2008 (9) TMI 583 - HC - Income Tax

High Court allows set off of prior years' losses against capital gains under section 32(2)

Commissioner of Income-tax Versus. RPIL Signalling Systems Ltd.

The High Court allowed the assessee to set off prior years' business loss and unabsorbed depreciation against short-term capital gains for the assessment ... Depreciation – Unabsorbed depreciation - Sub-section (2) of section 32, as it existed up to the assessment year 1996-97, provided that the unabsorbed depreciation of a year shall be added to the amount of the allowance for depreciation of the following previous year and deemed to be part of that allowance - unabsorbed depreciation allowance, if any, of the assessment year 1996-97 shall be added to the amount of the allow- ance for depreciation of assessment year 1997-98 and deemed to be part of the allowance for this year - limitation of eight years shall start from the assessment year 1997-98 - Tribunal has rightly come to the conclusion that the assessee is entitled to the unabsorbed depreciation brought forward as on April 1, 1997, and could be set off against the business profits Issues:- Set off of prior years' business loss and unabsorbed depreciation against short-term capital gains.Analysis:The appeal before the High Court was against the order of the Income-tax Appellate Tribunal regarding the assessment year 1999-2000. The assessee had set off prior years' business loss and unabsorbed depreciation against short-term capital gains. The Commissioner of Income-tax (Appeals) allowed the claim, which was further challenged by the Revenue before the Income-tax Appellate Tribunal. The Tribunal, following a Supreme Court decision, allowed the appeal in favor of the assessee.The main question of law raised in the appeal was whether the Tribunal was correct in allowing the set off of prior years' business loss and unabsorbed depreciation against short-term capital gains. The Revenue contended that the Tribunal's decision was incorrect. The court noted that the amended provisions of section 32(2) of the Act allowed for the set off of unabsorbed depreciation against business profits. The court referred to the Finance Minister's clarification and circular from the Central Board of Direct Taxes to support its interpretation.Based on the legal provisions and clarifications, the court held that the assessee was entitled to set off the unabsorbed depreciation brought forward as of April 1, 1997, against business profits. Consequently, the court dismissed the appeal, stating that no substantial question of law was involved in the case.