2005 (3) TMI 60 - HC - Income Tax

Carry forward and set off unabsorbed depreciation revenue submitted that as the loss for the earlier year had not been determined in terms of sections 72 to 74A of the Act the respondent was not entitled to carry forward unabsorbed depreciation in view of the provisions of section 80 revenue s submission is misconceived - Section 80 confines itself to the losses mentioned in subsection (1) of section 72 or sub-section (2) of section 73 or sub-section (1) or sub-section (3) of section 74 or sub-section (3) of section 74A. It does not talk about the unabsorbed depreciation which is allowed to be carried forward under sub-section (2) of section 32 - Thus, the respondent was entitled for carry forward unabsorbed depreciation under section 32(2) notwithstanding the fact that the losses had not been determined

Summary

Issues:
1. Interpretation of provisions regarding carry forward and set off of unabsorbed depreciation.
2. Applicability of section 80 of the Income-tax Act, 1961.
3. Entitlement to carry forward unabsorbed depreciation under section 32(2) of the Act.

Analysis:

1. Interpretation of provisions regarding carry forward and set off of unabsorbed depreciation:
The case involved a question of law referred to the High Court regarding the justification of upholding the decision of the Deputy Commissioner of Income-tax (Appeals) who allowed the assessee's claim for carry forward and set off unabsorbed depreciation of the earlier year. The Tribunal clarified that unabsorbed depreciation is distinct from business losses under sections 72, 73, 74, or 74A of the Income-tax Act. Section 32(2) specifically deals with the carry forward of unabsorbed depreciation, which is added to the depreciation of the following year. The Tribunal emphasized that the provisions for unabsorbed depreciation under section 32(2) are separate and not limited to cases where a return is filed under section 139(1) of the Act.

2. Applicability of section 80 of the Income-tax Act, 1961:
The Revenue contended that the respondent was not entitled to carry forward unabsorbed depreciation due to the provisions of section 80 of the Act, which they argued did not cover unabsorbed depreciation. However, the High Court clarified that section 80 of the Act pertains to specific losses mentioned in various subsections of sections 72, 73, 74, and 74A, and does not address unabsorbed depreciation. Therefore, the respondent was deemed entitled to carry forward unabsorbed depreciation under section 32(2) irrespective of the determination of losses under sections 72 to 74A.

3. Entitlement to carry forward unabsorbed depreciation under section 32(2) of the Act:
The High Court ruled in favor of the respondent, stating that the provisions of section 32(2) allow for the carry forward of unabsorbed depreciation, distinct from the limitations imposed by section 80 of the Act. Despite the loss for the earlier year not being determined under sections 72 to 74A, the respondent was deemed eligible to carry forward unabsorbed depreciation under section 32(2). The Court upheld the decision of the Deputy Commissioner of Income-tax (Appeals) in allowing the claim for carry forward and set off unabsorbed depreciation of the earlier year.

In conclusion, the High Court answered the question in favor of the assessee, emphasizing the distinction between unabsorbed depreciation and business losses under different sections of the Income-tax Act and affirming the entitlement of the respondent to carry forward unabsorbed depreciation under section 32(2) of the Act.