2016 (2) TMI 1217 - HC - Income Tax

Setting off of unabsorbed depreciation or prior period against Long Term Capital Gain - Held that - The assessee had sold the land along with the building thereon referred to as SEML property. The assessee had valued the land and the building separately and claimed depreciation on the constructed property. The sale consideration of ₹ 51.18 Lacs attributed to the building was offered to tax, but at the same time the assessee also claimed depreciation on the constructed property. The Tribunal accepted such depreciation, however subject to rider of revaluation of the another property referred as Ambaturr which also forms part of the block of depreciable assets.

Summary

Issues:
1) Set off of unabsorbed depreciation against long term capital gain.
2) Addition of short term capital gain on the sale of a building.

Issue 1 - Set off of unabsorbed depreciation against long term capital gain:
The case involved the appellant challenging the Tribunal's judgment regarding the set off of unabsorbed depreciation against long term capital gain. The CIT(A) allowed the relief to the assessee based on provisions of Section 32(2) of the Income Tax Act, along with Sections 70, 71, and 72. The Tribunal upheld the CIT(A)'s decision, emphasizing that total depreciation, including unabsorbed depreciation from earlier years, can be set off against income under any head, including Long Term Capital Gain. The Tribunal referred to Section 72, stating that unabsorbed business loss of earlier years can only be set off against profits and gains from the current year's business. The High Court found no error in the Tribunal's order, citing a similar decision by the Gujarat High Court. The High Court highlighted the process of deducting current depreciation from business income and absorbing any excess from profits of other businesses or income sources. The High Court concluded that the unabsorbed depreciation can be carried forward and set off against profits of subsequent years without any limit.

Issue 2 - Addition of short term capital gain on the sale of a building:
The second issue revolved around the AO's objection to the assessee not offering the entire sale consideration of immovable property to Capital Gain Tax. The assessee had sold a property comprising land and a building, known as SEML property. While the sale consideration attributed to the building was offered for tax, the assessee also claimed depreciation on the constructed property. The Tribunal accepted the depreciation claim, subject to revaluation of another property, Ambaturr. The High Court found no error in the Tribunal's decision, concluding that no questions of law arose. The appeal was dismissed, with no order as to costs.

In conclusion, the High Court upheld the Tribunal's decision on both issues, emphasizing the provisions of the Income Tax Act regarding the set off of depreciation against income and the taxation of capital gains on property sales. The judgment provided detailed explanations and references to relevant legal provisions and precedents, ensuring a comprehensive analysis of the issues raised in the appeal.