Commissioner Of Income Tax, (Largetaxpayers Units), Kolkata v. M/S. Hindustan Copper Limited

OD-12 ITAT/8/2018IA No.GA/2/2018 (Old No.GA/64/2018) IN THE HIGH COURT AT CALCUTTASpecial Jurisdiction (Income Tax)ORIGINAL SIDE COMMISSIONER OF INCOME TAX, (LARGETAXPAYERS UNITS), KOLKATA -Versus- M/S. HINDUSTAN COPPER LIMITED Appearance:Ms. Sucharita Biswas, Adv....for the appellant. Mr. J. P. Khaitan, Sr. Adv.Mr. Sourav Chunder, Adv.Mr. Biman Kumar Saha, Adv.Mr. Jayanta Dutta, Adv.Mr. Atanu Mondal, Adv....for the respondent. BEFORE: The Hon’ble JUSTICE T.S. SIVAGNANAM -And- The Hon’ble JUSTICE HIRANMAY BHATTACHARYYA The Court : This appeal of the revenue filed underSection 260A of the Income Tax Act (the ‘Act’ in brevity) isdirected against the order dated 12[th] July, 2017 passed by theIncome Tax Appellate Tribunal, C-Bench, Kolkata (the ‘Tribunal’)in ITA No.2126/Kol/2014 for the assessment year 2008-09. The revenue has raised the following substantialquestions of law for consideration: “a)Whether on the facts and in the circumstances ofthe case the Learned Income Tax Appellate Tribunal, “C” BenchKolkata erred in law by holding that the subsequent amendmentof Assessment Year 2001-02 has allowed the depreciation ofAssessment Year 1997-98, 1998-99, 1999-2000 and 2000-01 to becarried forward for unlimited period and can be claimed to beset off Assessment Year 2008-09? b) Whether on the facts and in the circumstances of thecase the Learned Income Tax Appellate Tribunal, “C” BenchKolkata has correctly interpreted the provision of Section32(2) of the Income Tax Act, 1961 by allowing unlimitedcarry forward of unabsorbed depreciation for periods whenthere has been restrictions on such carry forward to eightAssessment Years prior to amendment made in Finance Act,2001?” We have heard Ms. Sucharita Biswas, learned Counsel forthe appellant/revenue and Mr. J.P. Khaitan, learned senior counselfor the respondent/assessee. The issue involved in this case is no longer res integraand has been settled in several decisions. It is brought to ournotice by the learned senior counsel for the respondent that inthe case of Commissioner of Income Tax vs. Sanmar SpecialityChemicals Ltd. reported in [2020] 428 ITR 237 (Mad) identicalissue was considered wherein the Court noted various decisions ofthe other High Courts and in particular the decision of the HighCourt of Gujarat in General Motors India P. Ltd. vs. DCIT reportedin [2013] 354 ITR 244(Guj.) as well as the circular no.14 of 2001dated 9[th] November, 2001 issued by the Central Board of Direct Taxes (CBDT) and granted relief to the assessee. The operativeportion of the judgement reads as follows: 4. The short issue, which falls for consideration, is asto whether, in the facts and circumstances of the case,the Tribunal was right in permitting the assessee to carryforward the depreciation loss pertaining to the assessmentyear 1997-98 to the present assessment year namely 2006-07, which is beyond the eight year period mandated underthe provisions of section 32 of the Act. 5. The revenue is before us by referring to the decisionof the High Court of Calcutta in the case of PeerlessGeneral Finance & Investment Co. Ltd. v. CIT [2016] 73taxmann.com 257/242 Taxman 209 and submitting that anidentical issue was considered by the Calcutta High Courtwherein the assessee was not granted relief. It is furthersubmitted that the said decision of the Calcutta HighCourt was tested for its correctness by the Hon'bleSupreme Court and the special leave petition filed againstthe judgment of the Calcutta High Court was dismissed inthe decision in Peerless General Finance & Investment Co.Ltd. v. CIT [2016] 73 taxmann.com 258/242 Taxman 173/380ITR 165 (SC). 5. The revenue is before us by referring to the decisionof the High Court of Calcutta in the case of PeerlessGeneral Finance & Investment Co. Ltd. v. CIT [2016] 73taxmann.com 257/242 Taxman 209 and submitting that anidentical issue was considered by the Calcutta High Courtwherein the assessee was not granted relief. It is furthersubmitted that the said decision of the Calcutta HighCourt was tested for its correctness by the Hon'bleSupreme Court and the special leave petition filed againstthe judgment of the Calcutta High Court was dismissed inthe decision in Peerless General Finance & Investment Co.Ltd. v. CIT [2016] 73 taxmann.com 258/242 Taxman 173/380ITR 165 (SC). 6. After elaborately hearing the learned Senior StandingCounsel appearing for the appellant - Revenue, we are ofthe considered opinion that the reliance placed on thedecision in the case of Peerless General Finance &Investment Co. Ltd. (supra), would, in no manner, assistthe case of the Revenue. We say so after referring toCircular No. 14/2001 dated 22-11-2002 issued by theCentral Board of Direct Taxes, which are Explanatory Notes on Provisions relating to Direct Taxes. Paragraph 30 ofthe said circular deals with modification of provisionsrelating to depreciation. 7. For better appreciation, we quote paragraphs 30.1 to30.5 of the said circular as hereunder : "30.1 Under the existing provisions of section 32of the Income-tax Act, carry forward and set-offof unabsorbed depreciation is allowed for 8assessment years. 30.2 With a view to enable the industry toconserve sufficient funds to replace plant andmachinery, specially in an era where obsolescencetakes place so often, the Act has dispensed withthe restriction of 8 years for carry forward andset-off of unabsorbed depreciation. The Act hasalso clarified that in computing the profits andgains of business or profession for any previousyear, deduction of depreciation under section 32shall be mandatory. 30.3 Under the existing provisions, no deductionfor depreciation is allowed on any motor carmanufactured outside India unless it is used (i)in the business of running it on hire fortourists, or (ii) outside India in the assessee'sbusiness or profession in another country. 30.4 The Act has allowed depreciation allowance onall imported motor cars acquired on or after 1stApril, 2001. 30.5 These amendments will take effect from the1st April, 2002, and will, accordingly apply in relation to the assessment year 2002-2003 andsubsequent years." 8. From paragraph 30.2 of the above circular, it is clearthat the restriction of 8 years for carry forward and set-off of unabsorbed depreciation was dispensed with, with aview to enable the industries to conserve sufficient fundsto replace plant and machinery. 9. The learned Senior Standing Counsel appearing for theRevenue would point out that those amendments took placewith effect from 1-4-2002 and would accordingly apply inrelation to the assessment year 2002-03 and the subsequentyears whereas in the assessee's case, the depreciationloss, which they sought to carry forward is for theassessment year 1997-98. 10. The proper manner, in which, the modification has tobe understood, is to the effect that from the assessmentyear 2002-03, if the eight years' period was not lapsed,then the assessee would be entitled to carry forward theloss without any restriction on the time limit. Thisaspect has been dealt with elaborately in the decision ofthe Division Bench of the Gujarat High Court in the caseof General Motors India (P.) Ltd. v. Dy. CIT [2012] 25taxmann.com 364/210 Taxman 20/[2013] 354 ITR 244 whereinthe relevant portions are as follows : "37. The CBDT Circular clarifies the intent of theamendment that it is for enabling the industry toconserve sufficient funds to replace plant andmachinery and accordingly the amendment dispenseswith the restriction of 8 years for carry forwardand set-off of unabsorbed depreciation. Theamendment is applicable from assessment year 2002- "37. The CBDT Circular clarifies the intent of theamendment that it is for enabling the industry toconserve sufficient funds to replace plant andmachinery and accordingly the amendment dispenseswith the restriction of 8 years for carry forwardand set-off of unabsorbed depreciation. Theamendment is applicable from assessment year 2002- 03 and subsequent years. This means that anyunabsorbed depreciation available to an assesseeon 1st day of April, 2002 (A.Y. 2002-03) will bedealt with in accordance with the provisions ofsection 32(2) as amended by Finance Act, 2001 andnot by the provisions of section 32(2) as it stoodbefore the said amendment. Had the intention ofthe Legislature been to allow the unabsorbeddepreciation allowance worked out in A.Y. 1997-98only for eight subsequent assessment years evenafter the amendment of section 32(2) by FinanceAct, 2001 it would have incorporated a provisionto that effect. However, it does not contain anysuch provision. Hence keeping in view the purposeof amendment of section 32(2) of the Act, apurposive and harmonious interpretation has to betaken. While construing taxing statutes, rule ofstrict interpretation has to be applied, givingfair and reasonable construction to the languageof the section without leaning to the side ofassessee or the revenue. But if the legislaturefails to express clearly and the assessee becomesentitled for a benefit within the ambit of thesection by the clear words used in the section,the benefit accruing to the assessee cannot bedenied. However, Circular No. 14 of 2001 hadclarified that under section 32(2), in computingthe profits and gains of business or professionfor any previous year, deduction of depreciationunder section 32 shall be mandatory. Therefore,the provisions of section 32(2) as amended byFinance Act, 2001 would allow the unabsorbeddepreciation allowance available in the A.Ys. 1997-98, 1999-2000, 2000-01 and 2001-02 to be carried forward to the succeeding years, and ifany unabsorbed depreciation or part thereof couldnot be set off till the A.Ys. 2002-03 then itwould be carried forward till the time it is set-off against the profits and gains of subsequentyears. 38. Therefore, it can be said that, currentdepreciation is deductible in the first place fromthe income of the business to which it relates. Ifsuch depreciation amount is larger than the amountof the profits of that business, then such excesscomes for absorption from the profits and gainsfrom any other business or business, if any,carried on by the assessee. If a balance is lefteven thereafter, that becomes deductible from outof income from any source under any of the otherheads of income during that year. In case there isa still balance left over, it is to be treated asunabsorbed depreciation and it is taken to thenext succeeding year. Where there is currentdepreciation for such succeeding year theunabsorbed depreciation is added to the currentdepreciation for such succeeding year and isdeemed as part thereof. If, however, there is nocurrent depreciation for such succeeding year, theunabsorbed depreciation becomes the depreciationallowance for such succeeding year. We are of theconsidered opinion that any unabsorbeddepreciation available to an assessee on 1st dayof April 2002 (A.Y. 2002-03) will be dealt with inaccordance with the provisions of section 32(2) asamended by Finance Act, 2001. And once the Circular No. 14 of 2001 clarified that therestriction of 8 years for carry forward and set-off of unabsorbed depreciation had been dispensedwith, the unabsorbed depreciation from A.Y.1997-98upto the A.Y. 2001-02 got carried forward to theassessment year 2002-03 and became part thereof,it came to be governed by the provisions ofsection 32(2) as amended by Finance Act, 2001 andwere available for carry forward and set-offagainst the profits and gains of subsequent years,without any limit whatsoever." Circular No. 14 of 2001 clarified that therestriction of 8 years for carry forward and set-off of unabsorbed depreciation had been dispensedwith, the unabsorbed depreciation from A.Y.1997-98upto the A.Y. 2001-02 got carried forward to theassessment year 2002-03 and became part thereof,it came to be governed by the provisions ofsection 32(2) as amended by Finance Act, 2001 andwere available for carry forward and set-offagainst the profits and gains of subsequent years,without any limit whatsoever." 11. A similar issue was considered by a Division Bench ofthe Bombay High Court in the case of CIT v. Bajaj HindustanLtd. [IT Appeal Nos. 134 to 136 and 140, 141 and 148 of2018, dated 13-6-2018] following the decision in the caseof CIT v. Hindustan Unilever Ltd. [2016] 72 taxmann.com325/[2017] 394 ITR 73 (Bom.). The special leave petitionfiled by the Revenue against the above decision wasdismissed by the Hon'ble Supreme Court in the decision inPr. CIT v. Bajaj Hindustan Ltd. [SLP (C) Diary No. 48020 of2018, dated 25-1-2019]. 12. In the decision of the Punjab & Haryana High Court inthe case of CIT v. G.T.M. Synthetics Ltd. [2013] 30taxmann.com 83/[2012] 347 ITR 458], an identical issue wasconsidered in the following terms : '8. The effect of omission of the aforesaidproviso was enumerated by the Central Board ofDirect Taxes, vide Circular No. 794 dated 9-8-2000 [(2000) 245 ITR (Statute)] 21 that theunabsorbed depreciation allowance could be set-off against the income under any other head evenwhere the business was not carried on. Clause 22 of the said circular which is relevantis as under: "22. Requirement of continuance of same businessfor set-off of unabsorbed depreciation dispensedwith: 22.1 Under the existing provisions of sub-section (2) of section 32 of the Income-tax Act,carried forward unabsorbed depreciation isallowed to be set-off against profits and gainsof business or profession of the subsequentyear, subject to the condition that the businessor profession for which depreciation allowancewas originally computed continued to be carriedon in that year. A similar condition in section72 for the purpose of carry forward and set-offof unabsorbed business loss was removed lastyear. 22.2 With a view to harmonise the provisionsrelating carry forward and set-off of unabsorbeddepreciation and unabsorbed loss, the Act hasdispensed with the condition of continuance ofsame business for the purpose of carry forwardand set-off of unabsorbed depreciation. 22.3 This amendment will take effect from 1stApril, 2001, and will, accordingly, apply inrelation to the assessment year 2001-2002 andsubsequent years." 9. The CIT(A) and the Tribunal, thus, rightlyallowed unabsorbed depreciation relevant to theassessment year 1996-97 to be set-off against the income from long term capital gains andincome from other sources for the assessmentyear 2001-2002.' 13. Recently, in the decision of a Division Bench of theBombay High Court in the case of Pr. CIT v. Gunnebo India(P.) Ltd. [2019] 104 CCH 227, the issue was considered infavour of the assessee after referring to the decision ofthe Division Bench of the Gujarat High Court in the case ofGeneral Motors India (P.) Ltd., wherein the relevantportions read thus : 22.3 This amendment will take effect from 1stApril, 2001, and will, accordingly, apply inrelation to the assessment year 2001-2002 andsubsequent years." 9. The CIT(A) and the Tribunal, thus, rightlyallowed unabsorbed depreciation relevant to theassessment year 1996-97 to be set-off against the income from long term capital gains andincome from other sources for the assessmentyear 2001-2002.' 13. Recently, in the decision of a Division Bench of theBombay High Court in the case of Pr. CIT v. Gunnebo India(P.) Ltd. [2019] 104 CCH 227, the issue was considered infavour of the assessee after referring to the decision ofthe Division Bench of the Gujarat High Court in the case ofGeneral Motors India (P.) Ltd., wherein the relevantportions read thus : "3. The Revenue carried the matter in appeal. TheAppellate Tribunal dismissed the appeal of theRevenue making the following observations- "16. Wehave observed that the current year's depreciationis allowed to be set-off against the income frombusiness as well as against the other heads ofincome and unabsorbed depreciation in carry forwardand become part of the depreciation of thesubsequent year and the total depreciation becomescurrent year's depreciation as per section 32(1) ofthe Act, which is allowed to be set-off against theincome under any head of income. As per theprovisions of section 32(2) of the Act r.w.s. 70, 71and 72 of the Act, it becomes very clear that thetotal depreciation comprising of the depreciation ofthe relevant assessment year along with theunabsorbed depreciation of the earlier years becomesthe total current year's depreciation which isallowed to be set off against income under any headof income including long term capital gain.Accordingly, we find no reason to interfere with theorder of CIT(A) qua this issue and the same is hereby upheld. We also hold that as per provisionsof section 72 of the Act, the unabsorbed businessloss (other than speculative loss) of earlier yearsshall be allowed to be set-off only against theprofits and gains from business carried on by theassessee of the current year and so on. We orderaccordingly. However, our above decision withrespect to ground nos. (i) and (ii) raised in memoof appeal filed by Revenue should be read inconjunction with and subject to our findings withrespect to ground nos. (iii) and (iv) which aredecided by us in the preceding para's of this orderand the computation shall be made accordingly." 4. Having heard the learned counsel for parties andhaving perused the documents on record, we do notfind any error in the order of the AppellateTribunal. Gujarat High Court in the case of GeneralMotors India (P.) Ltd. (supra) had consideredsomewhat similar issue, of course in the backdrop ofthe assessee's challenge to a notice of reopening ofthe assessment. The Gujarat High Court had held andobserved as under- "38 Therefore, it can be said that, currentdepreciation is deductible in the first placefrom the income of the business to which itrelates. If such depreciation amount is largerthan the amount of the profits of that business,then such excess comes for absorption from theprofits and gains from any other business orbusiness, if any, carried on by the assessee. Ifa balance is left even thereafter, that becomesdeductible from out of income from any source "38 Therefore, it can be said that, currentdepreciation is deductible in the first placefrom the income of the business to which itrelates. If such depreciation amount is largerthan the amount of the profits of that business,then such excess comes for absorption from theprofits and gains from any other business orbusiness, if any, carried on by the assessee. Ifa balance is left even thereafter, that becomesdeductible from out of income from any source under any of the other heads of income duringthat year. In case there is a still balance leftover, it is to be treated as unabsorbeddepreciation and it is taken to the nextsucceeding year. Where there is currentdepreciation for such succeeding year theunabsorbed depreciation is added to the currentdepreciation for such succeeding year and isdeemed as part thereof. If, however, there is nocurrent depreciation for such succeeding year,the unabsorbed depreciation becomes thedepreciation allowance for such succeeding year.We are of the considered opinion that anyunabsorbed depreciation available to an assesseeon 1st April, 2002 (asst. yr. 2002-03) will bedealt with in accordance with the provisions ofsection 32(2) as amended by Finance Act, 2001.And once the Circular No. 14 of 2001 clarifiedthat the restriction of 8 years for carry forwardand set-off of unabsorbed depreciation had beendispensed with, the unabsorbed depreciation fromasst. yr. 1997-98 up to the asst. yr. 2001- 02got carried forward to the asst. yr. 2002-03 andbecame part thereof, it came to be governed bythe provisions of section 32(2) as amended byFinance Act, 2001 and were available for carryforward and set-off against the profits and gainsof subsequent years, without any limitwhatsoever." In our considered view, the above decisions will clearlyenure to the benefit of the respondent - assessee. We are fullysatisfied that the substantial questions of law raised by the revenue before us are fully covered by the above referreddecision. Following the above decision, the appeal (ITAT/8/2018)filed by the revenue stands dismissed and the substantialquestions of law are answered against the revenue.The connected application for stay (GA/2/2018 (OldNo.GA/64/2018) also stands dismissed. (T.S. SIVAGNANAM, J.) (HIRANMAY BHATTACHARYYA, J.) A/s./S.Das