Income Tax Appellate Tribunal - Kolkata
Asstt. Commissioner Of Income Tax vs Poddar Projects Ltd. on 18 October, 2004
Equivalent citations: [2005]92ITD468(KOL), [2005]275ITR1(KOL), (2005)93TTJ(KOL)449
ORDER
C.L. Sethi, Judicial Member
1. The Revenue is in appeal against the ld.CIT(A)'s order dated 7th March, 2002 for the assessment year 1998-99.
The assessee has also filed a Cross Objection in connection with the appeal filed by the Revenue.
2. The only issue raised by the Revenue in this appeal is with regard to the inclusion of amount actually collected by the assessee from the tenants on regular basis aggregating to Rs. 36,72,918/- which represents surcharge on Municipal tax.
3. We have heard both the parties and have gone through the orders of the authorities below. The issue is now squarely and fully covered in favour of the Revenue by the decision of ITAT, Special Bench reported in (2004) 88 ITD 247(SB) in assessee's own case for the assessment year 1997-98. Respectfully following the Special Bench decision, the order of the ld.CIT(A) is reversed and that of the A.O. is restored. This ground is, therefore, decided in favour of the Revenue.
4. Now coming to the Cross Objection filed by the assessee, we observe that the assessee has disputed the order of the ld.CIT(A) in upholding the A.O.'s order rejecting the assessee's claim of setting off cumulative unabsorbed depreciation brought forward from earlier years and remained unabsorbed as on 1.4.97 amounting to Rs. 4,37,186/- against the income from any head other than the business.
5. The unabsorbed depreciation amounting to Rs. 4,37,186/- pertaining to the assessment years 1995-96 arid 1996-97 has been claimed to be set off against the current year's income under the head "income from house property". The assessee's this claim was rejected by the A.O. in view of the amended provisions of Section 32(2) amended by the Finance Act, 1996 by observing and saying that the unabsorbed depreciation pertaining to the assessment years 1995-96 and 1996-97 cannot be set off against income under any head other than the business income, in as much as, the amended provisions of Section 32(2)(iii)(a) are very clear and the position existed in the assessment year 1997-98 cannot be equally treated in the assessment year 1998-99.
6. On appeal, the ld.CIT(A) upheld the decision of the A.O. in rejecting the assessee's claim to set off unabsorbed depreciation of earlier years against income under any other head other than the business.
7. Being aggrieved, the assessce is in appeal before us.
8. We have heard both the parties and have gone through the orders of the authorities below.
9. To appreciate the controversy involved in this appeal in its right and correct perspective, it is useful to refer to the provisions of Section 32(2) as existed prior to the amendment made by the Finance (No. 2) Act, 1996 as well as subsequent to such amendment.
10. Provision of Section 32(2) as it stood prior to the amendment made by the Finance (No. 2) Act, 1996 with effect from 1st April, 1997 is as under :
"(2) Where, in the assessment or the assessee, full effect cannot be given to any allowance under Clause (ii) of Sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owning to the profits or gains being less than the allowance, then, subject to the provisions of Sub-section (2) of Section 72 and Sub-section (3) of Section 73, 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 previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years".
11. Provision of Section 32(2) as amended by the Finance (No. 2) Act, 1996 w.e.f. 1.4.97 is as under :-
"(2) Where in the assessment of the assessee full effect cannot be given to any allowance under Clause (ii) of Sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains being less than the allowance then, the allowance or the part of allowance to which effect has not been given (hereinafter referred to as unabsorbed depreciation allowance), as the case may be,-
(i) shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year,
(ii) if the unabsorbed depreciation allowance cannot be wholly set off under clause(i), the amount not so set off shall be set off from the income under any other head, if any, assessable for that assessment year;
(iii) if the unabsorbed depreciation allowance cannot be wholly set off under Clause (i) and Clause (ii), the amount of allowance not so set off shall be carried forward to the following assessment year and-
(a) it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year,
(b) if the unabsorbed depreciation allowance cannot be wholly so set off, the amount of unabsorbed depreciation allowance not so set off shall be carried forward to the following assessment year not being more than eight assessment years immediately succeeding the assessment year for which the aforesaid allowance was first computed :
(Provided that the business or profession for which the allowance was originally computed continued to be carried on by him in the previous year relevant for that assessment year), Provided [further] that the time limit of eight assessment years specified in Sub-clause (b) shall not apply in the case of a company for the assessment year beginning with the assessment year relevant to the previous year in which the said company has become a sick industrial company under Sub-section (1) of Section 17 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and ending with the assessment year relevant to the previous year in which the entire net worth of such company becomes equal to or exceeds the accumulated losses.
Explanation - For the purposes of this clause, "net worth" shall have the meaning assigned to it in Clause (ga) of Sub-section (1) of Section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986).]"
12. It is further seen that provision of Section 32(2) as amended by Finance (No. 2) Act, 1996 w.e.f. 1.4.97 had been substituted by the Finance Act, 2001 w.e.f. 1.4.02 as under:-
"(2)Where, in the assessment of the assessee, full effect cannot be given to any allowance under Sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that provious year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of Sub-section (2) of Section 72 and Sub-section (3) of Section 73 the allowance or the 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 previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years".
13. On reading the provisions of Section 32(2) as it stood prior to the amendment made by the Finance (No. 2) Act, 1996, i.e. operative upto and including assessment year 1996-97, it is seen that where, in the assessment of assessee, full effect cannot be given to the depreciation allowance owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then subject to the provisions of Sub-section (2) of Section 72 and Sub-section(3) of Section 73, the allowance or the 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 previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years. The effect of these provisions is that the unabsorbed depreciation for a particular year becomes, by legal fiction, part of the depreciation allowance for the succeeding year and so on without any time limit. What Section 32(2) as operative upto and including assessment year 1996-97 contemplates is that current depreciation is deductible, in the first place, from the income of the business to which it relates; if such depreciation amount is larger than the amount of the profits of that business, then such process is deductible from the profits or gains of any other business/es, if any, carried on by the assessee, and if a balance is left even thereafter, that comes for absorption from the income from any source under any of the other heads of income during that year; and in case there is still a balance left over, it is to be treated as unabsorbed depreciation and it shall be carried forward to the next succeeding year, and where there is current depreciation for such succeeding year, the unabsorbed depreciation brought forward from earlier year is added to the current depreciation for such succeeding year and is deemed, by legal fiction, a part thereof If, however, there is no current depreciation for such succeeding year, the unabsorbed depreciation becomes the depreciation allowance for succeeding year. In this view of the matter, Section 32(2) contained an independent provision for setting off unabsorbed depreciation carried forward from a preceding year. The unabsorbed depreciation can be allowed to be carried forward and set off against income from other sources in a subsequent year notwithstanding the fact that the business in respect of which it arose ceased to exist in the year of such set off. However, certain restrictions have been put, for and from assessment year 1997-98 by an amendment made by the Finance (No. 2) Act, 1996, on allowance of unabsorbed depreciation as the old Section 32(2) operative upto assessment year 1996-97 has been substituted. According to Section 32(2), as substituted by the Finance (No. 2) Act, 1996 w.e.f. 1.4.97, the unabsorbed depreciation of earlier years can be carried forward to the following assessment year and can only be set off against the profit and gains, if any, of any business or profession carried on by the assessee and assessable for that assessment year and following assessment year not being more than eight assessment years immediately succeeding the assessment year for which the aforesaid allowance was first computed. However, for availing the benefit of carried forward of unabsorbed depreciation, it is essential that the business or profession for which the allowance was originally computed continued to be carried on by the assessee in the previous year relevant for that assessment year as stipulated in the 1st proviso to Section 32(2(iii) as substituted w.e.f. 1.4.97. In this context, it may be observed that amended Section 32(2) as substituted by the Finance (No. 2) Act, 1996 (w.e.f. 1.4.1997) has been substituted by the Finance Act, 2001, w.e.f. 1.4.2002 and status quo ante has been restored with effect from A.Y. 2002-2003. The new Sub-section (2) of Section 32 as substituted by the Finance Act, 2001 w.e.f. 1.4.2002 has restored the Sub-section (2) of Section 32 as it stood in the assessment year 1996-97, In other words, the restrictions imposed by the Finance (No. 2) Act, 1996 w.e.f. 1.4.1997 in the matter of set-off of unabsorbed depreciation has been dispensed with by substituting the Section 32(2) by the Finance Act, 2001 w.e.f. 1.4.2002 and status quo ante, i.e. status quo of Section 32(2) as existed prior to the amendment made by Finance (No. 2) Act, 1996 w.e.f. 1.4.1997 has been restored.
14. Now, the question arises as to whether the provisions of Section 32(2)(iii) as substituted w.e.f. 1.4.1997 can be applied to the unabsorbed depreciation brought forward from assessment year 1996-97 or earlier years thereto. There is no doubt as to the proposition that if full effect cannot be given to current depreciation allowance of the assessment year 1997-98 because business / profession income or any other income of that assessment year 1997-98 is not sufficient to absorb it, it can be carried forward in the next eight assessment years for being set off against any business / profession income of the assessee subject to the condition that carry forward of depreciation is possible only if the business or profession for which the allowance was originally computed is continued to be carried on by him in the previous year relevant for the assessment year in which he wants to set off the unabsorbed depreciation. The controversy is only related to the question as to whether the current depreciation allowable to the assessee for assessment year 1997-98 onwards which remains unabsorbed is only governed by the amended provisions of Section 32(2) as substituted by the Finance (No. 2) Act, 1996 w.e.f. 1.4.1997 or whether the depreciation allowance allowed to the assessee upto and inclusive assessment year 1996-97 which remained unabsorbed and is brought forward to the assessment year 1997-98 is also to be governed by the said substituted Section 32(2). In other words, the controversy revolve around the issue as to whether the depreciation allowance allowed to the assessee upto and inclusive assessment year which remained unabsorbed and brought forward to the assessment year 1997-98 continue to set off as per the pre-amended provisions of Section 32(2) as stood prior 1.4.1997 and it is only the current depreciation allowance for the assessment year 1997-98 onwards which remains unabsorbed will be governed by the amended provisions of Section 32(2) as substituted by the Finance (No. 2) Act,1996 w.e.f. 1.4.1997.
15. To resolve the said controversy and to find out the true intent of the legislature in substituting the Section 32(2) w.e.f. 1.4.1997, a useful inferences may be taken from the Speech of the Finance Minister while moving the Finance (No. 2) Bill, 1996 for consideration in Lok Sabha on September 11, 1996 as reported in (1996) 222 ITR 36 (St.). The following is the relevant extract of the Speech of the Finance Minister :-
" 4. Clause 11 of the Bill seeks to amend Section 32 of the Income Tax Act, 1961, relating to depreciation. During the course of discussion on the General Budget, a number of Hon'ble Members have expressed their apprehension that the proposed amendment limiting carry forward of unabsorbed depreciation to 8 years will adversely affect the growth of industry. Similarly apprehensions have been raised in a large number of post-budget memoranda. I would like to allay these fears. The proposed amendment is only prospective inasmuch as the cumulative unabsorbed depreciation brought forward as on 1st April, 1997, can still be set off against taxable business profits or income under any other head for the assessment year 1997-98 and seven subsequent assessment years. Therefore, the proposed change will have effect only after 8 years and there is no cause for immediate concern about its likely impact on industry. Eight years is a period long enough for industry to adjust itself to the new dispensation and provide for depreciation accordingly. A number of Hon'ble Members have brought to my notice that the proposed amendment may adversely affect sick companies. I accept the suggestions made by them. I, therefore, propose to provide that the time limit of 8 years shall not apply to sick companies, during the period the company is treated as a "sick company" under the Sick Industrial Companies (Special Provisions) Act, 1985."
16. It is also pertinent to note that Circular No. 762 dated February 18, 1998 [see (1998) 230 ITR (St.) 12], explaining the amendments made by the Finance (No. 2) Act, 1996 has also confirmed the assurance by pointing out that the unabsorbed allowance upto the assessment year 1996-97 will be added to the allowance of 1997-98 and that the limitation of 8 years will start only from assessment year 1997-98. It also follows that the limitation against set-off of against other income should also be applicable for unabsorbed depreciation after this period of eight years as has been clearly indicated in the Finance Minister's Speech but not so clearly brought out in the said Circular.
17. On the basis of the Finance Minister's Speech and the C.B.D.T. Circular, we may draw the following conclusions :-
i) Unabsorbed depreciation related to the earlier years upto and including assessment year 1996-97 and brought forward from those earlier years to the assessment year 1997-98 can be set off against the profits and gains of a business or profession or any other income of the assessee for the assessment year 1997-98. If it is not possible to set off the entire amount of unabsorbed depreciation brought from earlier years upto and including assessment year 1996-97, the unabsorbed amount can be carried forward to the next 7 assessment years for being set off against the profits and gains of a business or profession or income under any other head.
ii) If full effect cannot be given to the current depreciation allowance of the assessment year 1997-98, and subsequent assessment years, it can be carried forward for being set-off only as per amended provisions of Section 32(2) substituted w.e.f. 1.4.1997 by the Finance (No. 2) Act, 1996.
18. To remove the ambiguity in interpretating the amended provisions of Section 32(2) (w.e.f. 1.4.1997) and to ascertain the object and purpose in amending Section 32(2), the Speech made by the Finance Minister can certainly be referred to, inasmuch as, this is in accord with the recent trend in juristic thought not only in western countries but also in India that interpretation of a statute being an exercise in the ascertainment of meaning, everything which is logically relevant should be admissible The Hon'ble Supreme Court in the case of Kerala State Industrial Development Corporation -v.- CIT (2003) 259 ITR 51 has held as under :-
"That the Finance Minister's speech can be relied upon to throw light on the object and purpose of the particular provisions introduced by the Finance Bill has been recognized by this court in K.P. Varghese -v.- ITO (1981) 131 ITR 597, 609".
19. Having regard to the clarification given by the Finance Minister in his Speech delivered while moving the Finance (No. 2) Bill, 1996 in the Lok Sabha and giving harmonious meaning and reasoning to the amended Section 32(2) brought into effect on and from 1.4.1997, we are of the considered view that the depreciation allowance allowed to the assessee upto and inclusive assessment year 1996-97 which remained unabsorbed and is brought forward to the assessment year 1997-98 and subsequent assessment years upto assessment year 2004-05 can be set-off as per pre-amended Section 32(2) and, consequently, it can, be set-off against taxable business profits or income under any other head for assessment year 1997-98 and seven subsequent assessment years. Therefore, the assessee's claim, in the present case, to set-off unabsorbed depreciation brought forward from ('assessment year 1995-96 and 1996-97 against income under "House Property" for the assessment year 1998-99 is to be allowed, and, we order accordingly. Consequently, the issue involved in the Gross Objection filed by the assessee is decided in favour of the assessee. Before parting with the issue, we may put it on record that we have noticed a decision where a similar view has been taken by the Income Tax Appellate Tribunal, Delhi Bench 'A' in the case of Income Tax Officer -v.- Selchem Engineers (P) Ltd. vide order dated April 16, 2004, reported in (2004) 90 ITD 732 (Delhi). Income Tax Appellate Tribunal, 'E' Bench, Calcutta in the case of JCIT -v.- India Steamship Co. Ltd. (IT. A. No. 1308/Cal./2000 vide order dated 24.7.2002, which was later followed by ITAT, 'A' Bench, Calcutta in the case of Poddar Udyog Ltd. I.T.A. No. 1678/Cal./2000 order dated 9.6.2003, has also taken the similar view.
20. In the result, the appeal filed by the Revenue and as well as the Cross Objection filed by the assessee are both allowed.