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2014 (10) TMI 464 - AT - Income TaxAddition of STCG - transfer of capital assets - Whether the taking over of the possession and control over of the assets of the assessee by the secured lender(s) tantamount to transfer of assets from the borrower in default to the secured lenders - Held that - The AO had erred in applying the provisions of s. 2 (47) of the Act in considering that the secured lender acquire title to the secured assets of the assessee company on taking over of possession of assets of the assessee by overlooking the fact that what the secured lenders acquired on taking over of possession of the secured assets were merely a special right to execute or implement the recovery of its dues from dealing with those assets of the assessee company - the ownership rights in the assets did not at any stage stand transferred to the secured lenders by taking over the possession of secured assets - Thus, the sale consideration received by the secured lender(s) actually belonged to the borrower which by operation of law remained retained by the secured lenders to recover their costs, dues etc. Further, if the consideration to the assessee is to be considered as the sale amount received by the lending banks, then, the loans waived by such banks availed by the assessee for the purchase of capital assets such as land, building, plant and machinery etc., was nothing but a capital receipt not liable for tax since neither the provisions of s. 28(iv) nor s. 41(1) of the Act is attracted. Denial of benefit of set off of brought forward unabsorbed depreciation - Held that - Following the decision in GENERAL MOTORS INDIA PVT. LTD Versus DEPUTY COMMISSIONER OF INCOME-TAX 2012 (8) TMI 714 - GUJARAT HIGH COURT - keeping in view the purpose of amendment of section 32(2) of the Act, a purposive and harmonious interpretation has to be taken - while construing taxing statutes, rule of strict interpretation has to be applied, giving fair and reasonable construction to the language of the section without leaning to the side of assessee or the revenue - But if the legislature fails to express clearly and the assessee becomes entitled for a benefit within the ambit of the section by the clear words used in the section, the benefit accruing to the assessee cannot be denied - it can be said that 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 - and 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 form 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 - the assessee company is eligible for carry forward and set off of unabsorbed depreciation Decided in favour of assessee.
Issues Involved:
1. Sustaining the addition of Short Term Capital Gains (STCG) of Rs. 61,73,27,440/-. 2. Denial of the benefit of set off of brought forward unabsorbed depreciation from AYs 1997-98 to 2001-02 and upholding the addition of Rs. 51,21,95,551/-. Detailed Analysis: 1. Addition of Short Term Capital Gains (STCG): The CIT (A) upheld the addition of Rs. 61,73,27,440/- as STCG made by the AO, based on the difference between the full value of consideration received (Rs. 97.42 crores) and the Written Down Value (WDV) of the assets (Rs. 11.23 crores). The CIT (A) relied on the Supreme Court decision in CIT v. Attili N. Rao, where the Court held that capital gains should be computed on the full price realized from the sale of the property, less admissible deductions. The assessee argued that the taking over of assets by the secured lender did not amount to a transfer of assets and thus should not result in STCG. The Tribunal examined whether taking possession of the assets by the secured lender under SARFAESI amounted to a transfer of ownership. It concluded that the secured lender did not acquire ownership but merely a special right to recover dues. The Tribunal referred to the Supreme Court judgment in Transcore v. Union of India, which clarified that taking possession under SARFAESI is preparatory to the sale and does not transfer ownership. The Tribunal distinguished the case from CIT v. Attili N. Rao, noting that the issue in that case was different. The Tribunal held that the secured lender's actions under SARFAESI did not result in the transfer of ownership, and thus the sale proceeds belonged to the borrower (assessee). Consequently, the addition of Rs. 61.73 crores as STCG was deemed incorrect. 2. Denial of Set Off of Brought Forward Unabsorbed Depreciation: The AO denied the benefit of set off of unabsorbed depreciation for AYs 1997-98 to 2001-02, based on the provisions of Section 32(2) as amended by the Finance Act (No.2) of 1996, which restricted the carry forward period to eight years. The CIT (A) upheld this decision, noting that the assessee was declared sick under SICA only after AY 2001-02. The assessee argued that Circular No. 14 of 2001 clarified that the restriction of eight years was dispensed with from AY 2002-03 onwards, allowing indefinite carry forward of unabsorbed depreciation. The Tribunal agreed, citing the Gujarat High Court judgment in General Motors India Pvt. Ltd v. DCIT, which held that unabsorbed depreciation available as of 1st April 2002 should be carried forward indefinitely under the amended Section 32(2). The Tribunal concluded that the assessee was entitled to set off unabsorbed depreciation for AYs 1997-98 to 2001-02 against profits of subsequent years without any time limit. Thus, the denial of set off by the AO and CIT (A) was incorrect. Conclusion: The Tribunal allowed the appeal of the assessee, ruling that: 1. The addition of Rs. 61,73,27,440/- as STCG was incorrect as the taking over of assets by the secured lender did not constitute a transfer of ownership. 2. The assessee was entitled to set off brought forward unabsorbed depreciation from AYs 1997-98 to 2001-02 against profits of subsequent years without any restriction on the carry forward period. The appeal was allowed in favor of the assessee.
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