2014 (12) TMI 1011 - AT - Income Tax

Claim of set off of unabsorbed depreciation against the rental income treated as income from other sources discontinued activity - Held that - Assessee rightly relied upon Commissioner Of Income-Tax Versus Premchand Jute Mills Limited 1986 (3) TMI 29 - CALCUTTA High Court wherein it has been held that the assessee was entitled to carry forward the unabsorbed depreciation u/s 32(2) without any reference to section 57 - the assessee was entitled to deduction in respect of expenditure and depreciation in accordance with section 32(2) - The specific mention of section 32(2) in section 57 permits deduction of the unabsorbed carry forward depreciation of earlier years from the income received form plant, machineries or furniture let out what is spoken to u/s 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 - thus, the order of the CIT(A) is set aside and the AO is directed to give appropriate relief to the assessee by allowing set off of unabsorbed depreciation of the AY 2003-04 and 2004-05 against the rental income assessed to tax in the years Decided in favour of assessee.

Summary

Issues:
Claim for set off of unabsorbed depreciation against income from lease rents under 'income from other sources'.

Analysis:

1. The appeals pertain to the assessee's claim for set off of unabsorbed depreciation from earlier years against income assessed under 'income from other sources' for assessment years 2006-07, 2007-08, 2008-09, and 2009-10. The assessee, a company, previously operated an educational institute until 2004-05 and later leased its assets, declaring rental income under 'profits and gains of business or profession'. The Assessing Officer assessed the rental income under 'income from other sources' for all relevant years without considering the claim for set off of unabsorbed depreciation from 2003-04 and 2004-05.

2. The CIT(A) and Tribunal upheld the disallowance of the claim for set off in the assessment year 2005-06, setting a precedent for subsequent years. The assessee appealed to the Tribunal for assessment years 2006-07 to 2009-10, arguing for the set off under Section 57(ii) of the Income Tax Act.

3. The assessee cited relevant case law, including CIT v. Premchand Jute Mills Ltd., DCIT v. Akay Flavours & Aromatics Pvt. Ltd., and a judgment of the Madras High Court in CIT v. Spel Semi Conductor Limited, to support their claim. The Revenue, however, relied on the precedent set by the Tribunal in a previous case involving a different company.

4. After considering the arguments and case law presented, the Tribunal noted that decisions by the Calcutta and Madras High Courts favored the assessee's position, allowing for the set off of unabsorbed depreciation against income from other sources. The Tribunal also referred to a Third Member decision of the Cochin Bench supporting this view.

5. The Tribunal, following the decisions of the higher judicial fora and the Third Member decision, ruled in favor of the assessee. It directed the Assessing Officer to allow the set off of unabsorbed depreciation from 2003-04 and 2004-05 against the rental income assessed for the relevant years. Consequently, all four appeals of the assessee were allowed.

6. The judgment was pronounced on 26th November 2014 by the Appellate Tribunal ITAT Hyderabad, with the detailed analysis providing clarity on the legal interpretation and application of provisions related to the set off of unabsorbed depreciation against income from other sources.