2021 (7) TMI 849 - HC - Income Tax

Carry forward the unabsorbed depreciation beyond eight years - HELD THAT - The question of law that arise for consideration in the above appeal has already been decided against the Revenue and in favour of the assessee in M/s.KMC Speciality Hospitals India Ltd. 2014 (5) TMI 1027 - ITAT CHENNAI when the quantum of unabsorbed depreciation is computed after the amendment, whatever balance of unabsorbed depreciation is available to the credit of the assessee, must be determined as unabsorbed depreciation eligible for carry forward and set off. The interregnum restriction of limiting the claim for an eight-year period does not take away the right of an assessee to claim the balance of unabsorbed depreciation, forever. The balance of unabsorbed depreciation revives back into life and becomes eligible for carry forward and set off along with the other part unabsorbed depreciation available to the credit of the assessee. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the direction of the Tribunal to set off the unabsorbed depreciation pertaining to Assessment Year 1997-98 is valid.
2. Interpretation of the amendment to Section 32(2) of the Income Tax Act regarding the carry forward and set-off of unabsorbed depreciation beyond eight years.

Issue-wise Detailed Analysis:

1. Validity of Tribunal’s Direction on Unabsorbed Depreciation:
The primary issue revolves around whether the Income Tax Appellate Tribunal (ITAT) was correct in allowing the assessee to set off the unabsorbed depreciation from the Assessment Year (AY) 1997-98 against the income of AY 2008-09, which is beyond the eight-year period stipulated under the provisions of Section 32(2) of the Income Tax Act prior to its amendment.

2. Interpretation of Section 32(2) Amendment:
The court referred to several precedents and circulars to interpret the amendment to Section 32(2) of the Income Tax Act. The amendment, effective from April 1, 2002, removed the restriction of the eight-year carry forward period for unabsorbed depreciation. The court highlighted the intent behind this amendment, which was to enable industries to conserve sufficient funds to replace plant and machinery, especially given the rapid pace of technological obsolescence.

Detailed Judgment Analysis:

Background:
The assessee, a wholly-owned company of the Government of Tamil Nadu, filed its income return for AY 2008-09, declaring a taxable income of ?11,04,22,407 after setting off business losses with long-term capital gains. The initial assessment under Section 143(3) was completed with an assessed income of ?58,48,39,921, making certain additions. The case was reopened under Section 148, questioning the allowance of unabsorbed depreciation from AYs 1997-98, 1998-99, and 1999-2000, which was not permissible beyond eight years as per the pre-amendment provisions of Section 32(2).

Tribunal’s Decision:
The ITAT dismissed the Revenue's appeal, upholding the Commissioner of Income Tax (Appeals)’s decision that favored the assessee. The Revenue challenged this decision, leading to the present appeal.

Court’s Findings:
The court noted that the substantial question of law had already been decided in favor of the assessee in previous judgments, specifically citing T.C.A.No.62 of 2015, where it was held that the restriction of eight years for carrying forward unabsorbed depreciation was dispensed with by the amendment effective from April 1, 2002.

Precedents and Circulars:
The court referred to several key decisions:
- General Motors India (P.) Ltd. v. Dy. CIT: This case clarified that unabsorbed depreciation available as of April 1, 2002, would be governed by the amended Section 32(2), allowing indefinite carry forward.
- CIT v. Hindustan Unilever Ltd. and Bajaj Hindustan Ltd.: These cases supported the interpretation that unabsorbed depreciation from AYs prior to 2002 could be carried forward indefinitely post-amendment.
- CBDT Circular No. 14/2001: This circular explained that the amendment aimed to remove the eight-year restriction to help industries conserve funds for replacing plant and machinery.

Conclusion:
The court concluded that the Tribunal’s direction to allow the set-off of unabsorbed depreciation from AY 1997-98 was correct. The amendment to Section 32(2) allowed such depreciation to be carried forward without any time limit from AY 2002-03 onwards. Consequently, the appeal was dismissed, and the question of law was decided against the Revenue and in favor of the assessee.

Final Judgment:
The Tax Case Appeal was dismissed, and the substantial question of law was answered against the Revenue, affirming the Tribunal’s decision. No costs were awarded.