2019 (4) TMI 1486 - HC - Income Tax

Carry forward of 'Unabsorbed Depreciation' - Carry forward to be allowed without limitation of eight years whether Assessee was entitled to carry forward and set off the 'Unabsorbed Depreciation' for the present year also? - HELD THAT - Since the matter of calculation of ' Unabsorbed Depreciation ' in which it was first computed and the limitation of eight years prior to amendment has not been properly computed in the present case, the matter deserves to be remanded back to the learned Assessing Authority for undertaking such computational exercise once again. Therefore, without answering the aforesaid questions of law framed for our consideration, we remand the matter back to the learned Assessing Authority in the present case for Assessment Year 2001-2002 for fresh consideration. The Assessee will be free to raise his factual as well as legal contentions before the learned Assessing Authority and the Assessing Authority will be free to take a fresh view in the matter. The Assessing Authority may pass fresh orders within six months from today.

Summary

Issues:
1. Carry forward of unabsorbed depreciation under Section 32(2) of the Income Tax Act, 1961.
2. Set off of unabsorbed depreciation against Short Term Capital Gain under Section 50 read with Section 72 of the Income Tax Act, 1961.

Issue 1: Carry forward of unabsorbed depreciation under Section 32(2) of the Income Tax Act, 1961:
The High Court addressed the issue of whether unabsorbed depreciation could be carried forward under Section 32(2) of the Income Tax Act, 1961. The Court examined the legislative history and noted that prior to the amendment by the Finance Act, 2001, the carry forward of unabsorbed depreciation was allowed without an eight-year limitation. However, for the assessment year 2001-2002, the relevant law was governed by the Finance Act, 1996, which imposed restrictions on the carry forward and set off of unabsorbed depreciation. The Court held that the subsequent amendment could not be applied retrospectively, and therefore, the unabsorbed depreciation could not be set off against short term capital gains. The Court dismissed the appeal, affirming the position under the Finance Act, 1996.

Issue 2: Set off of unabsorbed depreciation against Short Term Capital Gain under Section 50 read with Section 72 of the Income Tax Act, 1961:
The Court also considered whether unabsorbed depreciation could be set off against Short Term Capital Gain under Section 50 read with Section 72 of the Income Tax Act, 1961. The appellant argued that the Short Term Capital Gain should be treated as business income as it arose from the sale of assets used in the business. However, the Court rejected this contention, stating that the profit from the sale of assets had been specifically treated as short term capital gain under Section 50 and should be computed as "income from other sources," not "profits and gains of business or profession." The Court cited a Supreme Court decision to support this position and ultimately held that the alternative contention failed. Consequently, the Court dismissed the appeal, ruling against the appellant's claim to set off unabsorbed depreciation against short term capital gains.

In conclusion, the High Court remanded the matter back to the Assessing Authority for fresh consideration for the Assessment Year 2001-2002. The appellant was granted the opportunity to present factual and legal contentions before the Assessing Authority, which was directed to pass fresh orders within six months from the date of the judgment. The appeal was disposed of accordingly, with no costs imposed on either party.