Income Tax Appellate Tribunal - Kolkata
Joint Commissioner Of Income Tax vs India Steamship Co. Ltd. on 24 July, 2002
Equivalent citations: (2003)78TTJ(KOL)154
ORDER
B.K. Mitra, J.M.
1. The appeal filed by the Revenue is directed against the order dt. 24th July, 2000, passed by the CIT(A) for the asst. yr. 1997-98.
2. The grounds taken by the Revenue are as follows :
1. "On the facts and in the circumstances of the case learned CIT(A) is not justified in holding that unabsorbed depreciation brought forward from earlier years upto asst. yr. 1996-97 can be set off against the income under the head "House property" and other source totalling to Rs. 32,44,130 as the business income after adjustment was determined at nil.
On the facts and in the circumstances of the case, the learned CIT(A) was not justified in holding that the unabsorbed depreciation for the asst. yrs. 1979-80 to 1989-90 should be carried forward for further period of 8 years starting from the asst. yr. 1997-98 after adjustment of the unabsorbed depreciation with the income from house property and income from other source of this year."
3. The facts of the case, in brief, are that the assessee filed original return on 18th Nov., 1997, declaring total loss of Rs. 22,69,310 and the income under Section 115JA was computed at nil after making adjustment of unabsorbed depreciation or unabsorbed business loss. The assessee filed a revised return on 30th March, 1999, declaring total income of Rs. 32,44,130. The assessee has unabsorbed depreciation brought forward from the asst. yr. 1979-80 to asst. yr. 1996-97 aggregating to Rs. 98,68,47,750. The controversy arises when the AO did not set off the unabsorbed depreciation from earlier year against the income from other sources.
4. Aggrieved by the order of the AO, the assessee carried the matter in appeal to the learned CIT(A) who after considering the facts and circumstances of the case, allowed the claim of the assessee.
5. The learned Departmental Representative supported the order of the AO and contended that even if a plain reading of Section. 32(2)(ii)(b) confirmed that the unabsorbed depreciation cannot be carried forward for more than 8 assessment years immediately succeeding the assessment year in which the aforesaid allowance was first computed. The learned Departmental Representative further stated that the counting the period of 8 years starts from the year for which the depreciation allowance was first computed and ends with the year which is 8th year from such year and the provisions relating to the period of limitation of 8 years for unabsorbed depreciation starts operating from the asst. yrs. 1997-98. It was highlighted that it is clear from the wordings used in Section 32(2)(iii)(b) that unabsorbed depreciation allowance relating to earlier years prior to 1989-90 can, therefore, neither be considered as a part of depreciation allowance of 1997-98 nor can be considered for set off of carried forward and set off into the asst. yr. 1997-98. He has therefore, reiterated that the claim of the assessee relating to unabsorbed depreciation allowance for the asst. yr. prior to 1989-90 lapses in the asst. yr. 1997-98 as the first year of computation of depreciation allowance in all the cases fall beyond the stipulated period of 8 years. The learned Departmental Representative stated that a plain reading of Section 32(2)(iii)(b) will even confirm that the statute does not authorise to permit such benefit as claimed by the assessee. He has, therefore, urged the Tribunal to confirm the decision of the AO.
6. The learned, counsel, on the other hand, stated that Section 32(2) of the IT Act underwent substantial amendment by the Finance (No. 2) Act, 1996, w.e.f. the asst. yr. 1997-98 and prior to the amendment, unabsorbed depreciation of any assessment year could be carried forward in the way that such unabsorbed depreciation was added to and became the current depreciation for the immediately succeeding assessment year and could thus be adjusted against business income, income under other heads for such succeeding year and could thereafter be carried forward for unlimited period, as such unabsorbed depreciation went on to become part of the current depreciation of the succeeding year till such time it was fully absorbed. It was highlighted by the learned counsel that after the amendment unabsorbed depreciation for an assessment year could be adjusted against the income under any other head for the same year and thereafter could be carried forward for 8 succeeding years to be set off against business profits only. The learned counsel has further stated that as a result of this amendment, the question arose as to whether the unabsorbed depreciation for the assessment years which were more than 8 years prior to the asst. yr. 1997-98 could be carried forward any further or they were lost forever. The question also came up after the amendment whether brought forward unabsorbed depreciation as at the end of the asst. yr. 1996-97 could be adjusted against income under other heads in the asst. yr. 1997-98.
7. As regards ground No. 1, the learned counsel stated that as a result of amendment proposed in the Finance (No. 2) Bill, 1996, to Section 32(2) restricting carry forward and set off of unabsorbed depreciation there was severe confusion amongst tax payers and the industrial community expressed apprehension that the proposed amendment would adversely affect the growth of industry. While moving the Bill in the Lok Sabha the Finance Minister kept in mind the fear expressed by the industry and clarified the amending provisions that 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 asst. yr. 1997-98 and seven subsequent assessment years and further a drafting amendment was also proposed to Clause 11 of the Finance (No. 2) Bill in terms of which depreciation for an assessment year can be set off not only against profits and gains of any business carried on by the assessee but also against income under any other head. In this connection the learned counsel brought to our notice the CBDT Circular No. 762, dt. 18th Feb., 1998, wherein it has been stated that the limitation of 8 years shall start from the asst. yr. 1997-98. He has, therefore, reiterated that on a perusal of the provisions of Section 32(2) both pre-amendment and post-amendment that by applying the provisions of Section 32(2) prior to the aforesaid amendment, the cumulative unabsorbed depreciation as at the end of the asst. yr 1996-97 gets carried forward to the asst. yr. 1997-98 and merges into the pool of the current depreciation for the asst. yr. 1997-98. He has, therefore, highlighted that the said cumulative depreciation as at the end of the asst. yr. 1996-97 lost its identity once it is merged in the current depreciation for the asst. yr. 1997-98 and, therefore, the same is entitled to be carried forward for 8 succeeding assessment years starting from 1997-98.
8. As regards ground No. 2, the learned counsel stated that the instant issue covers the adjustment of cumulative unabsorbed depreciation as at the end of the asst. yr. 1996-97 against income under other heads, namely, income from house property and income from other sources. He has further stated that as already discussed in ground No. 1, on the basis of the calrification placed on the floor of the House, the cumulative unabsorbed depreciation as at the end of the asst. yr. 1996-97 is carried forward to the asst. yr. 1997-98 to become the current depreciation for the asst. yr. 1997-98. He has further contended that once the said unabsorbed depreciation merged! into and becomes the current depreciation for the asst. yr. 1996-97, such unabsorbed depreciation loses its character as unabsorbed depreciation of an earlier year and hence it is to be treated as depreciation allowance for the assessment year in which it merges namely, the asst. yr. 1997-98. It was, therefore, reiterated that any amount remaining unabsorbed therefrom can after be set off with business income for the asst. yrs. 1997-98, if any, can be set off against the income under other heads, namely, income from house property and income from other sources.
9. We have heard the rival submissions and gone through the record. We have noticed that the AO did not give weightage to the clarification issued by the Finance Minister on the floor of the House and the bone of contention arises when he declines to follow Circular No. 762 of CBDT. The AO was of the opinion that Circular No. 762 is against the express provision of the Act and, therefore, the same is not binding on him.
10. 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 excess comes for absorption from the profits and gains from any other business or business, if any, carried on by the assessee. If a balance is left even thereafter, that becomes deductible from out of income from any source under any of the other heads of income during that year. In case there is a still balance left over, it is to be treated as unabsorbed depreciation and it is taken to the next succeeding year. Where there is current depreciation for such succeeding year the unabsorbed depreciation is added to the current depreciation for such succeeding year and is deemed as part thereof. If, however, there is no current depreciation for such succeeding year, the unabsorbed depreciation becomes the depreciation allowance for such succeeding year. In this connection the decision of the Hon'ble Bombay High Court in CIT v. Ravi Industries Ltd. (1963) 49 ITR 145 (Bom) may be referred to. In the case of CIT v. Virmani Industries (P) Ltd. (1995) 216 ITR 607 (SC) the apex Court has observed that to avail of the benefit of Sub-section (2) of Section 32 two views are possible in his behalf i.e., (1) since sub-section speaks of unabsorbed depreciation on being carried forward to the next year and "added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance" sub-section necessarily contemplates the existence of business in the following years, and (2) inasmuch as sub-section not only speaks of adding the unabsorbed depreciation to the depreciation allowance allowed in the following year but also says that in the absence of such allowance the carried forward depreciation allowance shall be the allowance for that year. It means that in the following year the assessee need not carry on any business or profession for availing of benefits of Sub-section (2) of Section 32. The jurisdictional High Court in the case of CIT v. Premchand Jute Mills Ltd. (1987) 164 ITR 288 (Cal) has observed that the assessee was held entitled to set off the unabsorbed depreciation pertaining to the assets of the business carried on in earlier years against income from letting out such assets even though such income was assessable as income from other sources. We have further observed that the Hon'ble Supreme Court in the case of UCO Bank v. CIT (1999) 237 ITR 889 (SC) has held that the CBDT has power, inter alia, to tone down the rigour of the law and ensure a fair enforcement of a provision by issuing circulars from time to time. The power has been conferred to the CBDT by Section 119 of the IT Act, 1961. It has further been noticed by us that the circular number categorically explains the amendment to Section 32(2) which is in consonance with the line of argument canvassed by the assessee in the instant case. In view of the above, we are of the considered opinion that there is no infirmity in the order of the learned CIT(A) who has rightly directed the AO to revise the computation of income of the assessee giving an appropriate benefit in this regard.
11. In the result, the Departmental appeal is dismissed.