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TMI Blog2015 (5) TMI 590X X X X Extracts X X X X X X X X Extracts X X X X ..... laim set off of unabsorbed carried forward depreciation as well. A fortiorari, bifurcation thereof with option to claim depreciation of current year only and contending at the same time that portion of unabsorbed carried forward depreciation is not to be thrusted upon him as it is not claimed, would not be permissible. 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 exercising its choice to claim the depreciation of the current year under Section 32(1) of the Act and take a position that since unabsorbed depreciation of the previous years is not claimed, it cannot be thrusted upon the assessee. The position would have been different if the assessee had not claimed any depreciation at all. However, once the depreciation is claimed and while giving deductions the depreciation is to be set off against the profits of the current year prior to the unabsorbed carried forward investment allowance, it is the entire depreciation, namely, the depreciation of the current year as well as the unabsorbed carried forward depreciation, which is to be taken into account as by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer, it was not the investment allowance, but unabsorbed depreciation of the earlier years which had to be set off first by giving priority to the unabsorbed depreciation. Therefore, instead of allowing the assessee to carry forward investment allowance, the Assessing Officer adjusted the unabsorbed depreciation of the earlier years, namely 1983-84, 1985-86, 1986-87 and 1987-88 (part), and accepted 'Nil' income return as filed by the assessee, but on the aforesaid basis. 5) The assessee, however, was not satisfied with the aforesaid treatment of setting off of the unabsorbed depreciation instead of investment allowance. It filed appeal before the Commissioner (Appeals). This appeal was, however, dismissed following the judgment of the Madras High Court in Commissioner of Income Tax v. Coromandel Steels (1981) 130 ITR 856. The assessee approached the Tribunal. The Tribunal also confirmed the order of the Commissioner (Appeals). The assessee, still not satisfied, approached the Madras High Court. Even the High Court, vide impugned judgment dated September 15, 2004, has affirmed the view taken by the authorities below and dismissed the appeal of the assessee. As th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Commissioner of Income Tax (2002) 254 ITR 780, which had followed judgment of this Court in Commissioner of Income-Tax v. Mahendra Mills (2000) 243 ITR 56 wherein it was held that the provision in respect of depreciation was for the benefit of the assessee and if the assessee does not wish to avail the said benefit for some reason, it could not be forced upon him. Notwithstanding the aforesaid judgments, the High Court observed that the real issue was not whether the assessee could be compelled to claim depreciation, but, if he fails to claim, what would be the order of priority between unabsorbed depreciation allowance and unabsorbed investment allowance. On this purported 'real' issue, the High Court mentioned that since unabsorbed depreciation allowance gets precedence over the unabsorbed investment allowance under the provisions of the Act, which has been held by various High Courts (and those judgments of the High Courts are taken note of), it is the unabsorbed depreciation allowance which would be set off first. 10) Arguments before us remain the same which were advanced by the assessee as well as the Revenue in the High Court. In order to appreciate these ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. 12) As per the aforesaid provision, the depreciation allowance or part thereof to which effect has not been given in a particular assessment year owing to there being no profits or gains chargeable for that previous years or owing to profits and gains chargeable being less than the allowance, such unabsorbed depreciation allowance is to be added to the amount of the allowance for depreciation for the following previous year and it is 'deemed to be part of that allowance for that previous year or the succeeding previous years, as the case may be'. This is, however, subject to the provisions of sub-section (2) of Section 72 and sub-section (3) of Section 73 of the Act. 13) What follows from the above is that in case of loss in the business income or insufficient profits to absorb the depreciation allowance permitted by this Section, because of which reason depreciation allowance or some part thereof remains unabsorbed, it may be carried forward under this sub-section to the following year and set off against that year's profit, and so on for succeeding years. There is an amendment in the aforesaid provision with effect from April 01, 1996, which shall be taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of clarity as there is a reference to these provisions in Section 32(2). Insofar as the instant case is concerned, it depends upon the meaning that is to be given to the deeming provision, as explained above. 14) Before we discuss this effect, let us take note of some of the nuances regarding claim of depreciation allowance, which have been laid down by judicial pronouncements on interpretation of this provision. 15) It has been the consistent view of the Courts that unabsorbed depreciation allowance should be allowed before the unabsorbed investment allowance. To put it differently, unabsorbed depreciation is to be given precedence and is allowed to be set off first. Some of the High Courts had earlier taken the view that this would be so even if the assessee had not claimed the unabsorbed depreciation. It is the necessary consequence of the scheme of various provisions of the Act. Section 32A of the Act, which deals with investment allowance, was inserted by the Finance Act, 1976 with effect from 01.04.1976. According to Circular No. 202 dated 05.07.1976 issued by CBDT [(1976) 105 ITR St 17], the combined effect of the provisions of Sections 32, 32A, 33, 33A and 72 is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, be accepted in view of the bar contained in Section 34. If Section 34 is not satisfied and the particulars are not furnished by the assessee, his claim for depreciation under Section 32 cannot be allowed. Section 29 is, thus, to be read with reference to other provisions of the Act. It is not in itself a complete code. 16) This principle, thus, is grounded in the reasoning that there is no provision by which depreciation could be fictionally deemed to have been claimed and granted and it is to be specifically claimed by the assessee. Further, when claiming of depreciation is a privilege given to the assessee, it cannot be turned into a disadvantage even when the assessee does not claim the depreciation. Therefore, option in this behalf rests with the assessee. 17) In the impugned judgment as well, the High Court accepts the aforesaid legal position as this is so decided by this Court in Mahendra Mills's case (supra) and is a binding precedent. However, the aforesaid judgment is not followed on the ground that real issue is something else. Such an issue, though already noted above, is stated in para 10.1 of the impugned judgment, which reads as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t claimed, would not be permissible. 20) Notwithstanding the above, the endeavour of the learned counsel for the assessee is to show that the assessee has such a right. In this direction it is argued that though by legal fiction unabsorbed depreciation allowance is carried forward to the assessment year in question and becomes a part of depreciation allowance of that year, it retains its identity inasmuch as it is brought forward only because of deeming provision which is to be applied to that limited extent and no further. In order to support this hypothesis, learned counsel referred to the judgment in Commissioner of Income-Tax, Kanpur v. Mother India Refrigeration Industries P. Ltd. (1985) 155 ITR 711 where nature of carried forward depreciation allowance on application of deeming provision is explained by the Court. She specifically referred to the following discussion in this behalf: Having regard to the aforesaid rival contentions, it will be clear that the real issue that arises for our consideration in this case is whether, on a proper construction of the relevant provisions of the concerned enactment, unabsorbed carried forward losses should have prefer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 24(2). Had proviso (b) to s. 24(2) not been enacted by the Legislature, the result would have been that the aggregate depreciation would have been deducted first out of the profits and gains in preference to unabsorbed business losses which might have been carried forward under s. 24(2) but as such losses can be carried forward only for limited number of years, the assessee would in certain circumstances have in his books losses which he might not be able to set off even within the time-limit during which the set off is permitted. In order to prevent such a situation, the Legislature enacted the proviso (b) to s. 24(2). And proviso (b) to s. 24(2) expressly stated where depreciation allowance is, under cl. (b) of the proviso to cl. (vi) of sub-s. (2) of s. 10, also to be carried forward, effect shall first be given to the provisions of this sub-section . In other words, it clearly provides that in the matter of set off, the unabsorbed depreciation that is required to be carried forward under proviso (b) to s. 10(2)(vi) and no preference over the current depreciation is intended. It is true that proviso (b) to s. 10(2)(vi) creates a legal fiction and under that fiction, unabsorbe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years is not claimed, it cannot be thrusted upon the assessee. The position would have been different if the assessee had not claimed any depreciation at all. However, once the depreciation is claimed and while giving deductions the depreciation is to be set off against the profits of the current year prior to the unabsorbed carried forward investment allowance, it is the entire depreciation, namely, the depreciation of the current year as well as the unabsorbed carried forward depreciation, which is to be taken into account as by virtue of the fiction created under Section 32(2) of the Act, carried forward depreciation also partakes the character of depreciation of the current year. This scrambled egg cannot be unscrambled now. Otherwise, it would amount to negating the legal fiction that is created by the said provision, even to the limited extent. In fact, the case falls within the ambit of the said limited extent of legal fiction and gets covered by it. 23) Once we read the provision in the aforesaid manner, the aid of other interpretative tools which is sought to be taken by the learned counsel for the assessee, namely, the provision is to be given liberal construction; the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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