Madras High Court
Commissioner Of Income-Tax vs Kothari Industrial Corporation Ltd. on 15 March, 2004
Equivalent citations: [2005]274ITR600(MAD)
Author: P.K. Misra
Bench: P.K. Misra
JUDGMENT P.K. Misra, J.
1. The following question has been referred to the High Court pursuant to the Order dated December 20, 2000, in T. C. P. No. 204 of 1999 :
"Whether, on the facts and in the circumstances of the case and on a proper interpretation of the provisions of Section 43(6) read with Explanations 2A and 3, the Tribunal was right in law in holding that the written down value of the transferred assets of the amalgamating company should be worked out without reducing therefrom the unabsorbed depreciation relating to earlier years ?"
2. The question relates to the assessment year 1972-73. The assessee, M/s. Kothari Industrial Corporation Limited, is a private limited company. During the accounting year relating to the assessment year 1972-73, five public limited companies were amalgamated with the assessee-company. One such company, namely, M/s. Blue Mountain Estates Ltd., had incurred losses. The Assessing Officer completed the assessment under sections 147(b) and 143(3) of the Income-tax Act, 1961, without allowing the claim of carry forward of development rebate, development allowance relating to the assessment year 1969-70, carry forward of business loss relating to the assessment years 1969-70 and 1970-71 and carry forward of unabsorbed depreciation relating to 1970-71 and 1971-72 pertaining to the aforesaid M/s. Blue Mountain Estates Ltd., in the income of the assessee-company. In the appeal filed by the assessee-company, the said Order was confirmed. While allowing the second appeal, the Tribunal directed the Assessing Officer to consider the claim of allowance of carry forward of development rebate and development allowance subject to considerations prescribed under sections 33(3) and 33A(5) of the Act. Regarding the carry forward of business loss and unabsorbed depreciation, the Tribunal negatived the assessee's claim, but directed the Assessing Officer to adopt the written down value of the assets transferred to the assessee from M/s. Blue Mountain Estates Ltd., without reducing therefrom the unabsorbed depreciation, giving rise to the present reference.
3. Section 43(6) and Explanations 2A and 3 are quoted hereunder :
"43. In sections 28 to 41, and in this section, unless the context otherwise requires,--. . .
(6) 'written down value' means--
(a) in the case of assets acquired in the previous year, the actual cost to the assessee ;
(b) in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Act, or under the Indian Income-tax Act, 1922 (11 of 1922), or any Act repealed by that Act, or under any executive orders issued when the Indian Income-tax Act, 1886 (2 of 1886), was in force : . . . . Explanation 2A.--Where, in a scheme of amalgamation, any capital asset is transferred by the amalgamating company to the amalgamated company, and the amalgamated company is an Indian company, the written down value of the transferred capital asset to the amalgamated company shall be taken to be the same as it would have been if the amalgamating company had continued to hold the capital asset for the purposes of its business.
Explanation 3.--Any allowance in respect of any depreciation carried forward under Sub-section (2) of Section 32 shall be deemed to be depreciation 'actually allowed'."
4. In view of the aforesaid provisions, the direction of the Tribunal to adopt the written down value of the transferred assets without reducing the unabsorbed depreciation appears to be justified.
5. A similar question was raised before the Bombay High Court in the decision reported in CIT v. Hindustan Petroleum Corporation Ltd. [1991] 187 ITR 1. It was held by the Bombay High Court that the written down value of the assets would be the actual cost of the assets to the assessee less depreciation actually allowed to the company. Any unabsorbed depreciation which was not set off for carry forward could not be taken into account. With respect, we are in complete agreement with the analysis made by the Division Bench of the Bombay High Court.
6. Having regard to the facts and circumstances, we answer the question raised in the affirmative and hold that the Tribunal was right in law in holding that the written down value of the transferred assets of the amalgamating company should be worked out without reducing therefrom the unabsorbed depreciation relating to earlier years. The reference is answered accordingly.