Carry-forward unabsorbed depreciation may be set off against short-term capital gains; later restriction treated as prospective.

Brought forward unabsorbed depreciation was treated as available for set-off against short-term capital gain because the unabsorbed cumulative depreciation up to assessment year 1996-97 merged into the current depreciation pool for assessment year 1997-98. The Tribunal relied on the clarification in the Finance Minister's speech and CBDT Circular No. 672 dated 18-2-1998, and treated the amendment restricting carry forward of unabsorbed depreciation as prospective in operation. On that basis, the depreciation set-off was allowed.

---

---

Issues: Whether brought forward unabsorbed depreciation could be set off against short-term capital gain.

Analysis: The Tribunal held that, in light of the clarification in the Finance Minister's speech and CBDT Circular No. 672 dated 18-2-1998, the unabsorbed cumulative depreciation up to assessment year 1996-97 merged into the current depreciation pool for assessment year 1997-98 and remained available for set-off. The amendment limiting the carry forward of unabsorbed depreciation was treated as prospective in operation.

Conclusion: The set-off of brought forward depreciation against short-term capital gain was allowed, and the issue was decided in favour of the assessee.

---