2004 (3) TMI 19 - HC - Income Tax

Calculation of transferred assets' value in amalgamation clarified by High Court ruling

The High Court affirmed the Tribunal's decision that the written down value of transferred assets in an amalgamation should be calculated without reducing ... 'Whether, on a proper interpretation of the provisions of section 43(6) read with Explanations 2A and 3, the Tribunal was right in law in holding that the written down value of the transferred assets of the amalgamating company should be worked out without reducing therefrom the unabsorbed depreciation relating to earlier years?' - The direction of the Tribunal to adopt the written down value of the transferred assets without reducing the unabsorbed depreciation appears to be justified - We answer the question raised in the affirmative Issues: Interpretation of provisions of section 43(6) read with Explanations 2A and 3 regarding the calculation of written down value of transferred assets without reducing unabsorbed depreciation.Analysis:The High Court was tasked with determining whether the Tribunal was correct in law in holding that the written down value of the transferred assets of the amalgamating company should be calculated without reducing the unabsorbed depreciation relating to earlier years. The question pertained to the assessment year 1972-73 and involved the amalgamation of five public limited companies with the assessee-company, where one of the companies had incurred losses. The Assessing Officer completed the assessment without allowing certain claims related to the losses incurred by one of the amalgamated companies. The Tribunal directed the Assessing Officer to consider certain claims but negated the claim for carry forward of business loss and unabsorbed depreciation, leading to the present reference.The relevant provisions of section 43(6) along with Explanations 2A and 3 were crucial in this analysis. Section 43(6) defines 'written down value' as the actual cost to the assessee less all depreciation actually allowed. Explanation 2A deals with the transfer of capital assets in a scheme of amalgamation, stating that the written down value to the amalgamated company should be the same as if the amalgamating company had continued to hold the asset. Explanation 3 deems any depreciation carried forward under section 32 as 'depreciation actually allowed.'The High Court referred to a similar case before the Bombay High Court, where it was held that the written down value of assets should be the actual cost less depreciation actually allowed, without considering unabsorbed depreciation that was not set off for carry forward. The High Court concurred with the Bombay High Court's analysis and held that the Tribunal was correct in law in directing the calculation of written down value without reducing unabsorbed depreciation from earlier years. Therefore, the High Court answered the question in the affirmative, affirming the Tribunal's decision in this regard.In conclusion, the High Court's judgment clarified the interpretation of the relevant provisions and upheld the Tribunal's decision regarding the calculation of the written down value of transferred assets without reducing unabsorbed depreciation from earlier years, based on established legal principles and precedents.