2004 (10) TMI 266 - AT - Income Tax

Unabsorbed Depreciation - Inclusion of surcharge on Municipal-tax - Setting off unabsorbed depreciation brought forward from earlier years against income from any head other than business - HELD THAT - Having regard to the clarification given by the Finance Minister in his Speech delivered while moving the Finance (No. 2) Bill, 1996 in the Lok Sabha and giving harmonious meaning and reasoning to the amended section 32(2) brought into effect on and from 1-4-1997, we are of the considered view that the depreciation allowance allowed to the assessee upto and inclusive assessment year 1996-97 which remained unabsorbed and is brought forward to the assessment year 1997-98 and subsequent assessment years upto assessment year 2004-05 can be set-off as per pre-amended section 32(2) and, consequently, it can be set-off against taxable business profits or income under any other head for assessment year 1997-98 and seven subsequent assessment years. Therefore, the assessee's claim, in the present case, to set-off unabsorbed depreciation brought forward from assessment years 1995-96 and 1996-97 against income under 'House Property' for the assessment year 1998-99 is to be allowed, and, we order accordingly. Consequently, the issue involved in the Cross Objection filed by the assessee is decided in favour of the assessee. Before parting with the issue, we may put it on record that we have noticed a decision where a similar view has been taken by the Income Tax Appellate Tribunal, Delhi Bench 'A' in the case of ITO v. Selchem Engineers (P.) Ltd. 2004 (4) TMI 273 - ITAT DELHI-A . Both the Revenue's appeal and the assessee's Cross Objection were allowed. The Tribunal decided the issue of surcharge on Municipal-tax in favor of the Revenue and allowed the assessee's claim to set off unabsorbed depreciation against income from house property.

Summary

Issues Involved:
1. Inclusion of surcharge on Municipal-tax collected by the assessee.
2. Setting off unabsorbed depreciation brought forward from earlier years against income from any head other than business.

Summary:

Issue 1: Inclusion of surcharge on Municipal-tax collected by the assessee

The Revenue appealed against the ld. CIT(A)'s order regarding the inclusion of Rs. 36,72,918 collected by the assessee from tenants as surcharge on Municipal-tax. The Tribunal found that this issue is fully covered in favor of the Revenue by the ITAT, Special Bench decision in Joint CIT v. Poddar Projects Ltd. [2004] 88 ITD 247 (Kol.)(SB) for the assessment year 1997-98. Respectfully following this decision, the Tribunal reversed the ld. CIT(A)'s order and restored the Assessing Officer's order, deciding the issue in favor of the Revenue.

Issue 2: Setting off unabsorbed depreciation brought forward from earlier years against income from any head other than business

The assessee filed a Cross Objection disputing the ld. CIT(A)'s order upholding the Assessing Officer's rejection of the assessee's claim to set off cumulative unabsorbed depreciation of Rs. 4,37,186 from assessment years 1995-96 and 1996-97 against income under the head "income from house property" for the assessment year 1998-99. The Assessing Officer rejected this claim based on the amended provisions of section 32(2) by the Finance Act, 1996, which restricted the set-off to business income only.

Upon appeal, the Tribunal examined the provisions of section 32(2) as they stood before and after the amendment by the Finance (No. 2) Act, 1996, and the subsequent amendment by the Finance Act, 2001. The Tribunal noted that the unabsorbed depreciation for assessment years up to 1996-97 could be set off against any income head for assessment year 1997-98 and the next seven years, as clarified by the Finance Minister's Speech and CBDT Circular No. 762.

The Tribunal concluded that the unabsorbed depreciation brought forward from assessment years 1995-96 and 1996-97 could be set off against income under any head, including "income from house property," for the assessment year 1998-99. This decision was supported by similar views in other ITAT decisions, including ITO v. Selchem Engineers (P.) Ltd. [2004] 90 ITD 732 and Joint CIT v. India Steamship Co. Ltd. [IT Appeal No. 1308 (Cal.) of 2000].

Conclusion:

Both the Revenue's appeal and the assessee's Cross Objection were allowed. The Tribunal decided the issue of surcharge on Municipal-tax in favor of the Revenue and allowed the assessee's claim to set off unabsorbed depreciation against income from house property.