2010 (9) TMI 1123 - AT - Income Tax

Summary

Issues Involved:

1. Adjustment (set-off) of unabsorbed depreciation for earlier years against income from other sources.
2. Applicability of Section 10B(6)(ii) of the Income-tax Act, 1961.
3. Computation of deduction under Section 10B.

Issue-wise Detailed Analysis:

1. Adjustment (set-off) of unabsorbed depreciation for earlier years against income from other sources:

The primary issue under appeal was whether the unabsorbed depreciation from earlier years (starting from assessment year 1996-97) could be set off against the income from other sources (Rs. 40.52 lakhs) for the current year. The assessee claimed that the deduction under Section 10B should be computed without setting off the brought forward business losses and unabsorbed depreciation, allowing these to be set off against other taxable incomes for the year. The Assessing Officer (AO) disagreed, stating that the deduction under Section 10B should be on the profit remaining after setting off these losses and depreciation. The CIT(A) sided with the assessee, referencing Section 10B(6)(i) and the Supreme Court's decision in CIT v. Mother India Refrigeration Industries (P.) Ltd., which supported the set-off of unabsorbed depreciation against income from other heads.

2. Applicability of Section 10B(6)(ii) of the Income-tax Act, 1961:

The CIT(A) interpreted that Section 10B(6)(i), which prevents the carry forward of unabsorbed depreciation or business loss relating to any assessment year prior to 2001-02 against income for a subsequent year, applies only for the year immediately following the last of the relevant assessment years. The AO contended that this provision implied that brought forward unabsorbed depreciation could not be set off against income from other sources for the assessment year 2004-05. The Tribunal, referencing multiple case laws including Scientific Atlanta India Technology (P.) Ltd. and Global Vantedge (P.) Ltd., concluded that the deduction under Section 10B should be computed after adjusting the brought forward loss and depreciation allowance of the same unit.

3. Computation of deduction under Section 10B:

The Tribunal emphasized that the deduction under Section 10B is unit-specific and should be computed as if the eligible undertaking were the only source of income. This meant that the profits and gains of the eligible business should be computed independently, without aggregating with other incomes or losses. The Tribunal referenced the Special Bench decision in Scientific Atlanta India Technology (P.) Ltd., which confirmed that the deduction under Section 10A (analogous to Section 10B) should be allowed after adjusting the brought forward loss and depreciation allowance of the same unit. This view was further supported by decisions in Global Vantedge (P.) Ltd. and F.C.I. Technology Services Ltd.

Separate Judgments Delivered by the Judges:

The Judicial Member dissented from the Accountant Member's view, arguing that the set-off of losses against the balance of income after allowing depreciation under Section 10B should be allowed. The Judicial Member cited various case laws, including Navin Bharat Industries Ltd. and Enercon Wind Farms Krishna Ltd., to support the stance that the deduction under Section 10B should be allowed without setting off carried forward business loss and unabsorbed depreciation. The Third Member, agreeing with the Judicial Member, concluded that the provisions of Section 10B(6)(ii) were not applicable to the facts of the case and that the unabsorbed depreciation could be set off against income from other sources.

Conclusion:

Following the majority view, the Tribunal ruled in favor of the assessee, allowing the set-off of unabsorbed depreciation against income from other sources and dismissing the revenue's appeal. The assessee's Cross Objection was also dismissed as it was not a matter of reference to the Third Member.