2014 (5) TMI 194 - HC - Income Tax

Allowability of claim of carry forward of unabsorbed depreciation Contravention of the provisions of section 32(2)(iii)(b) of the Act Held that - Following GENERAL MOTORS INDIA PVT. LTD Versus DEPUTY COMMISSIONER OF INCOME-TAX 2012 (8) TMI 714 - GUJARAT HIGH COURT - carry forward of unabsorbed depreciation prior to assessment can be set off in subsequent years without setting time limit - the CBDT Circular clarifies the intent of the amendment that it is for enabling the industry to conserve sufficient funds to replace plant and machinery and accordingly the amendment dispenses with the restriction of 8 years for carry forward and set off of unabsorbed depreciation The amendment is applicable from assessment year 2002-03 and subsequent years - any unabsorbed depreciation available to an assessee on 1st day of April, 2002 (A.Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001 and not by the provisions of section 32(2) as it stood before the amendment - current depreciation is deductible in the first place from the income of the business to which it relates. Any unabsorbed depreciation available to an assessee on 1st day of April 2002 (A.Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001 - once the Circular No.14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y.1997-98 up to the A.Y.2001-02 got carried forward to the AY 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever Decided against Revenue.

Summary

Issues:
1. Interpretation of provisions regarding carry forward of unabsorbed depreciation.
2. Application of section 32(2) as amended by Finance Act, 2001.
3. Determining the time limit for carry forward and set off of unabsorbed depreciation.
4. Applicability of Circular No.14 of 2001 in clarifying the intent of the amendment.

Analysis:
1. The High Court was presented with a Tax Appeal challenging an order of the Income Tax Appellate Tribunal regarding the allowance of the claim for carry forward of unabsorbed depreciation. The specific question under consideration was whether the ITAT was correct in allowing the claim for carry forward of unabsorbed depreciation for more than eight years, contrary to the provisions of section 32(2)(iii)(b) as it stood in the relevant assessment years.
2. The Court referred to a previous judgment in the case of General Motors India P. Ltd. v. Dy. CIT, where the issue of carry forward of unabsorbed depreciation was extensively discussed. The Court examined the provisions of section 32(2) before and after its amendment by the Finance Act, 2001. The amendment removed the restriction of eight years for carry forward and set off of unabsorbed depreciation, enabling the allowance to be carried forward without any time limit from assessment year 2002-03 onwards.
3. The Court highlighted that the amendment aimed to enable industries to conserve funds for replacing plant and machinery, emphasizing that any unabsorbed depreciation available before the amendment could be carried forward and set off against profits and gains of subsequent years without any time limit. The Circular No.14 of 2001 clarified the intent behind the amendment, ensuring that unabsorbed depreciation from earlier years could be utilized without restrictions.
4. Ultimately, the Court found that the Tribunal correctly applied the law based on the decision in the General Motors case, where it was held that unabsorbed depreciation from previous assessment years could be set off in subsequent years without any time limit. As no question of law arose in the present appeal, it was dismissed accordingly.

In conclusion, the judgment clarified the interpretation of provisions related to the carry forward of unabsorbed depreciation, emphasizing the impact of the Finance Act, 2001 amendment and the applicability of Circular No.14 of 2001 in removing the time limit for such carry forwards.