1987 (10) TMI 86 - AT - Income Tax

Summary

Issues involved:
1. Allowance of unabsorbed depreciation for assessment year 1970-71 in the computation of business income.
2. Interpretation of Section 32(2) regarding the treatment of unabsorbed depreciation.
3. Preferential treatment of the right to carry forward and set off depreciation.
4. Application of Section 72 in allowing the carry forward of depreciation.
5. Disallowance of the remaining loss pertaining to assessment year 1969-70.

Detailed Analysis:
1. The primary issue in this case is whether the unabsorbed depreciation amount of Rs. 46,666 for assessment year 1970-71, which could not be set off against subsequent years' profits, should be allowed in computing the business income for the current year. The Act allows depreciation under Section 32, with sub-section (2) providing for the treatment of unabsorbed depreciation in subsequent years when not fully allowed in previous years due to various reasons.

2. The interpretation of Section 32(2) is crucial in this case. The section outlines the mechanism for carrying forward unabsorbed depreciation to future years. It specifies that if full effect cannot be given to the depreciation allowance in any previous year due to lack of profits or insufficient profits, the unabsorbed amount shall be deemed as the allowance for the following years, ensuring a set off for an unlimited period.

3. The Tribunal emphasizes the preferential treatment accorded to the right to carry forward and set off depreciation for an unlimited period under Section 32(2). The objective is to provide flexibility to taxpayers in utilizing unabsorbed depreciation against future income, thereby maintaining a balance between business losses and future profits.

4. The application of Section 72 is pivotal in allowing the carry forward of depreciation as a business loss. The Tribunal opines that while there is a limitation of 8 years for carrying forward business losses under Section 72, depreciation should retain its preferential treatment for an unlimited period unless claimed as a business loss, in which case the 8-year restriction would apply.

5. Lastly, the Tribunal addresses the disallowance of the remaining loss amounting to Rs. 8,57,659 related to assessment year 1969-70. It concludes that this loss has lapsed and was rightly not allowed to be set off by the authorities below, distinguishing it from the treatment of unabsorbed depreciation for assessment year 1970-71.

In conclusion, the Tribunal partially allows the appeal, permitting the set off of the unabsorbed depreciation of Rs. 46,666 under Section 72 while upholding the disallowance of the remaining loss pertaining to assessment year 1969-70.