2016 (9) TMI 69 - HC - Income Tax

Calculation of deduction under Chapter VI-A - Tribunal held that depreciation, whether claimed or not, has to be foisted upon the assessee even prior to insertion of Explanation 5 to S.32 (1) of the Act with effect from 01/04/2002 - Held that - While deciding the matter, in the case of Seshasayee Paper and Board Ltd. v. Deputy Commissioner of Income-Tax, (2015 (5) TMI 590 - SUPREME COURT ), the Supreme Court observed that once the entire depreciation, namely, the unabsorbed depreciation allowance of the previous year gets merged into the depreciation of the current year, it would become an integral part thereof. Legal fiction makes it one whole thereby making it possible for the assessee to claim set-off of unabsorbed carried forward depreciation as well. Once the unabsorbed carried forward depreciation has become a part of the depreciation of the current year, it is not open to the assessee to bifurcate the two again and exercise its choice to claim the depreciation of the current year under Section 32 (1) of the Act taking a position that since unabsorbed depreciation of the previous years is not claimed, it cannot be thrust upon the assessee. Applying this ratio, in our view, the Tribunal has committed an error while passing the impugned order and it is held that the depreciation, whether claimed or not, cannot be foisted upon the assessee even prior to insertion of Explanation 5 to S.32 (1) of the Act with effect from 01/04/2002, while calculating deduction under Chapter VI-A of the Act. Accordingly, this appeal is allowed. The question posed for our consideration is answered in favour of the assessee and against the revenue.

Summary

Issues:
Challenge to judgment of Income Tax Appellate Tribunal regarding depreciation calculation and deduction under Chapter VI-A of the Act for assessment year 1996-97.

Analysis:
The appeal challenged the decision of the Income Tax Appellate Tribunal regarding the calculation of depreciation and deduction under Chapter VI-A of the Act for the assessment year 1996-97. The main question of law framed was whether the Tribunal was correct in holding that depreciation, whether claimed or not, should be imposed on the assessee even before the insertion of Explanation 5 to S.32(1) of the Act from 01/04/2002. The appellant argued that the Tribunal erred in its decision, emphasizing that depreciation cannot be imposed on the assessee prior to the mentioned amendment. The appellant relied on various decisions to support this argument, asserting that the issue at hand was covered by previous court rulings.

The respondent, on the other hand, supported the Tribunal's decision and contended that no error was made in the impugned order. During the deliberation, the court referred to the case of Seshasayee Paper and Board Ltd. v. Deputy Commissioner of Income-Tax, where the Supreme Court established that unabsorbed depreciation from previous years becomes an integral part of the current year's depreciation. The court noted that the legal fiction created by this merger allows the assessee to claim set-off of unabsorbed carried forward depreciation. Consequently, the court concluded that once the unabsorbed carried forward depreciation is integrated into the current year's depreciation, the assessee cannot separate the two and choose not to claim the previous year's depreciation. Therefore, the court held that the Tribunal erred in its decision, ruling that depreciation, whether claimed or not, cannot be imposed on the assessee before the specified amendment. Consequently, the appeal was allowed in favor of the assessee, answering the posed question in favor of the assessee and against the revenue.