2018 (3) TMI 961 - HC - Income Tax

Revision u/s 263 - Setting-off of unabsorbed depreciation against income other than the profits and gains arising out of business or profession i.e. interest income from deposits in Banks - Held that - Claim of set-off as against the income from other sources was available for that year, and for the subsequent 8 years, it could be claimed only as against profits and gains arising from business or profession. As amended on 01.04.1997, the provision enabled any unabsorbed depreciation carried over from the previous years to be first adjusted against the profits and gains from business or profession, then against income from other sources (for that year alone) and any amounts remaining still, to be adjusted against the profits and gains arising from the business or profession for a further period of 8 years. Hence, for the assessment year 1997-98, the claim for set-off of unabsorbed depreciation is allowable against the income from other sources. The amended provision was not in consonance with the Budget Speech or the Bill introduced; and neither of these provide any help in interpreting the amended provision. See Peerless General Finance and Investment Company Limited v. Commissioner of Income Tax, Kolkata- I 2016 (5) TMI 109 - SUPREME COURT OF INDIA We answer the question for the assessment year 1997-98 in favour of the assessee and against the Revenue and that framed for the assessment year 1998-99 in favour of the Revenue and against the assessee

Summary

Issues:
- Setting-off of unabsorbed depreciation against income from sources other than business or profession
- Interpretation of Section 32(2) of the Income Tax Act, 1961
- Applicability of amendments regarding set-off of unabsorbed depreciation

Issue 1: Setting-off of unabsorbed depreciation against income from sources other than business or profession

The primary issue in this case revolves around the setting-off of unabsorbed depreciation against income other than profits and gains from business or profession, specifically interest income from bank deposits. The appellant, a company engaged in ship building and repair, sought to set-off unabsorbed depreciation first against business profits and then against interest income. The question raised was whether the Income Tax Appellate Tribunal was correct in setting aside the Commissioner's revision under Section 263, which disallowed the set-off against income from other sources.

Issue 2: Interpretation of Section 32(2) of the Income Tax Act, 1961

The crux of the matter lies in the interpretation of Section 32(2) of the Income Tax Act, particularly concerning the set-off of unabsorbed depreciation. The amendment effective from 1st April 1997 restricted the set-off against profits and gains from business or profession. However, the appellant argued that the amendment allowed for set-off against income from other sources for the assessment year 1997-98, and subsequently only against business profits. The court analyzed the provisions of the Act and the amendment to determine the correct interpretation of the set-off rules.

Issue 3: Applicability of amendments regarding set-off of unabsorbed depreciation

The case delves into the applicability of the amendments concerning the set-off of unabsorbed depreciation against different sources of income. The court examined the legislative intent behind the amendment and the actual provisions in the statute to ascertain the correct application of the set-off rules. The judgment differentiated between the Budget Speech, the Bill, and the final statute to conclude that for the assessment year 1997-98, the claim for set-off of unabsorbed depreciation against income from other sources was permissible, contrary to the Revenue's stance.

In conclusion, the judgment favored the appellant for the assessment year 1997-98, allowing the set-off of unabsorbed depreciation against income from other sources, while ruling in favor of the Revenue for the assessment year 1998-99. The court's detailed analysis of the statutory provisions and the interpretation of the amendments provided clarity on the permissible set-off rules, emphasizing the importance of legislative language over extraneous materials like Budget Speeches.