Law That Arise For Consideration In The Above Appeal Has Alreadybeen Decided Against The Revenue And In Favour Of The Assesseein The Judgment Dated 06.07.2021 M v. M/S.kmc Specialityhospitals India Ltd., (Formerly Sea Horse Hospitals P. Ltd.,)

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATE: 20.07.2021 THE HON'BLE MR. JUSTICE M.DURAISWAMYAND THE HON'BLE MRS.JUSTICE R.HEMALATHA T.C.A.No.236 of 2017 The Commissioner of Income Tax,Corporate Circle 3 (1)Chennai.... Appellant/Appellant M/s.Tamil Nadu Small IndustriesCorporation Limited,Thiru.Vi.Ka. Industrial Estate,Guindy, Chennai – 600 032.... Respondent/Respondent Appeal preferred under Section 260A of the Income Tax Act,1961, against the order of the Income Tax Appellate Tribunal,Madras, "A" Bench, dated 25.11.2016 in I.T.A.No.584/Mds/2016 forthe Assessment Year 2008-09. And against O/o The Commissioner of Income Tax (Appeals)-11-121, Mahatma Gandhi Road, Chennai-34 and made in ITA No.11/2014-2015-CIT(A)-11 dated 30/12/2015 and against the O/o theAssistant Commissioner of Income Tax, Company Circle III(1),Chennai and made in PAN.GIR No. , dated 05/03/2014 forthe Assessment Year 2008-2009. For Appellant : Mr.M.Swaminathan Senior Standing Counsel assisted by Mrs.V.Pushpa Junior Standing Counsel For Respondent : Mr.A.Thiagarajan, Senior Counsel for Mr.S.Ramesh Kumar JUDGMENT (Judgment was delivered by M.DURAISWAMY, J.) Challenging the order passed in I.T.A.No584/Mds/2016 inrespect of the Assessment Year 2008-09 on the file of the IncomeTax Appellate Tribunal, Chennai, "A" Bench, the Revenue hasfiled the above appeal. 2.The assessee Company is a wholly owned Company ofGovernment of Tamil Nadu. It filed its return of income for theAssessment Year 2008-09 on 30.09.2008, declaring taxable incomeof Rs.11,04,22,407/- after setting off loss from business ofRs.10,60,57,641/- with the long term capital gains. The case wastaken up for scrutiny and assessment under Section 143(3) wascompletedon22.09.2010withassessedincomeofRs.58,48,39,921/- by making additions. The case was re-opened byissuing notice under Section 148 on 08.03.2013 for the reasonthat the unabsorbed depreciation pertains to Assessment Years1997-98, 1998-99 and 1999-2000, was allowed in the assessmentorder though not allowable beyond 8 years and also can be setoff only against income under the head 'business income'. As perSection 32(2) prior to amendment dated 01.04.2002, theunabsorbed depreciation can be carried forward only for 8subsequent year and set off only against the business income andhence, not an allowable claim. The re-opened assessment orderwas completed on 05.03.2014. Aggrieved over the order ofassessment, the assessee preferred an appeal before theCommissioner of Income Tax (Appeals) and the Appellate Authorityallowed the appeal. Aggrieved over the order passed by theCommissioner of Income Tax (Appeals), the Revenue preferred anappeal before the Income Tax Appellate Tribunal and the Tribunaldismissed the appeal. Challenging the order passed by theTribunal, the Revenue has filed the above appeal. 3.The above Tax Case Appeal was admitted on the followingsubstantial question of law:“Whether the direction of the Tribunal on theAssessing Officer to set off the unabsorbeddepreciation pertaining to Assessment Year 1997-98 isbad, when according to the appellant the intention ofthe legislature was not to carry forward the unabsorbeddepreciation beyond eight years from the year ofcomputation?” 4.When the appeal is taken up for hearing, Mr.M.Swaminathan,learned Senior Standing Counsel assisted by Ms.V.Pushpa, learnedJunior Standing Counsel, fairly submitted that the question of https://hcservices.ecourts.gov.in/hcservices/ law that arise for consideration in the above appeal has alreadybeen decided against the Revenue and in favour of the assesseein the judgment dated 06.07.2021 made in T.C.A.No.62 of 2015[The Commissioner of Income Tax, Trichy Vs. M/s.KMC SpecialityHospitals India Ltd., (Formerly Sea Horse Hospitals P. Ltd.,)No.6, Royal Road, Trichy] wherein this Bench held as follows: 4.When the appeal is taken up for hearing, Mr.M.Swaminathan,learned Senior Standing Counsel assisted by Ms.V.Pushpa, learnedJunior Standing Counsel, fairly submitted that the question of https://hcservices.ecourts.gov.in/hcservices/ law that arise for consideration in the above appeal has alreadybeen decided against the Revenue and in favour of the assesseein the judgment dated 06.07.2021 made in T.C.A.No.62 of 2015[The Commissioner of Income Tax, Trichy Vs. M/s.KMC SpecialityHospitals India Ltd., (Formerly Sea Horse Hospitals P. Ltd.,)No.6, Royal Road, Trichy] wherein this Bench held as follows: “...(ii)[2020]122taxmann.com212(Madras)[Commissioner of Income Tax, Chennai Vs. SanmarSpeciality Chemicals Ltd.] wherein the Division Benchheld as follows:“... 3.The appeal was admitted on 2-12-2019 on thefollowing substantial question of law :"Whether, on the facts and in the circumstancesof the case, the Tribunal was right in holdingthat the assessee is entitled for carry forwardof the depreciation loss pertaining to theassessment year 1997-98 to the present assessmentyear 2006-07, which is beyond the eight yearperiod mandated under the provisions of section32 of the Act?" 4.The short issue, which falls for consideration,is as to whether, in the facts and circumstances of thecase, the Tribunal was right in permitting the assesseeto carry forward the depreciation loss pertaining tothe assessment year 1997-98 to the present assessmentyear namely 2006-07, which is beyond the eight yearperiod mandated under the provisions of section 32 ofthe Act. 5.The revenue is before us by referring to thedecision of the High Court of Calcutta in the case ofPeerless General Finance & Investment Co. Ltd. v. CIT[2016] 73 taxmann.com 257/242 Taxman 209 and submittingthat an identical issue was considered by the CalcuttaHigh Court wherein the assessee was not granted relief.It is further submitted that the said decision of theCalcutta High Court was tested for its correctness bythe Hon'ble Supreme Court and the special leavepetition filed against the judgment of the CalcuttaHigh Court was dismissed in the decision in PeerlessGeneral Finance & Investment Co. Ltd. v. CIT [2016] 73taxmann.com 258/242 Taxman 173/380 ITR 165 (SC). 6.After elaborately hearing the learned SeniorStanding Counsel appearing for the appellant-Revenue,we are of the considered opinion that the relianceplaced on the decision in the case of Peerless GeneralFinance & Investment Co. Ltd. (supra), would, in nomanner, assist the case of the Revenue. We say so afterreferring to Circular No. 14/2001 dated 22-11-2002 issued by the Central Board of Direct Taxes, which areExplanatory Notes on Provisions relating to DirectTaxes. Paragraph 30 of the said circular deals withmodification of provisions relating to depreciation. 7.For better appreciation, we quote paragraphs30.1 to 30.5 of the said circular as hereunder :"30.1 Under the existing provisions of section32 of 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 with therestriction of 8 years for carry forward and set-offof unabsorbed depreciation. The Act has alsoclarified that in computing the profits and gains ofbusiness or profession for any previous year,deduction of depreciation under section 32 shall bemandatory. 30.3 Under the existing provisions, nodeduction for depreciation is allowed on any motorcar manufactured outside India unless it is used (i)in the business of running it on hire for tourists,or (ii) outside India in the assessee's business orprofession in another country. 30.4 The Act has allowed depreciation allowanceon all imported motor cars acquired on or after 1stApril, 2001. 30.3 Under the existing provisions, nodeduction for depreciation is allowed on any motorcar manufactured outside India unless it is used (i)in the business of running it on hire for tourists,or (ii) outside India in the assessee's business orprofession in another country. 30.4 The Act has allowed depreciation allowanceon all imported motor cars acquired on or after 1stApril, 2001. 30.5 These amendments will take effect from the1st April, 2002, and will, accordingly apply inrelation to the assessment year 2002-2003 andsubsequent years." 8. From paragraph 30.2 of the above circular, itis clear that the restriction of 8 years for carryforward and set-off of unabsorbed depreciation wasdispensed with, with a view to enable the industries toconserve sufficient funds to replace plant andmachinery. 9. The learned Senior Standing Counsel appearingfor the Revenue would point out that those amendmentstook place with effect from 1-4-2002 and wouldaccordingly apply in relation to the assessment year2002-03 and the subsequent years whereas in theassessee's case, the depreciation loss, which theysought to carry forward is for the assessment year1997-98. 10. The proper manner, in which, the modificationhas to be understood, is to the effect that from theassessment year 2002-03, if the eight years' period was not lapsed, then the assessee would be entitled tocarry forward the loss without any restriction on thetime limit. This aspect has been dealt with elaboratelyin the decision of the Division Bench of the GujaratHigh Court in the case of General Motors India (P.)Ltd. v. Dy. CIT [2012] 25 taxmann.com 364/210 Taxman20/[2013] 354 ITR 244 wherein the relevant portions areas follows : "37.The CBDT Circular clarifies the intent ofthe amendment that it is for enabling the industryto conserve 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 2002-03and subsequent years. This means that any unabsorbeddepreciation available to an assessee on 1[st] day ofApril, 2002 (A.Y. 2002-03) will be dealt with inaccordance with the provisions of section 32(2) asamended by Finance Act, 2001 and not by theprovisions of section 32(2) as it stood before thesaid amendment. Had the intention of the Legislaturebeen to allow the unabsorbed depreciation allowanceworked out in A.Y. 1997-98 only for eight subsequentassessment years even after the amendment of section32(2) by Finance Act, 2001 it would haveincorporated a provision to that effect. However, itdoes not contain any such provision. Hence keepingin view the purpose of amendment of section 32(2) ofthe Act, a purposive and harmonious interpretationhas to be taken. While construing taxing statutes,rule of strict interpretation has to be applied,giving fair and reasonable construction to thelanguage of the section without leaning to the sideof assessee 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, thebenefit accruing to the assessee cannot be denied.However, Circular No. 14 of 2001 had clarified thatunder section 32(2), in computing the profits andgains of business or profession for any previousyear, deduction of depreciation under section 32shall be mandatory. Therefore, the provisions ofsection 32(2) as amended by Finance Act, 2001 wouldallow the unabsorbed depreciation allowanceavailable in the A.Ys. 1997-98, 1999-2000, 2000-01and 2001-02 to be carried forward to the succeedingyears, and if any unabsorbed depreciation or partthereof could not be set off till the A.Ys. 2002-03 then it would be carried forward till the time it isset-off against the profits and gains of subsequentyears. then it would be carried forward till the time it isset-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 gains fromany other business or business, if any, carried onby the assessee. If a balance is left eventhereafter, that becomes deductible from out ofincome from any source under any of the other headsof income during that year. In case there is a stillbalance left over, it is to be treated as unabsorbeddepreciation and it is taken to the next succeedingyear. Where there is current depreciation for suchsucceeding year the unabsorbed depreciation is addedto the current depreciation for such succeeding yearand is deemed as part thereof. If, however, there isno current depreciation for such succeeding year,the unabsorbed depreciation becomes the depreciationallowance for such succeeding year. We are of theconsidered opinion that any unabsorbed depreciationavailable to an assessee on 1st day of April 2002(A.Y. 2002-03) will be dealt with in accordance withthe provisions of section 32(2) as amended byFinance Act, 2001. And once the Circular No. 14 of2001 clarified that the restriction of 8 years forcarry forward and set-off of unabsorbed depreciationhad been dispensed with, the unabsorbed depreciationfrom A.Y.1997-98 upto the A.Y. 2001-02 got carriedforward to the assessment year 2002-03 and becamepart thereof, it came to be governed by theprovisions of section 32 (2) as amended by FinanceAct, 2001 and were available for carry forward andset-off against the profits and gains of subsequentyears, without any limit whatsoever."11. A similar issue was considered by a DivisionBench of the Bombay High Court in the case of CIT v.Bajaj Hindustan Ltd. [IT Appeal Nos. 134 to 136 and140, 141 and 148 of 2018, dated 13-6- 2018] followingthe decision in the case of CIT v. Hindustan UnileverLtd. [2016] 72 taxmann.com 325/[2017] 394 ITR 73(Bom.). The special leave petition filed by the Revenueagainst the above decision was dismissed by the Hon'bleSupreme Court in the decision in Pr. CIT v. BajajHindustan Ltd. [SLP (C) Diary No. 48020 of 2018, dated25-1-2019].12. In the decision of the Punjab & Haryana High Court in the case of CIT v. G.T.M. Synthetics Ltd.[2013] 30 taxmann.com 83/[2012] 347 ITR 458], anidentical issue was considered 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 the unabsorbeddepreciation allowance could be set-off against theincome under any other head even where the businesswas not carried on.Clause 22 of the said circular which isrelevant is as under:"22. Requirement of continuance of samebusiness for set-off of unabsorbed depreciationdispensed with: 22.1 Under the existing provisions of sub-section (2) of section 32 of the Income-tax Act,carried forward unabsorbed depreciation is allowedto be set-off against profits and gains ofbusiness or profession of the subsequent year,subject to the condition that the business orprofession for which depreciation allowance wasoriginally computed continued to be carried on inthat year. A similar condition in section 72 forthe purpose of carry forward and set-off ofunabsorbed business loss was removed last year.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 forward andset-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 theincome from long term capital gains and income fromother sources for the assessment year 2001-2002.' 13. Recently, in the decision of a Division Benchof the Bombay High Court in the case of Pr.Commissioner of Income Tax v. Gunnebo India (P.) Ltd.[2019] 104 CCH 227, the issue was considered in favourof the assessee after referring to the decision of theDivision 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. The Appellate 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 ishereby 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 partiesand having perused the documents on record, we donot find 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 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, 4. Having heard the learned counsel for partiesand having perused the documents on record, we donot find 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 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 theconsideredopinionthatanyunabsorbeddepreciation available to an assessee on 1stApril, 2002 (asst. yr. 2002-03) will be dealt within accordance with the provisions of section 32(2)as amended by Finance Act, 2001. And once theCircular 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 asst. yr.1997-98 up to the asst. yr. 2001- 02 got carriedforward to the asst. yr. 2002-03 and became partthereof, it came to be governed by the provisionsof section 32(2) as amended by Finance Act, 2001and were available for carry forward and set-offagainst the profits and gains of subsequent years,without any limit whatsoever." 14. In our considered view, the above decisionswill clearly enure to the benefit of the respondent- assessee. 15. Accordingly, the above tax case appeal isdismissed and the substantial question of law isanswered against the Revenue. No costs.” 5.Mr.K.Ravi, learned counsel appearing for therespondent submitted that in view of the ratio laiddown by the Hon'ble Division Bench of this Court in thejudgments in [2021] 127 taxmann.com 805 (Madras) and[2020] 122 taxmann.com 212 (Madras), cited supra, theabove appeal may be dismissed. 6.Having regard to the submissions made by thelearned counsel on either side, following the ratiolaid down in [2021] 127 taxmann.com 805 (Madras)[Harvey Heart Hospitals Ltd. Vs. Assistant Commissionerof Income Tax] and [2020] 122 taxmann.com 212 (Madras)[Commissioner of Income Tax, Chennai Vs. SanmarSpeciality Chemicals Ltd.], the question of law isdecided against the Revenue and in favour of the assessee. Accordingly, the Tax Case Appeal isdismissed. No costs.” 5.Mr.A.Thiagarajan, learned senior counsel appearing for therespondent submitted that in view of the ratio laid down by theHon'ble Division Bench of this Court in the judgment made inT.C.A.No.62 of 2015, cited supra, the appeal may be dismissed. 6.Having regard to the submissions made by the learnedcounsel on either side, following the ratio laid down in thejudgment dated 06.07.2021 made in T.C.A.No.62 of 2015, citedsupra, the question of law is decided against the Revenue and infavour of the assessee. Accordingly, the Tax Case Appeal isdismissed. No costs. Sd/- Assistant Registrar(CS VI) //True Copy// va To Sub Assistant Registrar 1.The Income Tax Appellate Tribunal, Chennai, "A" Bench assessee. Accordingly, the Tax Case Appeal isdismissed. No costs.” 5.Mr.A.Thiagarajan, learned senior counsel appearing for therespondent submitted that in view of the ratio laid down by theHon'ble Division Bench of this Court in the judgment made inT.C.A.No.62 of 2015, cited supra, the appeal may be dismissed. 6.Having regard to the submissions made by the learnedcounsel on either side, following the ratio laid down in thejudgment dated 06.07.2021 made in T.C.A.No.62 of 2015, citedsupra, the question of law is decided against the Revenue and infavour of the assessee. Accordingly, the Tax Case Appeal isdismissed. No costs. Sd/- Assistant Registrar(CS VI) //True Copy// va To Sub Assistant Registrar 1.The Income Tax Appellate Tribunal, Chennai, "A" Bench 2.The Commissioner of Income Tax (Appeal)-II, 121, Mahatma Gandhi Road, Chennai-34.3.The Assistant Commissioner of Income Tax, Company Circle III(II), Chennai. 4.The Commissioner of Income Tax, Corporate Circle 3(1), Chennai. +1cc to M/s.M.Swaminathan, Advocate Sr.34776+1cc to M/s.S.Ramesh Kumar, Advocate Sr.34542 T.C.A.No.236 of 2017 rr[co]srg 09/08/2021