The Commissioner of Income-tax, Chennai v. Sanmar Speciality Chemicals Ltd
[Citation -2020-LL-0914-34]

Citation 2020-LL-0914-34
Appellant Name The Commissioner of Income-tax, Chennai
Respondent Name Sanmar Speciality Chemicals Ltd.
Court HIGH COURT OF MADRAS
Relevant Act Income-tax
Date of Order 14/09/2020
Assessment Year 2006-07
Judgment View Judgment
Keyword Tags set off of unabsorbed depreciation • carry forward and set off • depreciation allowance • depreciation loss • other sources • no deduction
Bot Summary: 358 of 2018 pertaining to the assessment year 1997-98 to the present assessment year namely 2006-07, which is beyond the eight year period mandated under the provisions of Section 32 of the Act. 30.5 These amendments will take effect from the 1st April, 2002, and will, accordingly apply in relation to the assessment year 2002- 2003 and subsequent years. The learned Senior Standing Counsel appearing for the Revenue would point out that those amendments took place with effect from 01.4.2002 and would accordingly apply in relation to the assessment year 2002-03 and the subsequent years whereas in the assessee's case, the depreciation loss, which they sought to carry forward is for the assessment year 1997-98. Where there is current depreciation for such succeeding year the unabsorbed depreciation is added to the current depreciation for such succeeding year and is deemed as part thereof. If there is no current depreciation for such succeeding year, the unabsorbed depreciation becomes the depreciation allowance for such succeeding year. Once the Circular No.14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y.1997-98 upto the A.Y.2001-02 got carried forward to the assessment year 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever. We have observed that the current year's depreciation is allowed to be set off against the income from business as well as against the other heads of income and unabsorbed depreciation in carry forward and become part of the depreciation of the subsequent year and the total depreciation becomes current year's depreciation as per section 32(1) of the Act, which is allowed to be set off against the income under any head of income.


TCA.No.358 of 2018 In High Court of Judicature at Madras Dated : 14.9.2020 Coram : Honourable Mr.Justice T.S.SIVAGNANAM and Honourable Mrs.Justice V.BHAVANI SUBBAROYAN Tax Case Appeal No.358 of 2018 Commissioner of Income Tax, Chennai ...Appellant Vs M/s.Sanmar Speciality Chemicals Ltd., Chennai-86 ...Respondent APPEAL under Section 260A of Income Tax Act, 1961 against order dated 21.10.2016 made in ITA.No.2015/Mds/2016 on file of Income Tax Appellate Tribunal, Chennai 'C' Bench for assessment year 2006-07. For Appellant: Mr.J.Narayanasamy, SSC For Respondent: Mr.R.Vijayaraghavan for M/s.Subbaraya Aiyer Padmanabhan Judgment was delivered by T.S.Sivagnanam,J We have heard Mr.J.Narayanasamy, learned Senior Standing Counsel appearing for appellant Revenue and Mr.R. 1/16 http://www.judis.nic.in TCA.No.358 of 2018 Vijayaraghavan, learned counsel appearing for respondent assessee. 2. This appeal, filed by Revenue under Section 260A of Income Tax Act, 1961 (for brevity, Act), is directed against order dated 21.10.2016 made in ITA.No.2015/Mds/2016 file of Income Tax Appellate Tribunal, Chennai 'C' Bench (for short, Tribunal) for assessment year 2006-07. 3. appeal was admitted on 02.12.2019 on following substantial question of law : Whether, on facts and in circumstances of case, Tribunal was right in holding that assessee is entitled for carry forward of depreciation loss pertaining to assessment year 1997-98 to present assessment year 2006-07, which is beyond eight year period mandated under provisions of Section 32 of Act? 4. short issue, which falls for consideration, is as to whether, in facts and circumstances of case, Tribunal was right in permitting assessee to carry forward depreciation loss 2/16 http://www.judis.nic.in TCA.No.358 of 2018 pertaining to assessment year 1997-98 to present assessment year namely 2006-07, which is beyond eight year period mandated under provisions of Section 32 of Act. 5. Revenue is before us by referring to decision of High Court of Calcutta in case of Peerless General Finance & Investment Co. Ltd. Vs. CIT [(2016) 73 Taxmann.com 257) and submitting that identical issue was considered by Calcutta High Court wherein assessee was not granted relief. It is further submitted that said decision of Calcutta High Court was tested for its correctness by Hon'ble Supreme Court and special leave petition filed against judgment of Calcutta High Court was dismissed in decision reported in (2016) 73 Taxmann.com 258. 6. After elaborately hearing learned Senior Standing Counsel appearing for appellant Revenue, we are of considered opinion that reliance placed on decision in case of Peerless General Finance & Investment Co. Ltd., would, in no manner, assist case of Revenue. We say so after referring to Circular No.14/2001 dated 22.11.2002 issued by Central Board of Direct Taxes, which are Explanatory Notes on Provisions relating to 3/16 http://www.judis.nic.in TCA.No.358 of 2018 Direct Taxes. Paragraph 30 of said circular deals with modification of provisions relating to depreciation. 7. For better appreciation, we quote paragraphs 30.1 to 30.5 of said circular as hereunder : 30.1 Under existing provisions of section 32 of Income-tax Act, carry forward and set off of unabsorbed depreciation is allowed for 8 assessment years. 30.2 With view to enable industry to conserve sufficient funds to replace plant and machinery, specially in era where obsolescence takes place so often, Act has dispensed with restriction of 8 years for carry forward and set off of unabsorbed depreciation. Act has also clarified that in computing profits and gains of business or profession for any previous year, deduction of depreciation under section 32 shall be mandatory. 30.3 Under existing provisions, no deduction for depreciation is allowed on any motor car manufactured outside India unless it is used (i) in business of running it on hire for tourists, or (ii) outside India in assessee s business or profession in another 4/16 http://www.judis.nic.in TCA.No.358 of 2018 country. 30.4 Act has allowed depreciation allowance on all imported motor cars acquired on or after 1st April, 2001. 30.5 These amendments will take effect from 1st April, 2002, and will, accordingly apply in relation to assessment year 2002- 2003 and subsequent years. 8. From paragraph 30.2 of above circular, it is clear that restriction of 8 years for carry forward and set off of unabsorbed depreciation was dispensed with, with view to enable industries to conserve sufficient funds to replace plant and machinery. 9. learned Senior Standing Counsel appearing for Revenue would point out that those amendments took place with effect from 01.4.2002 and would accordingly apply in relation to assessment year 2002-03 and subsequent years whereas in assessee's case, depreciation loss, which they sought to carry forward is for assessment year 1997-98. 10. proper manner, in which, modification has to be understood, is to effect that from assessment year 2002-03, if eight years' period was not lapsed, then assessee would be 5/16 http://www.judis.nic.in TCA.No.358 of 2018 entitled to carry forward loss without any restriction on time limit. This aspect has been dealt with elaborately in decision of Division Bench of Gujarat High Court in case of General Motors India (P) Ltd. Vs. DCIT [reported in (2013) 354 ITR 0244] wherein relevant portions are as follows : 37. CBDT Circular clarifies intent of amendment that it is for enabling industry to conserve sufficient funds to replace plant and machinery and accordingly amendment dispenses with restriction of 8 years for carry forward and set off of unabsorbed depreciation. amendment is applicable from assessment year 2002-03 and subsequent years. This means that any unabsorbed depreciation available to assessee on 1st day of April, 2002 (A.Y. 2002- 03) will be dealt with in accordance with provisions of section 32(2) as amended by Finance Act, 2001 and not by provisions of section 32(2) as it stood before said amendment. Had intention of Legislature been to allow unabsorbed depreciation allowance worked out in A.Y. 1997-98 only for eight subsequent assessment years even after amendment of section 32(2) by Finance Act, 2001 it would have 6/16 http://www.judis.nic.in TCA.No.358 of 2018 incorporated provision to that effect. However, it does not contain any such provision. Hence keeping in view purpose of amendment of section 32(2) of Act, 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 language of section without leaning to side of assessee or revenue. But if legislature fails to express clearly and assessee becomes entitled for benefit within ambit of section by clear words used in section, benefit accruing to assessee cannot be denied. However, Circular No.14 of 2001 had clarified that under Section 32(2), in computing profits and gains of business or profession for any previous year, deduction of depreciation under Section 32 shall be mandatory. Therefore, provisions of section 32(2) as amended by Finance Act, 2001 would allow unabsorbed depreciation allowance available in A.Y. 1997-98, 1999- 2000, 2000-01 and 2001-02 to be carried forward to succeeding years, and if any unabsorbed depreciation or part thereof could not be set off till A.Y. 2002-03 then it 7/16 http://www.judis.nic.in TCA.No.358 of 2018 would be carried forward till time it is set off against profits and gains of subsequent years. 38. Therefore, it can be said that, current depreciation is deductible in first place from income of business to which it relates. If such depreciation amount is larger than amount of profits of that business, then such excess comes for absorption from profits and gains from any other business or business, if any, carried on by assessee. If balance is left even thereafter, that becomes deductible from out of income from any source under any of other heads of income during that year. In case there is still balance left over, it is to be treated as unabsorbed depreciation and it is taken to next succeeding year. Where there is current depreciation for such succeeding year unabsorbed depreciation is added to current depreciation for such succeeding year and is deemed as part thereof. If, however, there is no current depreciation for such succeeding year, unabsorbed depreciation becomes depreciation allowance for such succeeding year. We are of considered opinion that 8/16 http://www.judis.nic.in TCA.No.358 of 2018 any unabsorbed depreciation available to assessee on 1st day of April 2002 (A.Y. 2002- 03) will be dealt with in accordance with provisions of section 32(2) as amended by Finance Act, 2001. And once Circular No.14 of 2001 clarified that restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, unabsorbed depreciation from A.Y.1997-98 upto A.Y.2001-02 got carried forward to assessment year 2002-03 and became part thereof, it came to be governed by provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against profits and gains of subsequent years, without any limit whatsoever. 11. similar issue was considered by Division Bench of Bombay High Court in case of CIT-3 Vs. M/s.Bajaj Hindustan Ltd. [reported in 2018-TIOL-2730-HC-MUM-IT] following decision in case of CIT Vs. Hindustan Unilever Ltd. [reported in (2017) 394 ITR 73]. special leave petition filed by Revenue against above decision was dismissed by Hon'ble Supreme Court in decision reported in 2019-TIOL-36-SC-IT 9/16 http://www.judis.nic.in TCA.No.358 of 2018 [PCIT-3 Vs. M/s.Bajaj Hindustan Ltd]. 12. In decision of Punjab & Haryana High Court in case of CIT Vs. GTM Synthetics Ltd. [reported in (2012) 347 ITR 0458], identical issue was considered in following terms : 8. effect of omission of aforesaid proviso was enumerated by Central Board of Direct Taxes, vide circular No. 794 dated 9.8.2000 [(2000) 245 ITR (Statute)] 21 that unabsorbed depreciation allowance could be set off against income under any other head even where business was not carried on. Clause 22 of said circular which is relevant is as under: "22. Requirement of continuance of same business for set-off of unabsorbed depreciation dispensed with: 22.1 Under existing provisions of sub-section (2) of section 32 of Income- tax Act, carried forward unabsorbed depreciation is allowed to be set off against profits and gains of business or profession of subsequent year, subject to condition that business or profession for which depreciation allowance was originally 10/16 http://www.judis.nic.in TCA.No.358 of 2018 computed continued to be carried on in that year. similar condition in section 72 for purpose of carry forward and set off of unabsorbed business loss was removed last year. 22.2 With view to harmonise provisions relating carry forward and set off of unabsorbed depreciation and unabsorbed loss, Act has dispensed with condition of continuance of same business for purpose of carry forward and set off of unabsorbed depreciation. 22.3 This amendment will take effect from 1st April, 2001, and will, accordingly, apply in relation to assessment year 2001- 2002 and subsequent years." 9. CIT(A) and Tribunal, thus, rightly allowed unabsorbed depreciation relevant to assessment year 1996-97 to be set off against income from long term capital gains and income from other sources for assessment year 2001-2002. 11/16 http://www.judis.nic.in TCA.No.358 of 2018 13. Recently, in decision of Division Bench of Bombay High Court in case of PCIT Vs. Gunnebo India Pvt. Ltd. [reported in (2019) 104 CCH 0227], issue was considered in favour of assessee after referring to decision of Division Bench of Gujarat High Court in case of General Motors India (P) Ltd., wherein relevant portions read thus : 3. Revenue carried matter in appeal. Appellate Tribunal dismissed appeal of Revenue making following observations- "16. We have observed that current year's depreciation is allowed to be set off against income from business as well as against other heads of income and unabsorbed depreciation in carry forward and become part of depreciation of subsequent year and total depreciation becomes current year's depreciation as per section 32(1) of Act, which is allowed to be set off against income under any head of income. As per provisions of section 32(2) of Act r.w.s. 70, 71 and 72 of Act, it becomes very clear that total depreciation comprising of depreciation of relevant assessment year along with unabsorbed depreciation of earlier years becomes 12/16 http://www.judis.nic.in TCA.No.358 of 2018 total current year's depreciation which is allowed to be set off against income under any head of income including Long Term Capital Gain. Accordingly, we find no reason to interfere with order of CIT(A) qua this issue and same is hereby upheld. We also hold that as per provisions of section 72 of Act, unabsorbed business loss (other than speculative loss) of earlier years shall be allowed to be set off only against profits and gains from business carried on by assessee of current year and so on. We order accordingly. However, our above decision with respect to ground no. (i) and (ii) raised in memo of appeal filed by Revenue should be read in conjunction with and subject to our findings with respect to ground no. (iii) and (iv) which are decided by us in preceding para's of this order and computation shall be made accordingly." 4. Having heard learned counsel for parties and having perused documents on record, we do not find any error in order of Appellate Tribunal. Gujarat High Court in case of General Motors India (P) Ltd. (supra) had considered somewhat similar issue, of course in backdrop of 13/16 http://www.judis.nic.in TCA.No.358 of 2018 assessee's challenge to notice of reopening of assessment. Gujarat High Court had held and observed as under - "38 Therefore, it can be said that, current depreciation is deductible in first place from income of business to which it relates. If such depreciation amount is larger than amount of profits of that business, then such excess comes for absorption from profits and gains from any other business or business, if any, carried on by assessee. If balance is left even thereafter, that becomes deductible from out of income from any source under any of other heads of income during that year. In case there is still balance left over, it is to be treated as unabsorbed depreciation and it is taken to next succeeding year. Where there is current depreciation for such succeeding year unabsorbed depreciation is added to current depreciation for such succeeding year and is deemed as part thereof. If, however, there is no current depreciation for such succeeding year, unabsorbed depreciation becomes depreciation allowance for such succeeding year. We are of considered opinion that any unabsorbed depreciation 14/16 http://www.judis.nic.in TCA.No.358 of 2018 available to assessee on 1st April, 2002 (asst. yr. 2002-03) will be dealt with in accordance with provisions of s. 32(2) as amended by Finance Act, 2001. And once Circular No. 14 of 2001 clarified that restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, unabsorbed depreciation from asst. yr. 1997-98 up to asst. yr. 2001- 02 got carried forward to asst. yr. 2002-03 and became part thereof, it came to be governed by provisions of s. 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against profits and gains of subsequent years, without any limit whatsoever." 14. In our considered view, above decisions will clearly enure to benefit of respondent assessee. 15. Accordingly, above tax case appeal is dismissed and substantial question of law is answered against Revenue. No costs. 14.9.2020 RS 15/16 http://www.judis.nic.in TCA.No.358 of 2018 T.S.SIVAGNANAM,J AND V.BHAVANI SUBBAROYAN,J RS To Income Tax Appellate Tribunal, Chennai 'C' Bench. TCA.No.358 of 2018 14.9.2020 16/16 http://www.judis.nic.in Commissioner of Income-tax, Chennai v. Sanmar Speciality Chemicals Ltd
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