1991 (9) TMI 148 - AT - Income Tax

Summary

Issues:
1. Whether unabsorbed depreciation can be set off against long-term capital gains.
2. Interpretation of provisions of the Income-tax Act, 1961 regarding set off of unabsorbed depreciation against income.

Detailed Analysis:
1. The appeal involved a dispute regarding the set off of unabsorbed depreciation against long-term capital gains. The CIT(A) had rejected the claim made by the assessee, stating that unabsorbed depreciation could not be set off against long-term capital gains for the year under consideration. The assessee contended that the unabsorbed depreciation carried forward should be set off against long-term capital gains. The issue revolved around the interpretation of the Income-tax Act, 1961 in this regard.

2. The assessee, a private limited company for the assessment year 1987-88, had filed a return admitting net income and the assessment was completed determining business income. The long-term capital gains were taxed separately, and unabsorbed depreciation from earlier years was allowed to be carried forward for set off. The assessee relied on the Supreme Court judgment in CIT v. Jaipuria China Clay Mines (P.) Ltd. [1966] 59 ITR 555 to support their claim. The CIT(A) held that only carried forward business loss takes priority over unabsorbed depreciation, as per the provisions of the Income-tax Act, 1961.

3. The Tribunal considered the arguments presented by both parties and referred to the Supreme Court judgment in the case of Jaipuria China Clay Mines (P.) Ltd. The Supreme Court had ruled that unabsorbed depreciation should be set off against income taxed in the current year. The Tribunal noted that the legal fiction deeming unabsorbed depreciation as part of current year's depreciation for determining business profits supported the assessee's claim. As the facts of the present case aligned with the Supreme Court decision, the Tribunal concluded that the unabsorbed depreciation should be set off against long-term capital gains, contrary to the CIT(A)'s decision.

4. Ultimately, the Tribunal allowed the appeal, setting aside the CIT(A)'s order, and directed the Income Tax Officer to set off the unabsorbed depreciation against the long-term capital gains for the year under consideration. The decision was based on the clear interpretation of the provisions of the Income-tax Act, 1961 and the precedence set by the Supreme Court judgment in a similar case. The Tribunal upheld the assessee's claim, emphasizing the applicability of legal principles established by the Supreme Court.