The Assessee Placed Reliance On The Decision Of The Supreme Court Reported In 32 Itr 688 (United Commercial Bank Ltd v. The Revenue Preferred An Appeal To The Income Tax

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIANandTHE HONOURABLE MRS.JUSTICE CHITRA VENKATARAMAN The Commissioner of Income-taxCoimbatore. .. Appellant M/s.Madras Oxygen and Acetylene Co. Ltd.Thekkupalayam Post, P.N.PalayamCoimbatore. .. Respondent PRAYER: Tax Case Appeal filed under Section 260-A of the IncomeTax Act, 1961, against the order dated 15.7.2003 passed inI.T.A.No.564/MDS/1995 on the file of the Income-tax AppellateTribunal "B" Bench, Chennai against the order of Commissioner ofIncome Tax (Appeals) Coimbatore, dated 10.1.95 in I.T.A.257-C/94-95 and arising out of the assessment order of Deputy Commissionerof Income Tax Special Range I, Coimbatore dated 30.3.94 inPAN/GIR.No-CX-2293. ----- :Mr.T.RavikumarStanding Counsel for Income TaxStanding Counsel for Income Tax :Mr.Venkatanarayananrepresenting M/s.Subbaraja Aiyarrepresenting M/s.Subbaraja Aiyar ----- JUDGMENT CHITRA VENKATARAMAN,J. The following is the question of law raised by the Revenuein the Tax Case Appeal filed against the order of the Tribunalrelating to the Assessment Year 1991-92:" Whether on the facts and circumstances of thecase, the Income Tax Appellate Tribunal wasright in law in holding that the investmentallowance carried forward can be set offhttps://hcservices.ecourts.gov.in/hcservices/against income from other sources to the extentto which it reduces the total income to nil under Section 32A(3) of the Income-tax Act,even though the assessee has no business incomefor the assessment year under consideration. " 2. The assessee is a company manufacturing oxygen andacetylene gas. The assessee derived income from the sale ofcylinders used for the purpose of filling these gases. The coston the purchase of the cylinders was allowed as a revenuededuction. The Assessing Authority, however, treated the entireincome from the sale of the cylinders as short-term capital gainsby invoking Section 50 of the Income Tax Act, 1961. In therevised return filed by the assessee on 10.2.1993, it claimed setoff of carried forward business loss of earlier years against theshort-term capital gains of the Assessment Year underconsideration, namely, 1991-92. Placing reliance on the provisionof Section 72(1)(i), the assessee claimed that loss referred inthe said Section was concerned with the loss in the business andnot with the heads under Section 24 of the Act, and hence it wasentitled to set off of carried forward investment allowance underSection 32-A(3) as against the short-term capital gains of theAssessment Year 1991-92, which was to the tune of Rs.61,51,910/-. 3. The assessee placed reliance on the decision of theSupreme Court reported in 32 ITR 688 (UNITED COMMERCIAL BANK LTD.Vs. CIT) as well as the decision reported in 57 ITR 306 (CIT Vs.COCANADA RADHASWAMI BANK LTD.) in support of its contention thatthe business income is broken up under different heads only forthe purpose of computation of total income; as such, it wasentitled for the benefit of set off of carried forward investmentallowance. The said claim of the assessee was rejected by theAssessing Authority on the view that since Sub Clauses (i) and(ii) of Sub Section (1) of Section 72 are inclusive and notexhaustive, the assessee's claim was not acceptable. Aggrieved bythis order, the assessee preferred an appeal before theCommissioner of Income Tax (Appeals). By order dated 10.1.1995,the first appellate authority held that even if the assessee hadno business income for the relevant year and had income only fromcapital gains, still the unabsorbed depreciation and unabsorbedinvestment allowance would have to be allowed as a set off againstsuch income. Thus, the first appellate authority allowed theclaim and directed the assessing authority to verify whether therewas any unabsorbed depreciation or unabsorbed investment allowancerelating to the earlier years for the purpose of granting set offagainst the income of the year under consideration,notwithstanding that there is no assessable income under the head"business" during the year under consideration. 4. The Revenue preferred an appeal to the Income TaxAppellate Tribunal in I.T.A.564/Mds/1995. By order dated15.7.2003, the Income Tax Appellate Tribunal confirmed the view ofthe Commissioner of Income Tax (Appeals) that the entireinvestment allowance carried forward due to insufficient incomecould be allowed to the extent of the total income. In thehttps://hcservices.ecourts.gov.in/hcservices/circumstances, the Tribunal found that there was no infirmity inthe order of the Commissioner of Income Tax (Appeals). Aggrieved by this, the Revenue has preferred the present appeal. 5. Learned standing counsel appearing for the Revenuesubmitted that considering the scope of Section 72 that the lossfor the purpose of adjustment has to be a loss in terms ofcommercial transaction, an allowance carried forward cannot beconstrued as a loss for the purpose of set off. He submitted thatwhere the loss is on account of an unabsorbed depreciation orinvestment allowance, the same does not fall for consideration asa loss for adjustment under Section 72(2). In this connection, heplaced reliance on the decision reported in [1985] 153 ITR 733(C.I.T. Vs. VICTORIA MILLS LTD. (Bom.) to contend that theassessee is not entitled to a set off of the unabsorbed investmentallowance as against the short term capital gains arising from thesale of cylinders. 6. Per contra, learned counsel for the assessee, supportedthe order of the Tribunal that the set off has to be considered interms of the income computed on the profits and gains of thebusiness and hence, prayed for rejection of the case of theRevenue. 7. Heard counsel for both sides. 8. Sections 70 to 80 of the Income Tax Act, 1961 containprovisions on set off of loss and carry forward and set off ofbusiness losses. While Sections 70, 71, 71-A deal on the set offof loss as against the head of income stated therein, where forany assessment year the net result of the computation of incomeunder the head "profits and gains of business" is a loss and suchloss cannot be set off under Section 71 on account of inadequacyor absence of income for the same year under any head, then thesame may be carried forward under Section 72 for set off againstthe profits and gains of any business or profession in thefollowing assessment year. We are concerned herein with thescope of Section 72. 7. Heard counsel for both sides. 8. Sections 70 to 80 of the Income Tax Act, 1961 containprovisions on set off of loss and carry forward and set off ofbusiness losses. While Sections 70, 71, 71-A deal on the set offof loss as against the head of income stated therein, where forany assessment year the net result of the computation of incomeunder the head "profits and gains of business" is a loss and suchloss cannot be set off under Section 71 on account of inadequacyor absence of income for the same year under any head, then thesame may be carried forward under Section 72 for set off againstthe profits and gains of any business or profession in thefollowing assessment year. We are concerned herein with thescope of Section 72. 9. Before dealing with the scope of Section 72, we maynote the provisions of Section 72 of the Income Tax Act, 1961, asit stood during the assessment year 1991-92, which reads asfollows: Carry forward and set off of business losses. -- 72. -- (1) Where for any assessment year, thenet result of the computation under the head"Profits and gains of business or profession"is a loss to the assessee, not being a losssustained in a speculation business, and suchloss cannot be or is not wholly set off againstincome under any head of income in accordancewith the provisions of section 71, so much ofthe loss as has not been so set off or, wherehe has no income under any other head, thehttps://hcservices.ecourts.gov.in/hcservices/whole loss shall, subject to the otherprovisions of this Chapter, be carried forward https://hcservices.ecourts.gov.in/hcservices/ A reading of Section 72 shows that it is concerned about carryforward and set off of business losses against profits and gainsof business. Dealing with the identical provisions under the 1922Act, in the decision reported in 59 ITR 555 (SC) (C.I.T. Vs.JAIPURIA CHINA CLAY MINDS (P.) LTD.), the Supreme Court, had anoccasion to consider the question of set off of unabsorbeddepreciation of the past years under Section 24 of the Income Tax Act, 1922, which is equivalent to the present Section72 of the Income Tax Act, 1961. The Apex Court held that proviso(b) to Section 24(2) gives preference to the business loss to beset off against the profits and gains of the business and theamount of loss not so set off shall be carried forward to thefollowing year; that the fiction of adding the carried forwardunabsorbed depreciation to the allowance or the depreciation ofthe following year and deeming it to be part of that allowancewould not entitle the assessee to have a preference for set offover the business loss. The Supreme Court held that Section 24gave a preference to reduction of losses first and only thereafterthe depreciation carried forward. It held that "it is wrong toassume that Section 24(2) deals with the carrying forward of thedepreciation. This carry forward having been provided in Section10(2)(vi) and in a different manner; Section 24(2) only deals withlosses other than the losses due to depreciation." 10. The aforesaid decision clearly pronounces on the scopeof the provisions relating to the carry forward and set off ofbusiness loss and what are contemplated as loss for the purposesof set off. Now, a reading of Section 72 shows that no businessloss can be carried forward for more than eight assessment yearsimmediately succeeding the assessment year for which the loss wasfirst computed (Section 72(3)). While providing for set off of abusiness loss under sub section (1) of Section 72, the set offprovisions also provided for set off of carried forward unabsorbeddepreciation, subject only to Section 72(1). As already seen videthe decision of the Supreme Court reported in 59 ITR 555 (SC)(C.I.T. Vs. JAIPURIA CHINA CLAY MINDS (P.) LTD.), Section 72(2)does not deal with the question of carry forward of depreciationor other statutory allowances and expenditure which are capable ofbeing carried forward under various provisions of the Act. 11. The Act specifies some of the allowances which could becarried forward under the Act. They are: (i) unabsorbed depreciation - [Section 32(2)] (ii) unabsorbed investment allowance [Section 32A(3)(ii)] (iii) unabsorbed development rebate [Section 33(2)(ii)] (iv) unabsorbed development allowance [Section 33A(2)(ii)] (v) unabsorbed capital expenditure on scientific research [Section35(4)] (vi) expenditure on prospecting for certain minerals [Section 35E(4)] (vii) expenditure for promoting family planning [Section 36(1)(ix)] (viii) losses in speculation business (Section 73) and losses inhttps://hcservices.ecourts.gov.in/hcservices/business other than speculation (Section 72) (ix) losses under the head 'capital gains' (Section 74) and (x) losses in the activity of owning and maintaining race horses[Section 74A(3)]. 12. The order in which allowances under the provisions ofthe Act will be granted has also been a subject matter consideredin a number of decisions of the Apex Court. The order in whichthe allowances and losses should be deducted are: (i) current depreciation [Section 32(1)] (ii) carried forward losses of earlier years [Section 72(1)] (iii) unabsorbed depreciation of earlier years [Section 32(2)] (iv) unabsorbed development rebate of earlier years [Section 32(2) (ii)] (v) current development rebate [Section 33(2)( i)] (vi) unabsorbed development allowance of earlier years [Section33A(2)(ii)] (vii) current development allowance [Section 33A(2)(i)] (viii) unabsorbed investment allowance [Section 32A(3)(ii) and (ix) currently investment allowance [Section 32A(3)(i)]. 13. On the question of set off of the unabsorbeddepreciation carried forward as against the business loss carriedforward, in the decision reported in AIR 1991 SC 1322 (M/S.GARDENSILK WEAVING FACTORY Vs. THE COMMISSIONER OF INCOME-TAX GUJARAT),the Supreme Court pointed out that unabsorbed depreciation is onlya species of business loss. But for the special treatmentaccorded by Section 32(2) and Section 72(2) for the purpose ofcarry forward and set off of loss, there is no difference betweenan item of unabsorbed depreciation and an item of loss. Section 72(2) contains an indication that where unabsorbed depreciation is acomponent of the figure of depreciation carried forward, theamount of loss proper should be set off first to be followed bythe unabsorbed depreciation carried forward to be set off later.For purposes of carry forward of the allowance, the statute hasdrawn a distinction between them and outlined the procedure forclaiming the same. Dealing with the aspect whether developmentrebate could be a business loss like a depreciation, the SupremeCourt referred to the deductions for computation of profits of thebusiness and held that the development rebate is an allowance andit cannot be a constituent element of the loss to be carriedforward to later years and stands on a totally different footingfrom that of a depreciation allowance. Even with respect to theset off of the claim of carried forward depreciation allowance,referring to the provisions of Section 72, the Apex Court heldthat in the matter of carry forward, business loss alone receivepriority over carry forward depreciation allowance under Section72(2), vide the decision reported in 59 ITR 555 (SC) (C.I.T. Vs.JAIPURIA CHINA CLAY MINDS (P.) LTD.). 14. Now, coming to other allowances which are permitted forcarry forward, the purpose of the allowance under Section 32-Arelating to investment allowance and development rebate underhttps://hcservices.ecourts.gov.in/hcservices/Section 33 are identical. As far as Section 32-A relating to theinvestment allowance is concerned, an assessee is granted a in the matter of carry forward, business loss alone receivepriority over carry forward depreciation allowance under Section72(2), vide the decision reported in 59 ITR 555 (SC) (C.I.T. Vs.JAIPURIA CHINA CLAY MINDS (P.) LTD.). 14. Now, coming to other allowances which are permitted forcarry forward, the purpose of the allowance under Section 32-Arelating to investment allowance and development rebate underhttps://hcservices.ecourts.gov.in/hcservices/Section 33 are identical. As far as Section 32-A relating to theinvestment allowance is concerned, an assessee is granted a deduction of investment allowance on the new assets installed orbrought to use for the business in the previous year. The objectof providing such deduction is to grant the assessee certainbenefits by way of allowance in respect of investments made by himto earn income. The person who has invested to earn income isencouraged by allowances. It is a beneficial provision andencourages investment in machinery. The deduction is of a sumequal to 25% of the cost of the machinery, plant, ship oraircraft. Sub Section (3) explains the mode of deduction andprovides for carry forward of unabsorbed allowance. It states,where the total income of the assessee after deducting theallowance under Section 33 and 33-A but without making anydeduction under this Section is nil or less than the full amountof the investment allowance, under sub clause (i) of sub section(3), the sum to be allowed by way of investment allowance for thatassessment year shall be only such amount as is sufficient toreduce the said total income to nil and to the extent that it hadnot been allowed, the investment allowance shall be carriedforward to the following assessment year to be allowed, of suchamount, as is sufficient to reduce the total income of theassessee for that assessment year to nil. The balance stilloutstanding shall be carried forward for a period of eightassessment years immediately succeeding the assessment year. 15. Dealing with the character of the allowance ofdevelopment rebate under Section 33, in the decision reported in(1979) 117 ITR 132 (KAR) (MYSORE PAPER MILLS LTD Vs. CIT), theKarnataka High Court held that "Section 33 does not actually dealwith any trading loss as it is ordinarily understood. UnderSection 33, Parliament has made provision by way of an incentiveto businessmen who invest on new machinery or in modernising plantand equipment. In order to earn development rebate, the assesseehas to satisfy certain other conditions which are provided underSection 34 of the Act and the unabsorbed development rebate cannotbe carried forward beyond eight years as provided by the Act. " 15. Dealing with the character of the allowance ofdevelopment rebate under Section 33, in the decision reported in(1979) 117 ITR 132 (KAR) (MYSORE PAPER MILLS LTD Vs. CIT), theKarnataka High Court held that "Section 33 does not actually dealwith any trading loss as it is ordinarily understood. UnderSection 33, Parliament has made provision by way of an incentiveto businessmen who invest on new machinery or in modernising plantand equipment. In order to earn development rebate, the assesseehas to satisfy certain other conditions which are provided underSection 34 of the Act and the unabsorbed development rebate cannotbe carried forward beyond eight years as provided by the Act. " 16. This Court had an occasion to consider thedeductibility of development rebate and business loss carriedforward from the earlier year. In the decision reported in (1981)130 ITR 856 (MAD) (CIT Vs. COROMANDEL STEELS LTD.), afterreferring to the Karnataka High Court decision reported in (1979)117 ITR 132 (KAR) (MYSORE PAPER MILLS LTD Vs. CIT), this Courtheld that the provision of development rebate is an incentive tobusinessmen who invest on new machinery in modernising plant andequipment. It does not deal with any trade in loss as isordinarily understood. To earn development rebate, the assesseehas to satisfy the conditions prescribed under Section 34. ThisCourt further held that development rebate is not treated as akind of other deductions contemplated by Sections 30 to 43; thatas between unabsorbed development rebate and carried forwarddepreciation allowance, the latter will be given a priority in thematter of set off against the profits of the subsequent years.Although the said decision is concerned about priorities inhttps://hcservices.ecourts.gov.in/hcservices/adjustment of unabsorbed development rebate, unabsorbeddepreciation and unabsorbed loss, yet the said decision is cited only for the purpose of bringing to the fore that unlikedepreciation, development rebate is not a loss. In fact, in thedecision reported in 189 ITR 512 (M/S.GARDEN SILK WEAVING FACTORY,SURAT Vs. THE COMMISSIONER OF INCOME TAX, GUJARAT), the SupremeCourt pointed out that depreciation allowance under Section 32 wasa kind of loss and the development rebate under Section 33 wasspecifically stated as an allowance, which could not be aconstituent element and a figure of loss to be carried forward tolater years, that it stands on a totally different footing. Theconcept of investment allowance is no different either, theunderstanding, hence, is on the same footing as that of adevelopment rebate under Section 33. 17. In the decision reported in [1986] 161 ITR 135 (Mad.),(EAST ASIATIC COMPANY (INDIA) P. LTD. Vs. COMMISSIONER OF INCOMETAX) (since upheld by the Apex Court in the decision reported in216 ITR 607 (COMMISSIONER OF INCOME TAX Vs. VIRMANI INDUSTRIESPVT. LTD. AND OTHERS)), dealing with a case of depreciation forset off against the income from business under Section 41(2),income from other sources and capital gains, this Court had anoccasion to deal with Section 72. Referring to Section 32(2),this Court held that Sections 70, 71 and 72, if read carefully,would show that all those three Sections deal only with businesslosses. This Court considered the question as regards theadjustment under Section 72 in a case where, other than capitalgains, the assessee had no income, i.e., it had only a loss. Theassessee contended therein that the unabsorbed depreciation is aloss; hence has to be set off against the income of the assesseeunder any other heads. This Court rejected the plea, taking theview that such an argument proceeds on a misapprehension thatSection 71 includes allowances which are made permissible underSection 32. 18. In the said decision, this Court pointed out asfollows: 18. In the said decision, this Court pointed out asfollows: "25. ...... Clauses (i) and (ii) of sub-section (1) of section 72 provide as tohow this carried forward loss has to beset off. We have, therefore, twoprovisions for carry forward. One is inrespect of carry forward of loss andthe other is in respect of carryforward of unabsorbed depreciation. Theprovision for carry forward of businessloss is in section 72(1). The provisionfor carry forward of unabsorbeddepreciation is in Section 32(2). Whenthere is an express provision for carryforward of unabsorbed depreciation inSection 32(2), there cannot be again aprovision for the same in section 72(1). Even otherwise, the very placementof section 72 also indicates that whathttps://hcservices.ecourts.gov.in/hcservices/is intended to be carried forward undersection 72 is business loss which it was not possible to set off under anyhead of income as provided in sub-section (2) of section 71. Sections 71and 72, therefore, clearly refer to abusiness loss, the concept of which isentirely different from the concept ofallowable deduction under Section 32(1)which is permitted to be carriedforward under Section 32(2). Thisposition is further made clear insection 72(2) .... " 26. The provision in section 72(2) would clearly indicate that what iscontemplated by Section 32(2) and whatis contemplated by section 72(1) areentirely different concepts and whenthe question of set off of carriedforward depreciation and carriedforward losses arises, section 72(2)provides that effect has to be firstgiven to section 72 before effect isgiven to the other two provisionsmentioned therein. Though even on aconstruction of sections 71 and 72, itis difficult to accept the contentionof the learned counsel for theassessee, the matter now standsconcluded in so far as this court isconcerned. In CIT v. Concord IndustriesLimited [1979] 119 ITR 458, this courtwas dealing with the scope of section79 of the Income-tax Act, 1961, whichis one of the provisions falling withinthe group of provisions dealing withset off and carry forward and set off." 19. Learned standing counsel placed reliance on thedecision reported in [1985] 153 ITR 733 (C.I.T. Vs. VICTORIA MILLSLTD. (Bom.), in support of his contention that carried forwardinvestment allowance, as in the case of development rebate, is nota loss like depreciation for set off as against business loss.This decision relied on by the Revenue relates to a case ofdevelopment rebate. The assessee therein sought for a set off ofthe unabsorbed development rebate against income from property anddividends. Referring to the decision of this Court reported in(1981) 130 ITR 856 (MAD) (CIT Vs. COROMANDEL STEELS LTD.), theBombay High Court held that no provision other than the provisionsof Section 33 governed the deduction and carry forward ofdevelopment rebate. It held that the unabsorbed developmentrebate cannot be carried forward as a business loss under thehttps://hcservices.ecourts.gov.in/hcservices/provisions of Section 72. Section 72 is specifically on set offof carried forward business loss. 20. The sum and substance of these decisions referred toabove is that development rebate is not treated as a loss for thepurpose of Section 72. It is also seen that the concept ofinvestment allowance is no different from a development rebate.Having regard to the scheme and purpose of granting deductionunder these heads, the decisions rendered as regards developmentrebate have a relevance in the matter of understanding the set offavailable for carry forward investment allowance vis-a-vis Section72. 20. The sum and substance of these decisions referred toabove is that development rebate is not treated as a loss for thepurpose of Section 72. It is also seen that the concept ofinvestment allowance is no different from a development rebate.Having regard to the scheme and purpose of granting deductionunder these heads, the decisions rendered as regards developmentrebate have a relevance in the matter of understanding the set offavailable for carry forward investment allowance vis-a-vis Section72. 21. In a recent decision reported in [2005] 272 ITR 165(Mad.) (SESHASAYEE PAPER AND BOARDS LIMITED Vs. THE DEPUTYCOMMISSIONER OF INCOME TAX), a Division Bench of this Court, towhich one of us (K.Raviraja Pandian,J.) is a party, had anoccasion to consider the scope of Section 72. While consideringthe question of set off of unabsorbed investment allowance carriedforward even before the consideration of the unabsorbeddepreciation, this Court pointed out the distinction between theclaim under Section 32(2) and Section 33, and referring to thedecision of the Gujarat High Court reported in 135 ITR 122(MONOGRAM MILLS CO. LTD. Vs. COMMISSIONER OF INCOME-TAX, GUJARAT),held as follows: "10.5.Under Section 72, the unabsorbeddepreciation shall be carried forward to asubsequent year and it shall be deemed to formpart of that year's depreciation and shall beset off against the profits of that yearsubject to the provisions of sub-section (2)thereof. From the above provisions, it is clearthat before setting off the carry forwardunabsorbed depreciation of the earlier year,the depreciation of the current year shall haveto be deducted and then after setting off ofthe loss, the unabsorbed depreciation, which isalso treated as the current year'sdepreciation, shall be adjusted. Therefore, thecarried forward unabsorbed depreciation of theearlier year has to be taken as a part of thecurrent year's depreciation allowance and to beset off, to the extent possible, against incomeof the current year. There is no specificprovision in the Act to specify the order ofpriority for allowing unabsorbed depreciationof the earlier years in the subsequent years,vis-a-viscarriedforwardunabsorbeddevelopment rebate. This is because developmentrebate is not a traditional loss or expenditurein the ordinary sense of the term. It isintended to give an incentive to business tohttps://hcservices.ecourts.gov.in/hcservices/investment in machinery or in modernisation ofplant and equipment. It is available to an assessee on fulfillment of certain conditionsspecified in the Act and in the event of non-availability of sufficient profit to enableallowance of the same in the year ofacquisition, a provision has been made forcarry forward of the same for a period of eightyears. In the case of unabsorbed depreciation,there is no time limit. The scheme of the Actmakes it clear that between unabsorbeddevelopment rebate and the unabsorbeddepreciation, the latter will have priority inrespect of set off against the profits ofsubsequent years, Vide decision of the BombayHigh Court in COMMISSIONER OF INCOME TAX -VS-PREMIER AUTOMOBILES LTD., (1994) 206 ITR 1,wherein the decision of various High Courts inMYSORE PAPER MILLS LTD -VS- CIT (1979) 117 ITR132 (KAR); CIT -VS- COROMANDEL STEELS LTD(1981) 130 ITR 856 (MAD); CALICUT MODERN SPG.AND WVG.MILLS LTD -VS- CIT (MANU/KE/0093/1985);BIHAR STATE INDUSTRIAL DEVELOPMENT CORPORATIONLTD -VS- CIT (1987) 165 ITR 671 (PATNA) ANDUTKAL MACHINERY LTD -VS- CIT (1987) 167 ITR 199(ORISSA), were followed. " 22. The above-said decision clearly brings out thedistinction in the matter of set off available in the case ofallowances granted under the provisions of the Act. Except forthe provisions contained under Section 72(2) as regards theunabsorbed depreciation, in the total absence of set off, similarprovisions as regards other allowances like the development rebateor investment allowance does not escape our attention. Whiledepreciation is considered as a loss, given the concept therein,investment allowance or development rebate do not have the samestamping, having regard to the object of granting such allowances.Hence, rightly, Courts have taken the view that by the very natureof their allowance, they do not carry the character of a loss tohave a charge on the profits of the concern. The benefit isavailable for a set off of only those loss specified therein inthe manner provided for under the Act. In the absence of anyrecognition given statutorily to treat the unabsorbed investmentallowance as business loss or recognised for a set off as hasbeen done in the case of unabsorbed depreciation allowance in themanner provided for under the Act, it is difficult to considerthe same for any set off under Section 72. 23. Learned counsel appearing for the assessee relied onthe decision reported in 291 ITR 258 (CIT Vs. CHENSING VENTURES(Mad.). We do not find any assistance from the said decision tothe issue on hand. 24. A perusal of the decisions cited above clearly bringhome the position of law as regards the claim of set off availableunder Section 72:under Section 72: (i) that the provision of Section 72 is a part of the schemecontained in carry forward and set off of business loss;contained in carry forward and set off of business loss; (ii) that Sections 70, 71 and 72 deal only with business loss thatSection 72 operates at a stage after Sections 70 and 71 aregiven effect to;Section 72 operates at a stage after Sections 70 and 71 aregiven effect to; (iii)that in the working of relief under Section 72, the carriedforward of business loss is first given the consideration;forward of business loss is first given the consideration; (iv) that the concept of business loss for the purpose of Section72(1) does not bring into its fold, the carried forwarddepreciation under Section 32(2) that the character ofbusiness loss is different from unabsorbed depreciationcarried forward;72(1) does not bring into its fold, the carried forwarddepreciation under Section 32(2) that the character ofbusiness loss is different from unabsorbed depreciationcarried forward; (v) that Section 72(2) provides that the benefit of theprovisions of Section 32(2) has been made subject to Section72(1);provisions of Section 32(2) has been made subject to Section72(1); (vi) that carried forward of business loss is given a prioritybefore the clubbing of unabsorbed depreciation of the earlieryears with the current year's depreciation and treating it aspart of the current year's depreciation as per Section 32(2);before the clubbing of unabsorbed depreciation of the earlieryears with the current year's depreciation and treating it aspart of the current year's depreciation as per Section 32(2); (vii)that in computing the current year's business income, thecurrent year's depreciation is given first a deduction to befollowed by set off by the carried forward business loss;current year's depreciation is given first a deduction to befollowed by set off by the carried forward business loss; (viii)that the claim of set off of carried forward unabsorbeddevelopment rebate comes later in point of time to befollowed by unabsorbed investment allowance to the investmentallowance of the current year;development rebate comes later in point of time to befollowed by unabsorbed investment allowance to the investmentallowance of the current year; (vii)that in computing the current year's business income, thecurrent year's depreciation is given first a deduction to befollowed by set off by the carried forward business loss;current year's depreciation is given first a deduction to befollowed by set off by the carried forward business loss; (viii)that the claim of set off of carried forward unabsorbeddevelopment rebate comes later in point of time to befollowed by unabsorbed investment allowance to the investmentallowance of the current year;development rebate comes later in point of time to befollowed by unabsorbed investment allowance to the investmentallowance of the current year; (ix) that carried forward unabsorbed depreciation and the carriedforward investment allowance are treated differently even forthe purpose of Section 72.forward investment allowance are treated differently even forthe purpose of Section 72. 25. A look at the scheme of Section 32-A shows that therelief granted therein is an allowance given by way of anincentive to the business income to invest more on industry. Aperusal of the provisions of Section 32-A shows that the reliefhttps://hcservices.ecourts.gov.in/hcservices/granted is a once and for all relief. A perusal of Section 32-Ashows that the relief is to the extent of 25% of the cost of the (ix) that carried forward unabsorbed depreciation and the carriedforward investment allowance are treated differently even forthe purpose of Section 72.forward investment allowance are treated differently even forthe purpose of Section 72. 25. A look at the scheme of Section 32-A shows that therelief granted therein is an allowance given by way of anincentive to the business income to invest more on industry. Aperusal of the provisions of Section 32-A shows that the reliefhttps://hcservices.ecourts.gov.in/hcservices/granted is a once and for all relief. A perusal of Section 32-Ashows that the relief is to the extent of 25% of the cost of the ship, aircraft or machinery and the deduction is allowed subjectto the fulfilment of the conditions. The allowance given undersub section (3) of Section 32-A shows that where the totalincome of the assessee is nil or less than the full amount of theinvestment allowance, the sum to be allowed by way of investmentallowance shall be only such amount as is sufficient to reduce thesaid total income to nil and that to the extent to which it hasnot been allowed, the same shall be carried forward to be allowedfor the subsequent assessment year to reduce the total income forthat assessment year computed in the manner stated in theprovisions to nil and the balance of investment allowance shall becarried forward to the following assessment year and so on, thatno portion of the investment allowance shall be carried forwardfor more than eight assessment years. It must be noted that theinvestment allowance, as in the case of development rebate, isgranted as and by way of incentive as noted in the decisionreported in (1981) 130 ITR 856 (MAD) (CIT Vs. COROMANDEL STEELSLTD.). The Supreme Court, in the decision reported in 105 ITR 642(P.K.BADIANI Vs. C.I.T. (SC)), held that even though the reliefunder Section 33 as regards the development rebate was granted,the deduction continues to retain its original character ofprofits. Unlike a depreciation, the deduction under Section 32-Ais granted subject to the assessee creating a reserve. Given theobject of the allowance under Section 32-A and going by the schemeof set off of business loss as given under Sections 70 to 80, theset off available under Section 72 is circumscribed by theprovisions given therein. Unless carried forward investmentallowance has a character of a business loss, it is not possiblefor an assessee to have the same set off against short-termcapital gains. The provisions relating to set off is a statutoryfacility. Hence, the loss that has to get in under the head ofbusiness loss must be computed keeping in mind what iscontemplated as loss for the purposes of set off under Section 72.It may be noted that Sections 72, 73, 74 and 74-A clearly providedfor kinds of loss that can be carried forward under the Act to beset off against income on profits. No other loss as such, can becarried forward to have the set off under the aforesaidprovisions. The decision of the Supreme Court reported in 59 ITR555 (SC) (C.I.T. Vs. JAIPURIA CHINA CLAY MINDS (P.) LTD.) pointedout that Section 72 deals with carry forward of business loss.They do not deal with the question of carry forward ofdepreciation and other statutory allowances which are allowed tobe carried forward. Even in the presence of a deeming provisionunder Section 32(2) as regards the carried forward depreciation,sub section (2) of Section 72 states that effect should be givenfirst to the provisions of sub section (1) of Section 72 namely,the business loss and only thereafter to the carried forwarddepreciation. This makes the position of law very clear thatother than this, carry forward of investment allowance does notadorn the character of a business loss for the purposes of Section72 to have the adjustment of capital gains. In the circumstances, we do not agree with the reasoning ofhttps://hcservices.ecourts.gov.in/hcservices/the Tribunal. Hence, we set aside the order of the Tribunal andhold that the carried forward investment allowance cannot be treated as a business loss for the purpose of Section 72 to havethe benefit of set off of capital gains. In the view thusexpressed, we allow the Tax Case Appeal filed by the Revenue. Thequestion raised hence, is answered in favour of the Revenue. Therewill, however, be no order as to costs. ksv Sd/Asst.Registrar/true copy/Sub Asst.Registrar To1.The Assistant Registrar,Income Tax Appellate Tribunal"C" Bench, Rajaji Bhavan,III Floor, Besant Nagar, Madras.90.2.The Commissioner of Income-Tax (Appeals),Coimbatore.3.The Deputy Commissioner Of Income-tax,Special Range I,Coimbatore+ 1 cc to Mr. N. Muralikumaran, Advocate SR No. 58239judgment in T.C. (Appeal) No.50 of 2004MDR(CO)SR/22.10.2007