2007 (10) TMI 381 - HC - Income Tax

Depreciation- A reading of Explanation 2A to section 43(6) of the Act makes it clear that the written down value of the transferred capital assets to the amalgamated company would be the same as it would have been as if the amalgamated company would be the same as it would have been as if the amalgamating company continued to hold the capital asset for the purpose of its business. The Statutory provision makes it clear that the written down value of the asset would be the actual cost of asset of the assessee less depreciation allowed to the company any unabsorbed depreciation which was not set off for carry forward cannot be taken into account. Held that- the Tribunal was right in holding that the amalgamated company was entitled to depreciation on the written down value of asset as increased by the unabsorbed depreciation carried forward in the hands of amalgamating company.

Summary

Issues:
1. Depreciation calculation for an amalgamated company.
2. Eligibility of an amalgamated company for deductions under sections 80HH and 80-I.

Depreciation Calculation for an Amalgamated Company:
The case involved an appeal by the Revenue against the order of the Income-tax Appellate Tribunal regarding the assessment year 1992-93. The Assessing Officer rejected the claim of the assessee-company for deductions under sections 80HH and 80-I, stating that the amalgamated company did not set up the units in question. Additionally, the Tribunal held that unabsorbed depreciation of the amalgamating company should not be deducted in computing the written down value of assets in the hands of the amalgamated company. The Tribunal's decision was based on the interpretation of section 43(6) of the Income-tax Act, which specifies that the written down value of transferred capital assets should be calculated as if the amalgamating company continued to hold the assets. The court upheld the Tribunal's decision, citing precedents from the Bombay High Court, emphasizing that unabsorbed depreciation not set off cannot be considered in the calculation of written down value.

Eligibility for Deductions under Sections 80HH and 80-I:
Regarding the eligibility of the amalgamated company for deductions under sections 80HH and 80-I, the Commissioner of Income-tax (Appeals) had allowed the deductions based on a circular issued by the Central Board of Direct Taxes. The Tribunal rejected the Revenue's appeal, following a decision of the Bombay High Court in a similar case. The court analyzed the provisions of sections 80HH and 80-I, emphasizing that these sections aim to encourage new industrial undertakings meeting specific conditions. The court noted that amalgamation should not be seen as a hindrance to claiming these deductions, as it benefits the companies involved and the shareholders. Referring to the Bombay High Court's decision in a previous case, the court concluded that the amalgamated company was entitled to the deductions under sections 80HH and 80-I. The court upheld the Tribunal's decision, stating that the order granting these benefits to the assessee-company was not illegal and aligned with statutory provisions.

In conclusion, the High Court dismissed the appeal, ruling in favor of the assessee on both issues of depreciation calculation and eligibility for deductions under sections 80HH and 80-I. The judgment provided a detailed analysis of the legal provisions and precedents, emphasizing the proper interpretation and application of the Income-tax Act in the context of amalgamated companies seeking tax benefits.