2014 (7) TMI 1268 - HC - Income Tax

Adjustment of accumulated unabsorbed depreciation allowance brought forward as against income from house property and income from other sources - whether the assurance of the Finance Minister in Parliament that set-off of the cumulative unabsorbed depreciation brought forward from earlier years as on April 01, 1997 can be set off against the profits and gains of a business or profession or any other income of the tax payer for the assessment year 1997-98 and subsequent year forms part of the legislative intent and any construction contrary thereto is erroneous? - Held that - the provisions introduced suggest that the unabsorbed depreciation allowance could not be wholly set off against the profits and gains, if any, of any business or profession carried on by the assessee. The unabsorbed depreciation allowance could be set off from the income under any other head during the assessment year 1997-98. If the unabsorbed depreciation allowance could not be wholly set off during the assessment year 1997-98, the left over could only be set off against the profits and gains, if any, of the business or profession in the assessment year 1998-99. This submission of Mr. Agarwal appears to be plainly correct on the basis of the wordings used in sub-section (2) of Section 32 as amended by the Finance (No.2) Act, 1996 with effect from 1st April, 1997. Both the questions are answered in the negative and in favour of the revenue. Another submission advanced by Mr. Bagchi that the unabsorbed depreciation of the previous year becomes depreciation of the current year as would appear from the Circular issued by the CBDT which has also been taken into account by the learned Tribunal may be correct, but that does not materially alter the situation. The intention of the legislature appearing from the amendment made by the Finance (No.2) Act, 1996 is that the depreciation unabsorbed or otherwise or current would be set off against the income arising from business or profession or any other income, but the left over portion thereof could not be set off in the assessment year 1998-99 except against the income arising from business or profession. Therefore, this submission of Mr. Bagchi does not help his case nor does the same lead to a different result of the appeal.

Summary

Issues:
Interpretation of Section 32(2)(iii)(a) and (b) of the Income Tax Act, 1961 regarding set off of unabsorbed depreciation allowance against income from house property and other sources for Assessment Year 1998-99.

Analysis:
The judgment in question dealt with the interpretation of Section 32(2)(iii)(a) and (b) of the Income Tax Act, 1961, specifically regarding the set off of unabsorbed depreciation allowance against income from house property and other sources for the Assessment Year 1998-99. The Tribunal had held that the unabsorbed depreciation allowance should not be set off against income from house property and other sources but carried forward to subsequent assessment years, based on the provisions of the Act and the principles laid down by the Supreme Court in a previous case. The appellant argued that the Finance Minister's speech indicated a different intent, allowing for set off against income from other sources. However, the court found that the legislative intent as per the amended Section 32(2) did not support the appellant's interpretation, despite the Finance Minister's assurances.

The court considered the appellant's reliance on the Finance Minister's speech and the interpretation of statutory provisions in light of the speech. The court acknowledged the importance of legislative intent but emphasized that the provisions of the law must be followed to give effect to the statute. Despite arguments to the contrary, the court held that the Finance Minister's speech did not align with the legislative intent as reflected in the statutory provisions, particularly Section 32(2)(iii)(a) and (b) of the Income Tax Act, 1961.

The court also addressed questions framed at the time of appeal admission regarding the retrospective effect of the Finance (No.2) Act, 1996 on the set off of unabsorbed depreciation allowance. The court answered the questions in the negative, supporting the revenue's position. Additionally, the court considered the appellant's argument regarding the treatment of unabsorbed depreciation from previous years as depreciation of the current year, as per a Circular issued by the CBDT. However, the court found that this argument did not change the legislative intent outlined in the amended provisions of the Act, leading to the dismissal of the appeal.

In conclusion, the court upheld the Tribunal's decision, ruling against the appellant's interpretation of Section 32(2)(iii)(a) and (b) of the Income Tax Act, 1961. The court expressed appreciation for the assistance provided by a knowledgeable advocate and directed the revenue department to regularize his appointment for the case.