2020 (9) TMI 770 - HC - Income Tax

Carry forward of the depreciation loss - beyond the eight year period mandated under the provisions of Section 32 - HELD THAT - The restriction of 8 years for carry forward and set off of unabsorbed depreciation was dispensed with, with a view to enable the industries to conserve sufficient funds to replace plant and machinery. Standing Counsel appearing for the Revenue would point out that those amendments took place with effect from 01.4.2002 and would accordingly apply in relation to the assessment year 2002-03 and the subsequent years whereas in the assessee's case, the depreciation loss, which they sought to carry forward is for the assessment year 1997-98. The proper manner, in which, the modification has to be understood, is to the effect that from the assessment year 2002-03, if the eight years' period was not lapsed, then the assessee would be entitled to carry forward the loss without any restriction on the time limit. This aspect has been dealt with elaborately in the decision of case of General Motors India (P) Ltd. Vs. DCIT 2012 (8) TMI 714 - GUJARAT HIGH COURT where there is current depreciation for such succeeding year the unabsorbed depreciation is added to the current depreciation for such succeeding year and is deemed as part thereof. If, however, there is no current depreciation for such succeeding year, the unabsorbed depreciation becomes the depreciation allowance for such succeeding year. We are of the considered opinion that 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 from A.Y.1997-98 upto the A.Y.2001-02 got carried forward to the assessment year 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. - Decided against the Revenue

Summary

Issues Involved:
1. Whether the assessee is entitled to carry forward the depreciation loss from the assessment year 1997-98 to the assessment year 2006-07, beyond the eight-year period mandated under Section 32 of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Entitlement to Carry Forward Depreciation Loss Beyond Eight Years:
The primary issue in this case is whether the assessee can carry forward the depreciation loss from the assessment year 1997-98 to the assessment year 2006-07, surpassing the eight-year limitation set by Section 32 of the Income Tax Act, 1961.

The Revenue's argument relied on the decision of the High Court of Calcutta in the case of Peerless General Finance & Investment Co. Ltd. vs. CIT, where the assessee was not granted relief. The correctness of this decision was upheld by the Supreme Court when the special leave petition was dismissed.

However, the court referred to Circular No.14/2001 dated 22.11.2002 issued by the Central Board of Direct Taxes, which explains the provisions related to depreciation. Paragraph 30.2 of this circular indicates that the restriction of eight years for carrying forward and setting off unabsorbed depreciation was removed to enable industries to conserve funds for replacing plant and machinery.

The court further elaborated that the modification should be understood such that from the assessment year 2002-03, if the eight-year period had not lapsed, the assessee could carry forward the loss without any time restriction. This interpretation aligns with the decision of the Gujarat High Court in General Motors India (P) Ltd. vs. DCIT, which clarified that any unabsorbed depreciation available on April 1, 2002, would be governed by the amended provisions of Section 32(2) and could be carried forward indefinitely.

The court also referenced similar decisions by other High Courts, including the Bombay High Court in CIT-3 vs. M/s. Bajaj Hindustan Ltd., where the special leave petition by the Revenue was dismissed by the Supreme Court, and the Punjab & Haryana High Court in CIT vs. GTM Synthetics Ltd., which allowed the unabsorbed depreciation to be set off against other income heads.

In conclusion, the court held that the decisions from various High Courts and the explanatory circulars clearly support the assessee's entitlement to carry forward the depreciation loss beyond the eight-year period. Consequently, the appeal by the Revenue was dismissed, and the substantial question of law was answered against the Revenue.