Commissioner Of Income Tax Chennai v. S&S Power Switchgear Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 17.03.2008 CORAM THE HONOURABLE MR. JUSTICE K. RAVIRAJA PANDIANANDTHE HONOURABLE MR. JUSTICE P.P.S. JANARTHANA RAJA TAX CASE (APPEAL) NO.135 OF 2008 Commissioner of Income TaxChennai. Vs. S&S Power Switchgear Ltd.,168, Mount PoonamalleeHigh RoadChennai – 600 096. ... Appellant... Respondent Tax Case (Appeal) filed under Section 260A of the Income Tax Actagainst the order of the Income Tax Appellate Tribunal Madras 'C'Bench, dated 2.2.2007 in I.T.A. No.1964/Mds/2003 for the assessmentYear 2000-2001. Preferred against the order of the Commissioner ofIncome Tax (Appeals) V in ITA No.58/2003-04 dated 04.08.03 againstthe Assessment order of Deputy Commissioner of Income-Tax, CompanyCircle VI (I) Chennai dated 24.03.2003 in PAN/GIR.No.S-III, . For Appellant : Mr. J. NarayanaswamyStanding Counsel forIncome Tax Department. J U D G M E N T (Judgment of the Court was delivered by K. Raviraja Pandian, J.) The appeal is filed against the order of the Income Tax AppellateTribunal Madras 'C' Bench dated 2.2.2007 made in I.T.A.No.1964/Mds/2003 for the assessment Year 2000-2001. 2. The facts of the case culminating in filing of the aboveappeal culled out from the statement of facts contained in memorandumof appeal go as follows: https://hcservices.ecourts.gov.in/hcservices/ For the assessment year 2000-2001, the assesee had set off prioryears business loss and unabsorbed depreciation against short termcapital gains. Aggrieved by the assessment order, the assessee filedan appeal before the Commissioner of Income Tax (Appeals). TheCommissioner of Income Tax (Appeals) allowed the claim of theassessee and directed the Assessing Officer to set off the claim. TheRevenue filed second appeal before the Income Tax Appellate Tribunal.The Appellate Tribunal following the decision of the Delhi SpecialBench in the case of Uttam Air Products (99 TTJ 718 ) (Del) allowedthe appeal in favour of the aassessee. 3. The correctness of the said order is canvassed by the Revenueby filing the present appeal by formulating the following question oflaw." Whether, in the facts and circumstances of the case,the Tribunal was right in allowing set off of prioryears business loss and unabsorbed depreciationagainst short term gains ? " 4. We heard the argument of the learned counsel appearing forthe Revenue, who in all his fairness submitted that the question oflaw framed in this appeal is covered against the Revenue in the caseof Commissioner of Income Tax vs. M/s. Pioneer Asia Packing (P)Limited decided by this Court on 21.11.2007 in T.C.(A) No.1423 of2007. 3. The correctness of the said order is canvassed by the Revenueby filing the present appeal by formulating the following question oflaw." Whether, in the facts and circumstances of the case,the Tribunal was right in allowing set off of prioryears business loss and unabsorbed depreciationagainst short term gains ? " 4. We heard the argument of the learned counsel appearing forthe Revenue, who in all his fairness submitted that the question oflaw framed in this appeal is covered against the Revenue in the caseof Commissioner of Income Tax vs. M/s. Pioneer Asia Packing (P)Limited decided by this Court on 21.11.2007 in T.C.(A) No.1423 of2007. 5. As per the amended provisions of section 32(2) of the Act,with effect from 01.04.1997, if the income from business for theassessment year is insufficient to absorb the depreciation allowanceof that assessment year, the amended provision permits absorption ofdepreciation allowance of a business against profits and gains of anyother business of the same assessment year. When the depreciationallowance of a business of the assessment year is not absorbed by anyother business of the same assessment year, then the remainingunabsorbed depreciation allowance could be set off against the incomeunder any other head, that is assessable for the same assessmentyear. In the event of depreciation allowance of the year is unableto be absorbed by any other business income or from income under anyother head in the same assessment year, the remaining unabsorbeddepreciation allowance shall be carried forward to the following yearand (a) unabsorbed allowance shall be set off against the profits andgains of any business carried by a person. (b) If the unabsorbeddepreciation allowance cannot be wholly set off so, it shall beallowed to be carried forward for the following eight assessmentyears immediately succeeding the assessment year in which it wasfirst computed. The proviso provides that the business to whichdepreciation allowance is related to must be carried on in thesucceeding year so as to allow such set off. Thus, by the amendment,the deeming fiction of treating the earlier years' unabsorbed depreciation as current year depreciation was removed. The periodavailable for absorbing the unabsorbed depreciation against theprofit of the succeeding years was limited to eight years. Theclarification of the Finance Minister in the Parliament is also tothe effect that inasmuch as the cumulated unabsorbed depreciationbrought forward as on 01.04.1997 could still be set off against thetaxable business profit or income under any other head for theassessment year 1997-98 and seven subsequent years vide 222 ITR(stat) 36. Circular of the Central Board of Direct Taxes No.762dated 18.02.1998 (230 ITR (stat) 12) also clarifies the issue to thefollowing effect : “Sub-section (2) of section 32, as it existed uptoassessment year 1996-97, provided that the unabsorbeddepreciation of a year shall be added to the amount of theallowance for depreciation of the following previous year anddeemed to be part of that allowance. Therefore, theunabsorbed depreciation allowance, if any, of the assessmentyear 1996-97 shall be added to the amount of the allowancefor depreciation of assessment year 1997-98 and deemed to bepart of the allowance for this year. In other words, theunabsorbed depreciation allowance of assessment year 1996-97shall be added to the allowance of 1997-98 and will be deemedto be the allowance of that year. The limitation of eightyears shall start from the assessment year 1997-98.” 6. In view of the above position of law, we are of the view thatthe Tribunal has rightly come to the conclusion that the assessee isentitled to the unabsorbed depreciation brought forward as on01.04.1997 and could be set off against the business profits. 6. In view of the above position of law, we are of the view thatthe Tribunal has rightly come to the conclusion that the assessee isentitled to the unabsorbed depreciation brought forward as on01.04.1997 and could be set off against the business profits. 7. For the fore-going reasons, the appeal is dismissed as noquestion of law, much less a substantial question of law is involved. /true copy/ kb To 1. THE ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, CHENNAI. INCOME TAX APPELLATE TRIBUNAL, CHENNAI. 2. THE COMMISSIONER OF INCOME TAX (APPEALS) -V CHENNAI - 34. TAX (APPEALS) -V CHENNAI - 34. 3. THE DEPUTY COMMISIONER OF INCOME TAX COMPANY CIRCLE VI (1) OF INCOME TAX COMPANY CIRCLE VI (1) 4. THE COMMISSIONER OF INCOME TAX, CHENNAI. TAX, CHENNAI. + 1 CC to Mr. S.Pushya Sitaraman Advocate SR NO.15074 T.C.(A) No.135 of 2008KU(CO)JJM(31/03/08)