2014 (10) TMI 74 - HC - Income Tax

Claim of unabsorbed depreciation under Capital gains Restriction u/s 34A Held that - The carry forward and set off of unabsorbed depreciation allowance was considered in Commissioner of Income Tax vs Jaipuria China Clay Mines (P) Ltd 1965 (11) TMI 32 - SUPREME Court - the unabsorbed depreciation of the past years should be added to the depreciation of the current year and the aggregate of the unabsorbed depreciation and the current year's depreciation to be deducted from the total income of the previous year relevant for the assessment year 1952-53, and answered in favour of the assessee - the unabsorbed depreciation can be allowed under the head capital gains , however, it shall be restricted to 2/3rd of such allowance thus, the matter is remitted back to the AO for re-computation of the unabsorbed depreciation and since the Company is in liquidation, the AO shall issue notice to the Official Liquidator Decided in favour of Revenue.

Summary

Issues:
1. Allowance of unabsorbed depreciation against capital gains for Assessment Year 1992-93.
2. Interpretation of restrictions under Section 34A of the Income Tax Act for the same assessment year.

Issue 1: Allowance of unabsorbed depreciation against capital gains for Assessment Year 1992-93

The assessee filed a return of income for the Assessment Year 1992-93 declaring nil income but claimed unabsorbed depreciation under capital gains. The Assessing Officer disallowed the set-off of unabsorbed depreciation citing Sec.34A restrictions. The Commissioner of Income Tax (Appeals) allowed the appeal, directing the Assessing Officer to set off the capital gains against unabsorbed depreciation. The Tribunal upheld this decision based on previous judgments, including the Supreme Court's decision in Garden Silk Waving Factory vs CIT. The Revenue challenged this before the High Court, arguing that the set-off was not permissible under Sec.34A.

Issue 2: Interpretation of restrictions under Section 34A for Assessment Year 1992-93

The Revenue contended that Sec.34A, effective from 1.4.1992, restricted the set-off of unabsorbed depreciation to two-thirds of the allowance and disallowed set-off against capital gains. The Official Liquidator representing the assessee acknowledged the restriction but argued for a remittance to the Assessing Officer for recomputation. The High Court referred to various case laws, including Commissioner of Income Tax vs Jaipuria China Clay Mines and Garden Silk Weaving Factory vs CIT, to support the allowance of unabsorbed depreciation against capital gains. The Court emphasized that the set-off should be limited to 2/3rd of the allowance as per Sec.34A, in line with previous judgments. The matter was remitted back to the Assessing Officer for reevaluation due to the company being in liquidation.

In conclusion, the High Court upheld the allowance of unabsorbed depreciation against capital gains for the Assessment Year 1992-93 but emphasized adherence to the restrictions imposed by Section 34A, limiting the set-off to two-thirds of the allowance. The matter was remitted for reevaluation considering the company's liquidation status, ensuring compliance with legal provisions and previous judicial decisions.