2012 (12) TMI 81 - HC - Income Tax

Setting off of Unabsorbed Depreciation and Losses - held that - A reading of Section 32(2) thus makes it clear that if the unabsorbed depreciation allowance could not be wholly set off under clause (i) and clause (ii)a, the amount of depreciation not so set off can be set off from income from other head, if any, available for that assessment year. The language of Section 32(2) is very clear and there is hardly anything contained in Section 72(2) to prevent such set off of carried forward depreciation being given to the assessee under the head of income from business or income from other sources. The Revenue does not deny the fact that as far as the income from other sources are concerned, there could be no set off of business loss or carried forward loss. Section 72(2) is as regards set off of business loss as against the income from profits and gains of business or profession and if there is loss as well as unabsorbed depreciation, the set off shall be first on the business loss as against the business income and then on unabsorbed depreciation. What is spoken to under Section 32(2) is as regards set off of unabsorbed depreciation as per clause (ii) of sub section (1) and when the unabsorbed depreciation could not be set off as against the income from business or profession by reason of there being no income available under the said heads and where there is income from other sources, effect must be given to Section 32(2) of the Act for that assessment year - rejecting the Revenue s plea, there by confirming the order of Tribunal. The above Tax Case (Appeal) is dismissed. No costs.

Summary

Issues:
- Interpretation of Section 32(2) and Section 72(2) of the Income Tax Act
- Allowance of set off of unabsorbed depreciation against income from other sources

Analysis:

Interpretation of Section 32(2) and Section 72(2) of the Income Tax Act:
The case involved an appeal by the Revenue against the order of the Income Tax Appellate Tribunal regarding the assessment year 1998-99. The Tribunal held that the assessee was entitled to set off unabsorbed depreciation against income from other sources, which was challenged by the Revenue. The Tribunal's decision was based on a combined reading of Section 32(2) and Section 72(2) of the Income Tax Act.

Allowance of set off of unabsorbed depreciation against income from other sources:
The assessee, engaged in the manufacture of semi-conductors, had claimed set off of unabsorbed depreciation and losses from previous assessment years. The Assessing Officer adjusted the losses brought forward and arrived at a business income of 'Nil'. The assessee sought to adjust unabsorbed depreciation against income from other sources, which was initially denied. The Commissioner of Income Tax (Appeals) also rejected the claim, stating that losses should be exhausted before claiming depreciation set off. However, the Tribunal allowed the set off of unabsorbed depreciation against income from other sources based on Section 32(2) of the Act.

Conclusion:
The High Court upheld the Tribunal's decision, emphasizing that Section 32(2) permits the set off of unabsorbed depreciation against income from other sources, even if there is no business income available to absorb the carried forward losses. The Court clarified that Section 72(2) does not prevent such set off and rejected the Revenue's argument that it controls the operation of Section 32(2). The judgment dismissed the appeal by the Revenue, confirming the Tribunal's order.