2008 (12) TMI 239 - AT - Income Tax

Unabsorbed Depreciation - set off - whether the law applicable to carry forward and set off of unabsorbed depreciation in the assessment years 1997-98 to 2001-02 would continue to govern such carry forward unabsorbed depreciation even after substituting of the provision in the assessment year 2002-03 - HELD THAT - In our view assessee cannot be put to disadvantage of carry forward and set off of unabsorbed depreciation against other income which was available to him up to assessment year 1996-97. Moreover from the speech of the Finance Minister it had become amply clear that the intention of the Legislature was that depreciation prior to assessment year 1996-97 can still be set off against any other income for the eight assessment years. Therefore, issue has to be understood under the scheme of the Income-tax Act which was available up to assessment year 1996-97 and provisions for 1997-98 and provisions for assessment year 2002-03. Our view are also fortified by the judgment of the Hon'ble Supreme Court in the case of K.P. Varghese v. CIT 1981 (9) TMI 1 - SUPREME COURT wherein it has been observed by the Supreme Court that clarification made before the Parliament has to be taken as correct interpretation of law. Finance Minister's speech could be noticed upon for throwing light on the objects and purposes of provisions. Even otherwise when Assessing Officer apply the provisions applicable for assessment year 1997-98 to assessee's case in the relevant assessment year even after its substitution, it will be fair also to apply the provisions, which existed up to assessment year 1996-97 since unabsorbed depreciation pertained to the assessment year 1996-97 and before in view of the intention of Legislature. Therefore, in our considered view as per the various provisions of law relating to carry forward depreciation and speech of the Finance Minister in the Parliament we have no hesitation in upholding the order of the CIT (A) to set off against other income but in view of the fact that by virtue of provisions effective from assessment year 1997-98, assessee is entitled to carry forward only up to 8 assessment years. In this case unabsorbed depreciation up to assessment year 1996-97 has become current depreciation of assessment year 1997-98 which shall be available for set off for eight years in view of the above discussions. Relevant assessment year 2002-03, falls within a period of 8 years, hence, unabsorbed depreciation up to assessment year 1998-99 shall be set off against other income of assessee in the relevant year. In the result we dismiss the appeal of the revenue.

Summary

Issues Involved:

1. Setting off unabsorbed depreciation allowance of previous years against the income of the current assessment year 2002-03.

Issue-wise Detailed Analysis:

1. Setting off unabsorbed depreciation allowance of previous years against the income of the current assessment year 2002-03:

The primary issue in this case is whether the unabsorbed depreciation allowance from assessment years prior to 1996-97 can be set off against the income from house property and short-term capital gain in the assessment year 2002-03. The Assessing Officer (AO) rejected the assessee's claim to set off the unabsorbed depreciation against other heads of income, interpreting the provisions of the Income-tax Act as amended over different periods.

The AO's interpretation was based on the legislative changes from assessment year 1997-98, which restricted the set-off of unabsorbed depreciation to business income only and not against other heads of income. However, the Finance Act 2001, effective from assessment year 2002-03, reinstated the original provisions allowing unabsorbed depreciation to be set off against any income. The AO argued that since the unabsorbed depreciation from assessment year 1996-97 became the current depreciation of assessment year 1997-98, it should be governed by the restrictive provisions applicable from 1997-98 to 2001-02.

The CIT(A) overruled the AO's decision, allowing the set-off of unabsorbed depreciation against any other income, citing the legislative intent and the Finance Minister's clarification in Parliament that the amendment limiting the carry forward of unabsorbed depreciation to eight years was prospective and not retroactive. The CIT(A) noted that the Finance Minister had assured that the unabsorbed depreciation up to assessment year 1996-97 could still be set off against taxable profits or income under any head for assessment year 1997-98 and the subsequent seven years.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the law applicable up to assessment year 1996-97, which allowed the set-off of unabsorbed depreciation against any other income, was reinstated from assessment year 2002-03. The Tribunal concluded that the assessee should not be disadvantaged by the intervening restrictive provisions from assessment year 1997-98 to 2001-02. The Tribunal also referred to the Supreme Court judgments in K.P. Varghese v. CIT and other cases, which upheld that legislative intent and Finance Minister's clarifications should be considered for correct interpretation of the law.

The Tribunal dismissed the revenue's appeal, affirming that the unabsorbed depreciation up to assessment year 1996-97, which became current depreciation of assessment year 1997-98, could be set off against other income for up to eight years, including the assessment year 2002-03.

Conclusion:

The Tribunal concluded that the unabsorbed depreciation allowance from assessment years prior to 1996-97 could be set off against any other income in the assessment year 2002-03, in line with the reinstated provisions and legislative intent clarified by the Finance Minister. The revenue's appeal was dismissed, and the CIT(A)'s order was upheld.