2004 (9) TMI 12 - HC - Income Tax

Assessee has claimed priority for carry forward of investment allowance over carry forward depreciation - finding the contentions raised on behalf of the assessee as devoid of merit and lacking legal sanction the pivotal question viz. whether the unabsorbed depreciation should be allowed before the unabsorbed investment allowance and what would be the order of priority in claiming the unabsorbed depreciation and unabsorbed investment allowance is answered against the assessee and in favour of the Revenue

Summary

Issues Involved:
1. Priority of unabsorbed depreciation over unabsorbed investment allowance in computing income for the assessment years 1991-92 and 1992-93.

Detailed Analysis:

Issue 1: Priority of Unabsorbed Depreciation Over Unabsorbed Investment Allowance

The primary issue in these appeals is whether unabsorbed depreciation should be allowed before unabsorbed investment allowance when computing the income of the assessee for the assessment years 1991-92 and 1992-93.

Facts and Background:
The assessee, a public limited company engaged in manufacturing papers, filed returns declaring "nil" income after adjusting carry forward investment allowance from earlier years. The assessee contended that carry forward investment allowance should be prioritized over carry forward depreciation. However, the assessing authority deducted unabsorbed depreciation first, reducing the taxable income to "nil". This decision was upheld by the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal.

Assessee's Contentions:
The assessee argued that:
- The assessing authority cannot assume a claim for depreciation allowance if the assessee has not chosen to claim it.
- The unabsorbed investment allowance should be prioritized over unabsorbed depreciation.
- Liberal interpretation beneficial to the assessee should be applied, as supported by the Supreme Court in CIT v. South Arcot District Co-operative Marketing Society Ltd. and Bajaj Tempo Ltd. v. CIT.

Revenue's Contentions:
The Revenue argued that:
- Unabsorbed depreciation should always be allowed before unabsorbed investment allowance, irrespective of whether the assessee claimed it or not.
- The law is well-settled on this point, as supported by various High Court decisions, including Shree Ramesh Cotton Mills Ltd. v. CIT, Monogram Mills Co. Ltd. v. CIT, and CIT v. Premier Automobiles Ltd.
- Liberal construction theory does not apply where there is no ambiguity in statutory provisions.

Court's Analysis:
The court examined the relevant statutory provisions and judicial precedents, including:
- Mahendra Mills' case [2000] 243 ITR 56 (SC), which held that the Assessing Officer cannot grant depreciation allowance if not claimed by the assessee.
- Ram Nath Jindal v. CIT [2001] 252 ITR 590 (P&H), which reinforced that unclaimed depreciation cannot be allowed by the Assessing Officer.
- Guindy Machine Tools P. Ltd. v. CIT [2002] 254 ITR 780 (Mad) and CIT v. Sree Senhavalli Textiles P. Ltd. [2003] 259 ITR 77 (Mad), which emphasized that an option given to the assessee cannot be turned into an obligation.

However, the court noted that the issue here was not whether the assessee could be compelled to claim depreciation, but the order of priority between unabsorbed depreciation allowance and unabsorbed investment allowance. The court referred to several High Court decisions, including Coromandel Steels Limited's case [1981] 130 ITR 856, which held that unabsorbed depreciation allowance gets precedence over unabsorbed investment allowance.

The court also highlighted the rationale provided by various commentators and judicial decisions, such as Monogram Mills' case [1982] 135 ITR 122 (Guj), which explained that the scheme of the Act and the rationale of preventing erosion of the capital base of the assessee's business support the priority of unabsorbed depreciation over unabsorbed investment allowance.

Conclusion:
The court concluded that under the scheme of the Income-tax Act, unabsorbed depreciation should be allowed before unabsorbed investment allowance. The court found no ambiguity in the statutory provisions that would warrant a liberal interpretation in favor of the assessee. Consequently, the appeals were dismissed, and the order of priority in claiming unabsorbed depreciation before unabsorbed investment allowance was upheld in favor of the Revenue.