2007 (11) TMI 445 - AT - Income Tax

Summary

Issues:
The appeal involves the issue of disallowance of set-off of unabsorbed depreciation of earlier years against income from "house property" for the assessment year 1999-2000.

Issue 1: Disallowance of set-off of unabsorbed depreciation

The Assessing Officer denied setting-off unabsorbed depreciation of earlier years against income from house property, citing the absence of provision for such set-off under section 72 of the Income-tax Act when the business has been permanently discontinued. The CIT (Appeals) upheld this decision, emphasizing the necessity for the business to be carried on by the assessee in the relevant previous year for set-off under the amended section 32(2) from the assessment year 1997-98 onwards. The appellant challenged this, arguing that the amendment was prospective and relied on various ITAT decisions supporting the applicability of the old provision to unabsorbed depreciation brought forward up to the assessment year 1996-97.

Issue 2: Interpretation of section 32(2) pre and post-amendment

The pre-amended section allowed unabsorbed depreciation to be carried forward and set-off against assessable income of subsequent years, irrespective of the existence of the business for which depreciation was allowable. However, the post-amendment provision from the assessment year 1997-98 required the business to be continued in the previous year relevant to the assessment year for set-off. The ITAT held that unabsorbed depreciation up to and inclusive of the assessment year 1996-97 could be set-off against taxable business profit or income under any other head for the assessment year 1997-98 and subsequent years, based on the Finance Minister's speech clarifying the prospective nature of the amendment.

Decision:
The ITAT reversed the lower authorities' decision and directed the Assessing Officer to allow setting off of unabsorbed depreciation brought forward up to the assessment year 1996-97 against income from house property for the assessment year 1999-2000. The appeal of the assessee was allowed based on the interpretation of the pre-amended section 32(2) and the prospective nature of the amendment introduced by the Finance (No. 2) Act, 1996.