9911796707
TMI Blog2012 (7) TMI 698X X X X Extracts X X X X X X X X Extracts X X X X ..... n value? 2. The following substantial questions of law are raised in T.C.(A) No.1312 of 2005: (i) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that as per the Explanation 2 to Clause (c) of Section 43(6), the unabsorbed depreciation of FGCL - Amalgamating Company cannot be added to the written down value? (ii) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in upholding disallowance of deduction under Section 35D in respect of issuance of euro shares? And (iii) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding, on the alternative claim of treating the expenditure under Section 37, that the euro issue expenses should be disallowed as capital expenditure? 3. The Tribunal passed a common order in the assessee's appeal and in the Revenue's appeal. The present appeal in T.C.(A) No.1311 of 2005 is in respect of the orders passed in the assessee's appeal, regarding the written down value to be arrived at the hands of the amalgamated company, the assessee herein. It is seen from the facts herein that M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny on the amalgamated company would be available to the amalgamated company only on satisfying the conditions enumerated under Section 72A. The Assessing Officer pointed out that the assessee had made a back-door entry to claim unabsorbed depreciation of the amalgamating company through Explanation 2A and Explanation 3, which was not permissible. Apart from this issue, the Tribunal also considered the claim of carry forward of the investment allowance under Section 32A. The Assessing Authority pointed out that in the absence of any of the stipulations provided for under the sub section not being satisfied by the amalgamating company, the assessee was not entitled to have the benefit under Section 32A(6). The Assessing Authority pointed out that the assessee failed to produce any evidence that the amalgamating company was allowed investment allowance at Rs.1,31,99,650/-. There being no such evidence, the relief sought for under Section 32A(6) was rejected. 5. As far as the assessment order relating to the assessment year 1995-96 in T.C.(A) No.1312 of 2005 is concerned, apart from the issue of Section 43(6), the assessment also considered the deduction under Section 35D. A pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year 1992-93 as well as the decision reported in [2009] 310 ITR 392 (SC) (Commissioner of Income-tax Vs Doom Dooma India Ltd.) and submitted that irrespective of the amendment to sub section (2), the decision of the Bombay High Court reported in [1991] 187 ITR 1 (Commissioner of Income-tax Vs Hindustan Petroleum Corporation Ltd. (Bom)) would still have relevance for the purpose of considering whether Explanation 3 would have to be read into Explanation 2 for the purpose of arriving at the written down value at the hands of the assessee, the amalgamated company. Pointing out to the provisions under Section 72A that the carried forward depreciation is deemed to be the depreciation of the previous year at the hands of the amalgamated company, subject of course, to other conditions to be satisfied therein, learned counsel submitted that for the purpose of arriving at the written down value at the hands of the amalgamated company - the assessee herein, the written down value shall be one which would be arrived at, at the hands of the transferor company for the immediately preceding previous year as reduced by the amount of depreciation actually allowed in relation to the said pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncerned about Explanation 2 only and Explanation 2A, dealing with demerger, has no relevance to the facts of the case. Explanation 2 and 3 read as under: " Explanation 2.--Where in any previous year, any block of assets is transferred,-- (a) by a holding company to its subsidiary company or by a subsidiary company to its holding company and the conditions of clause (iv) or, as the case may be, of clause (v) of section 47 are satisfied; or (b) by the amalgamating company to the amalgamated company in a scheme of amalgamation, and the amalgamated company is an Indian company, then, notwithstanding anything contained in clause (1), the actual cost of the block of assets in the case of the transferee company or the amalgamated company, as the case may be, shall be the written down value of the block of assets as in the case of the transferor- company or the amalgamating company for the immediately preceding previous year as reduced by the amount of depreciation actually allowed in relation to the said preceding previous year. Explanation 3.--Any allowance in respect of any depreciation carried forward under sub-section (2) of section 32 shall be deemed to be depreciation "actually ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 75, depreciation allowance of Rs.21,42,815/- remained unabsorbed. In the assessment for 1975-76, the assessee amalgamated company claimed depreciation on the written down value of the assets. The Income Tax Officer determined the written down value by reducing from the actual cost, not only the depreciation actually allowed, but also the depreciation carried forward, and allowed depreciation on that basis. On the question as to whether the Officer was correct in working out the written down value by taking into account the unabsorbed depreciation also, the Bombay High Court held that as the amalgamated company was no longer in existence, the unabsorbed depreciation allowance of Rs.21,42,825/- could not be carried forward under Section 32(2); as such, it was not allowable as a depreciation of the current year under Section 32(2) in the hands of the assessee. 19. Thus Explanation 3 was not attracted to the present case. The Bombay High Court pointed out that going by Explanation 2A, the written down value of the assets at the hands of the amalgamated company would be the actual cost of the assets to the amalgamating company, less depreciation actually allowed to the company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue at the hands of the amalgamating company is adopted. Beyond this fiction, Explanation 2A did not travel further to consider the unabsorbed depreciation, a position which is considered only under Explanation 3. 22. Referring to Section 72A, the Bombay High Court pointed out that in cases falling under Section 72A, Explanation 3 would undoubtedly apply as a pre-condition, that the unabsorbed depreciation in the hands of the amalgamating company could be carried forward under Section 32(2) in the hands of the amalgamated company. Thus, the Bombay High Court held "it would be in order if Explanation 3 is applied to a case covered by Explanation 2A only if the pre-condition for its application is found to exist and not otherwise. Even otherwise, applying the provisions of Explanation 3 to a case like the one before us in which allowance in respect of a depreciation is not actually carried forward, is likely to cause injustice. Thus, Explanation 3 was not attracted to the case and the written down value of the assets would be the actual cost of the assets to the amalgamating company, less depreciation actually allowed to the company and the unabsorbed depreciation, which is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the previous year." Thus, as far as assessment year 1994-95 is concerned, with the previous year 1993-94, the immediate preceding previous year would be 1992-93. Thus the written down value arrived at during 1992-93 after actually allowing the depreciation in 1992-93 would be the written down value at the hands of the transferor company. In other words, the written down value as on 1.4.1993 would be the actual cost of the block of assets at the hands of the amalgamated company. It means, the Written Down Value as on 01.04.1993 would include the unabsorbed depreciation at the end of 31.03.1994. Thus, in considering what is the depreciation actually allowed, the reasoning of the Bombay High Court thus assumes significance, that the written down value at the hands of the amalgamating company has to be taken as one arrived at on the depreciation actually allowed and the written down value would be as in the immediate preceding previous year. Short of repetition, we would say, in respect of the assessment year 1994-95, the previous year being 1993-94, the written down value as on 1.4.1993, which would be the written down value as of 1992-93, wherein, the depreciation is actually ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company which remains to be allowed and it would have been allowed to the amalgamating company under the provisions of the Act as if the amalgamation had not been effected. The benefit available under Section 72A was also considered by the Bombay High Court. Going by the reasoning, we have no hesitation in agreeing with the same. 29. As far as the issue relating to the investment allowance is concerned, on the facts found by the Tribunal that the transferor company had not created any reserves in compliance of the provisions of Section 32A(6), we have no hesitation in confirming the order of the Tribunal. Thus as far as T.C.(A) No.1311 of 2005 is concerned, while the first question stands answered against the assessee, the second question on Section 43(6) is answered in favour of the assessee. Thus T.C.No.1311 of 2005 stands partly allowed. 30. As far as T.C.(A) No.1312 of 2005 is concerned, we answer the first question under Section 43(6) Explanation 2 in favour of the assessee. 31. As far as amortisation of the expenses relating to the issuance of shares under Section 35D is concerned, the assessment order contained an extract of brochure on euro issue. I ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
