gujarat High Court (B.J. Divan CJ) answered on 27 January 1976, holding among other things that s.79 cannot apply to unabsorbed depreciation allowance. The High Court granted a certificate under s.261 limited to three questions, of which question 2 was whether in applying s.79 only the business loss should be taken into account and not the unabsorbed depreciation or unabsorbed development rebate. The matter was decided on 1995-09-20 by the Supreme Court (B.P. Jeevan Reddy J and S.B. Majmudar J). On those facts the Supreme Court held as follows. The appeals were dismissed with no order as to costs. On questions 3 and 4 counsel for the Revenue accepted that the position was concluded against the Revenue by the Supreme Court's decision in CIT v. Italindia Cotton Co. P. Ltd. [1988] 174 ITR 160, which had expressly approved the judgment under appeal. On question 2 the Court held that when s.79 speaks of loss it does not include unabsorbed depreciation or unabsorbed development rebate, agreeing with the High Court (paras 2 to 4).
The Supreme Court gave no reasoning of its own beyond stating its agreement with the High Court. The reasoning is that of the Gujarat High Court, which held that s.79 itself gives the answer: the section speaks of no 'loss incurred' in any year prior to the previous year being carried forward, it forms part of Chapter VI and is connected with the carry forward and set off of losses provided for from s.72 onwards, whereas s.32(2) deals with the carrying forward of unabsorbed depreciation allowance and s.33(2) with the carrying forward of development rebate, and those are allowances made in computing income from business which it is difficult to describe as 'incurred' by the assessee. The High Court concluded that on a pure grammatical construction, given the words 'loss incurred', the chapter in which s.79 occurs and the scheme from s.72 onwards, the Revenue's contention had to be rejected, and it recorded its conclusion that 'So far as depreciation allowance is concerned the provisions of section 79 cannot apply to unabsorbed depreciation allowance.' In the words reproduced by the source cited on this page: "The High Court has answered the question saying that when Section 79 speaks of loss, it does not include unabsorbed depreciation or unabsorbed development rebate. We agree with the High Court." The decision followed or applied Commissioner of Income-Tax v. Shri Subhlaxmi Mills Ltd., [1983] 143 ITR 863 (Guj) — affirmed; CIT v. Italindia Cotton Co. P. Ltd., [1988] 174 ITR 160 (SC) — applied to questions 3 and 4.
It was decided by the Supreme Court on 1995-09-20 and is reported as [2001] 249 ITR 795 (SC); (2001) 119 Taxman 281; 2001 (10) SCC 658; (2001) 169 Cur Tax Rep 89; AIRONLINE 1995 SC 148. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 79, section 32(2), section 33(2), section 72, section 261, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeals were dismissed with no order as to costs. On questions 3 and 4 counsel for the Revenue accepted that the position was concluded against the Revenue by the Supreme Court's decision in CIT v. Italindia Cotton Co. P. Ltd. [1988] 174 ITR 160, which had expressly approved the judgment under appeal. On question 2 the Court held that when s.79 speaks of loss it does not include unabsorbed depreciation or unabsorbed development rebate, agreeing with the High Court (paras 2 to 4). It arises in How Tax Law Is Read and Assessment & Scrutiny matters, on section 79, section 32(2), section 33(2), section 72, section 261 of the Income Tax Act 1961, and was decided by B.P. Jeevan Reddy J and S.B. Majmudar J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Cite the Supreme Court order for the proposition and the Gujarat High Court judgment at [1983] 143 ITR 863 for the reasoning — that s.79 sits in Chapter VI with the carry forward provisions from s.72 onwards, and that a depreciation allowance is allowed, not 'incurred'. Add the Delhi High Court's restatement in PCIT v Burda Druck India Pvt Ltd (24 November 2023), which says in terms that unabsorbed depreciation and capital losses do not fall within the scope and ambit of s.79. Do not carry the other two questions in this appeal across to a current year: they turn on clause (b) of the old s.79, which was omitted by the Finance Act 1988.
Still good law. I did not run a citator check. What I did check: the substituted s.79(1), read directly from the statute, still begins 'no loss incurred in any year prior to the previous year shall be carried forward and set off', so the word the holding turns on has survived both the 1988 omission of clause (b) and the substitution of the whole section by the Finance (No. 2) Act 2019 with effect from 1 April 2020; and the Delhi High Court restated the same proposition on 24 November 2023 in PCIT v Burda Druck India Pvt Ltd, holding that unabsorbed depreciation and capital losses do not fall within the scope of s.79. A relevance search on Indian Kanoon threw up a number of Tribunal orders applying this decision (Credila Financial Services, Messe Dusseldorf India, Swiss Re Healthcare Services among them); I saw only their titles and did not read those orders. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Watch the dates and the spelling. Indian Kanoon carries the order as pronounced on 20 September 1995 and gives AIRONLINE 1995 SC 148 among its citations, but the ITR report is [2001] 249 ITR 795, so the judgment was reported six years after it was delivered and is routinely cited as a 2001 decision; both are recorded here. The company's name is spelt three ways in the sources: 'Subhulaxmi' in the Supreme Court order, 'Shri Subhlaxmi Mills Ltd.' in the Gujarat High Court report, and 'Shri Subhalaxmi Mills Ltd.' in the Supreme Court's own judgment in Italindia Cotton. The facts in this entry are taken from the Gujarat High Court judgment under appeal, because the Supreme Court order recites none; the order identifies that judgment by its report at [1983] 143 ITR 863, which is the report of the Gujarat High Court judgment of 27 January 1976 that I read in full. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeals were dismissed with no order as to costs. On questions 3 and 4 counsel for the Revenue accepted that the position was concluded against the Revenue by the Supreme Court's decision in CIT v. Italindia Cotton Co. P. Ltd. [1988] 174 ITR 160, which had expressly approved the judgment under appeal. On question 2 the Court held that when s.79 speaks of loss it does not include unabsorbed depreciation or unabsorbed development rebate, agreeing with the High Court (paras 2 to 4).
TaxSphere, “CIT v Subhulaxmi Mills Ltd”, https://taxnotice.vittsphere.com/caselaw/case/cit-v-subhulaxmi-mills-79-loss-excludes-unabsorbed-depreciation/ (validity last checked 2026-09-07)
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