2002 (9) TMI 282 - AT - Income Tax

Summary

Issues Involved:
1. Claim of the assessee-company for benefit in respect of unabsorbed depreciation of the amalgamating company.
2. Determination of written down value (WDV) of assets post-amalgamation.
3. Applicability of section 72A of the Income-tax Act and its overriding effect on other provisions.
4. Interpretation of the decision in CIT v. Hindustan Petroleum Corpn. Ltd.
5. Role and authority of BIFR in restricting tax benefits.

Issue-wise Detailed Analysis:

1. Claim of the assessee-company for benefit in respect of unabsorbed depreciation of the amalgamating company:
The assessee-company claimed a benefit for unabsorbed depreciation of M/s. Modern Stramit India Ltd., which was amalgamated with the assessee-company under the BIFR order. The assessee argued that the unabsorbed depreciation should not be deducted from the WDV of the assets and should be allowed as a depreciation allowance. The Assessing Officer and CIT(A) rejected this claim, stating that the benefit was restricted to a maximum tax relief of Rs. 75 lakhs as per the BIFR order, and any further benefit would exceed this limit.

2. Determination of written down value (WDV) of assets post-amalgamation:
The assessee contended that the WDV of the assets should be enhanced by the amount of unabsorbed depreciation not actually allowed, citing the decision in CIT v. Hindustan Petroleum Corpn. Ltd. The CIT(A) and the Tribunal held that this decision was not applicable post the insertion of section 72A, which specifically governs the carry forward and set off of accumulated loss and unabsorbed depreciation in cases of amalgamation.

3. Applicability of section 72A of the Income-tax Act and its overriding effect on other provisions:
Section 72A, introduced by the Finance (No. 2) Act, 1977, contains special provisions for the carry forward and set off of accumulated loss and unabsorbed depreciation in cases of amalgamation. The Tribunal emphasized that these provisions have an overriding effect on other provisions of the Act, including sections 32(2) and 43(6). The Tribunal concluded that the benefits under section 72A were limited to the extent specified by the BIFR order, and no additional benefits could be claimed.

4. Interpretation of the decision in CIT v. Hindustan Petroleum Corpn. Ltd.:
The assessee relied heavily on the decision in CIT v. Hindustan Petroleum Corpn. Ltd., where it was held that unabsorbed depreciation not actually allowed should not be deducted from the WDV of assets. The Tribunal clarified that this decision was rendered before the insertion of section 72A and was based on the provisions prevailing at that time. Post insertion of section 72A, the specific provisions of this section override the general provisions and the decision in Hindustan Petroleum Corpn. Ltd. was not applicable.

5. Role and authority of BIFR in restricting tax benefits:
The BIFR had restricted the tax benefits to a maximum of Rs. 75 lakhs in its order. The Tribunal upheld this restriction, stating that the BIFR has the authority to impose such limits under section 72A. The Tribunal also referred to the decision in Mahindra & Mahindra Ltd. v. Union of India, where it was held that any higher tax benefits should be sought from the BIFR.

Conclusion:
The Tribunal dismissed the appeal of the assessee, affirming the CIT(A)'s order that the claim for additional depreciation beyond the Rs. 75 lakhs limit specified by the BIFR was not allowable. The Tribunal held that section 72A's specific provisions override other general provisions and the decision in Hindustan Petroleum Corpn. Ltd. was not applicable post the insertion of section 72A. The BIFR's restriction on tax benefits was upheld, and any additional benefits could only be sought from the BIFR.