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TMI Blog2014 (10) TMI 464X X X X Extracts X X X X X X X X Extracts X X X X ..... if the consideration to the assessee is to be considered as the sale amount received by the lending banks, then, the loans waived by such banks [availed by the assessee for the purchase of capital assets such as land, building, plant and machinery etc.,] was nothing but a capital receipt not liable for tax since neither the provisions of s. 28(iv) nor s. 41(1) of the Act is attracted. Denial of benefit of set off of brought forward unabsorbed depreciation - Held that:- Following the decision in GENERAL MOTORS INDIA PVT. LTD Versus DEPUTY COMMISSIONER OF INCOME-TAX [2012 (8) TMI 714 - GUJARAT HIGH COURT] - keeping in view the purpose of amendment of section 32(2) of the Act, a purposive and harmonious interpretation has to be taken - while construing taxing statutes, rule of strict interpretation has to be applied, giving fair and reasonable construction to the language of the section without leaning to the side of assessee or the revenue - But if the legislature fails to express clearly and the assessee becomes entitled for a benefit within the ambit of the section by the clear words used in the section, the benefit accruing to the assessee cannot be denied - it can be said th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to scrutiny. During the course of assessment proceedings, the assessee had submitted that it had borrowed loans from various financial institutions to purchase capital assets prior to 1999. According to the assessee, when it ran into losses and upon its net worth was being fully eroded, it became sick as per the provisions of Sick Industrial Companies (Special Provisions) Act, 1985 [SICA]. In the meanwhile, the assessee was served a Notice u/s 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 [SARFAESI] from Stressed Assets Stabilization Fund [SASF] (a financial trust that had taken over the loans advanced by IDBI Bank Limited] who was authorised to act for self and on behalf of all secured lenders of the assessee The SASF took over physical possession of the secured movable and immovable assets of the assessee u/s 13(4) of SARFAESI on 28.9.2007. The assets of the assessee company were sold by SASF sometime in March, 2008 for a sale price of ₹ 10 crores. The Principal amount of loans outstanding to the secured lenders amounted to ₹ 97.42 crores, of which, ₹ 24.46 crores was due on account of unpaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of the appellant, during the year under consideration, the property/assets of the appellant company have been sold for a certain consideration, in return the appellant has received as benefit the waiver of the entire loan outstanding in its books amounting to ₹ 97.42 crores. Thus, the full value of consideration for the appellant is ₹ 97.42 crores. Since the WDV of the assets as per the books of the appellant company was ₹ 11.23 crore, the decision of the assessing officer to charge short term capital gains of ₹ 61.73 crores is upheld. Set off of brought forward unabsorbed deprecation: Extensively quoting the assessee s claim and also extracting the operational portion of the findings of the Hon ble Mumbai Tribunal (SB) in Times Guaranty Ltd (ITA Nos. 4917 4918], the CIT (A) had observed thus - 5.2 (On page 17) Since the appellant s claim falls within the assessment year 1997-98 to 2001-02 for which the change of law was applicable, the unabsorbed depreciation as held by the assessing officer cannot be allowed to be carried forward. The appellant further claim that the secon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed deprecation from AYs 1997-98 up-to the AY 2001-02 got carried forward to the AY 2002-03 and became part thereof and has, thus, overlooked the fact that the accumulated depreciation came to be governed by the provisions of s. 32(2) as amended by Finance Act, 2001 and this was available for carry forward and set off against the profits and gains of subsequent years without any limit whatsoever. To strengthen his submission on both the issues, the learned AR had placed strong reliance, among others, on the following case laws, namely: (1) Transcore v. Union of India in Appeal No.3228 of 2006 dt.29.11.2006; (2) CIT v. Attili N.Rao (2001) 252 ITR 0880 (SC); (3) General Motors India Pvt. Ltd v. DCIT Appl. No.1773/2012/GUJ/23/8/2012 (4) The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002. 5.1. In view of the above, it was pleaded that the twin issues urged by the assessee (supra) require to be allowed in its favour. 6. On the other hand, the learned D R supported the stand of the authorities bel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub- section (4). Thus, the requirement for the secured lenders is to issue notice to the borrower for repayment of dues before taking over possession, but not for taking over ownership, of the mortgaged assets. On receipt of such a notice for repayment, the borrower is placed under restraint from dealing with mortgaged assets in any manner whatsoever and on failure of the borrower to discharge his/its liability within the time provided in the said notice, the rights vested with the secured lenders extend: (i) To take possession of the secured assets of the borrower, including the right to transfer by way of lease, assignment or sale for realising the secured asset; (ii) To take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset; (iii) To appoint any person [hereafter referred to as the manager] to manage the secured assets the possession of which has been taken over by the secured len ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e NPA Act ousts the intervention of the courts/tribunals Further it was held by the Hon ble Supreme Court as follows - Therefore, it cannot be said that if possession is taken before confirmation of sale, the rights of the borrower to get the dispute adjudicated upon is defeated by the authorised officer taking possession. As stated above, the NPA Act provides for recovery of possession by non-adjudicatory process, therefore, to say that the rights of the borrower would be defeated without adjudication would be erroneous. Rule 8, undoubtedly, refers to sale of immovable secured asset. However, Rule 8(4) indicates that where possession is taken by the authorised officer before issuance of sale certificate under Rule 9, the authorised officer shall take steps for preservation and protection of secured assets till they are sold or otherwise disposed of. Under Section 13(8),if the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the creditor before the date fixed for sale or transfer, the asset shall not b e sold or transferred. The costs, charges and expenses referred to in Section 13(8) will include costs, ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price that was realised therefor belonged to the assessee. From out of that price, the State deducted its due towards kist and interest due from the assessee and paid over the balance to him. The capital gain that the assessee made was on the immovable property that belonged to him. Therefore, it is on the full rice realised [less admitted deductions] that the capital gain and the tax thereon has to be computed 7.1.7. The claim of the present assessee under consideration is that taking over of assets does not amount to transfer of assets and short term capital gain on such transfer cannot be charged. Therefore, the case law relied on by the CIT(A) has no relevance to the issue under dispute. 7.1.8. Reverting to the main issue, the prevailing legal position is that a restraint on dealing with the assets in any manner resulting in from issuance of notice for recovery is merely a prohibition against private alienation and does not pass any title to the authority which held a lien or charge on the aforesaid class of assets. The taking over possession of mortgaged assets by the secured lenders facilitate them to deal with the assets as part of protection of their rights i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urity interest, the secured lender take the possession of the assets after serving notices under sections 13(2) and 13(4) of SARFAESI Act; (ii) The second lender then takes steps to sell the assets so possessed. However, the secured lender, at no stage, does acquire any title over the assets, but, merely holds it till its dues are settled either by the borrower before the date of sale or transfer or from the sale proceeds of the assets; (iii) Costs incurred by the secured lender in connection with the sale of the secured assets can be recovered from the borrower; (iv) If the dues of the secured lender are not completely settled out of sale proceeds realised from sale of such secured assets, the secured lender can file an application before the Debt Recovery Tribunal for recovery of the balance amount(s) from the borrower; (v) If the dues of the secured lender together with all costs, charges and expenses incurred by it, are tendered to the secured lender at any time before the date fixed for sale or transfer, the secured asset shall not be sold or transferred by the secured lender and no further step shall be taken by him for transfer or sale of that secured asset. 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provide a loan of the said amount repayable after ten years in instalments with interest at 6%. Approval of the GOI, the assessee had received the loan amount. In February, 1976, the American Company was taken over and as a term thereof, it had been agreed to waive the principal amount of loan advanced to the assessee and to cancel the promissory notes as and when they matured. In its return of income for the AY 1976-77, the assessee had shown an amount of ₹ 57.74 lakhs as cessation of its liability towards the American Company. However, the AO took a stand that with the waiver of the loan; the credits represented income and not a liability. When the issue reached the Hon ble Court for consideration, the Hon ble Court had held as under: (i) that there were two important facts which had been overlooked by the assessing officer. Firstly, the assessee continued to pay interest at 6 per cent for a period of ten years on the loan amount. The agreement for purchase of toolings was entered into much prior to the approval of the loan arrangement given by the Reserve Bank of India. Therefore, the loan agreement, in its entirety, was not obliterated by such waiver. Secondly, the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since the loans ceased to exist, this amounted to cessation of liability and, therefore, it has to be treated as an income. When the issue finally placed before the Hon ble High Court for its ruling, the Hon ble Court had held as under: 4. We see no reason to interfere with the conclusions of the Tribunal as the same have been rendered on a correct appreciation of law. The principles enunciated in Mahindra and Mahindra Limited v. CIT 261 ITR 501 (Bom) are fully applicable and we see no reason to take a different view. Denial of the benefit of set off of brought forward unabsorbed depreciation from the AYs 1997-98 to 2001-02 and also upholding the addition of ₹ 51,21,95,551/- made by the AO. 8. The AO had held that the carry forward unabsorbed depreciation for the period 1996-97 till 2001-02 would be determined by the provisions of s. 32(2) of the Act and on this basis though the assessee had claimed benefit of unabsorbed depreciation for the AYs 1996-97 to 2007-08, the assessee was not allowed to set off of unabsorbed depreciation for the AYs 1997-98 to 2001-2002. Aggrieved, the assessee took up the issue before the CIT (A). After due consideration of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any is that the provision relating to allowing set off of unabsorbed depreciation u/s 32(2) of the Act as amended by the Finance Act, 1996 provides that the current depreciation becomes eligible for set off against the business income and against income under any other head. The carry forward time is also restricted to eight assessment years succeeding the AY in which it was first computed. Further, the aforesaid changed law was applicable up-to the AY 2001-02. The second proviso which later became the proviso to s. 32 (2) of the Act provides that the time limit of eight assessment years specified in sub-clause (b) shall not apply in the case of a company for the assessment years that if it was a sick industrial company. Incidentally, the present assessee company was registered as a sick industrial company under SICA on 16.8.1999 and was discharged by way of abatement of proceedings before BIFR on 16.1.2008. 8.2.2. To strengthen our view on the above findings, we would like to refer to the judgment of the Hon ble Gujarat High Court in the case of General Motors India Pvt. Ltd v. DCIT reported in 354 ITR 244 (Guj). Briefly, the assessee company is a private limited company and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being carried forward and set off against the income for the A.Y. 2005-06. But the assessee was not entitled for unabsorbed depreciation of ₹ 43,60,22,158/- for A.Y. 1997- 98, which was not eligible for being carried forward and set off against the income for the A.Y. 2006-07. 31. Prior to the Finance Act No. 2 of 1996 the unabsorbed depreciation for any year was allowed to be carry forward indefinitely and by a deeming fiction became allowance of the immediately succeeding year. The Finance Act No. 2 of 1996 restricted the carry forward of unabsorbed depreciation and set-off in a limit of 8 years, from the A.Y. 1997-98. Circular No. 762 dated 18.2.1998 issued by the Central Board of Direct Taxes (CBDT) in the form of Explanatory Notes categorically provided, that the unabsorbed depreciation allowance for any previous year to which full effect cannot be given in that previous year shall be carried forward and added to the depreciation allowance of the next year and be deemed to be part thereof. 32. So, the unabsorbed depreciation allowance of A.Y. 1996-97 would be added to the allowance of A.Y. 1997-98 and the limitation of 8 years for the carry-forward and set off of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aning assigned to it in clause (ga) of sub-section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985. 34. The aforesaid provision was introduced by Finance (No. 2) Act, 1996 and further amended by the Finance Act, 2000. The provision introduced by Finance (No. 2) Act was clarified by the Finance Minister to be applicable with prospective effect. 35. Section 32(2) of the Act was amended by Finance Act, 2001 and the provision so amended reads as under:- Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable for that previous year, owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(2) by Finance Act, 2001 it would have incorporated a provision to that effect. However, it does not contain any such provision. Hence keeping in view the purpose of amendment of section 32(2) of the Act, a purposive and harmonious interpretation has to be taken. While construing taxing statutes, rule of strict interpretation has to be applied, giving fair and reasonable construction to the language of the section without leaning to the side of assessee or the revenue. But if the legislature fails to express clearly and the assessee becomes entitled for a benefit within the ambit of the section by the clear words used in the section, the benefit accruing to the assessee cannot be denied. However, circular No. 14 of 2001 had clarified that under section 32(2), in computing the profits and gains of business or profession for any previous year, deduction of depreciation under section 32 shall be mandatory. Therefore, the provisions of section 32(2) as amended by Finance Act, 2001 would allow the unabsorbed depreciation allowance available in the A.Y. 1997-98, 1999-2000, 2000-01 and 2001-02 to be carried forward to the succeeding years, and if any unabsorbed depreciation or part there ..... X X X X Extracts X X X X X X X X Extracts X X X X
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