High Court affirms set off of unabsorbed depreciation against income

The High Court upheld the Tribunal's decision, allowing the set off of unabsorbed depreciation against income from other sources under Section 32(2) of the Income Tax Act. The Court clarified that Section 72(2) does not restrict such set off, rejecting the Revenue's argument. The appeal by the Revenue was dismissed, affirming the Tribunal's order for the assessment year 1998-99.

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Issues:
- Interpretation of Section 32(2) and Section 72(2) of the Income Tax Act
- Allowance of set off of unabsorbed depreciation against income from other sources

Analysis:

Interpretation of Section 32(2) and Section 72(2) of the Income Tax Act:
The case involved an appeal by the Revenue against the order of the Income Tax Appellate Tribunal regarding the assessment year 1998-99. The Tribunal held that the assessee was entitled to set off unabsorbed depreciation against income from other sources, which was challenged by the Revenue. The Tribunal's decision was based on a combined reading of Section 32(2) and Section 72(2) of the Income Tax Act.

Allowance of set off of unabsorbed depreciation against income from other sources:
The assessee, engaged in the manufacture of semi-conductors, had claimed set off of unabsorbed depreciation and losses from previous assessment years. The Assessing Officer adjusted the losses brought forward and arrived at a business income of 'Nil'. The assessee sought to adjust unabsorbed depreciation against income from other sources, which was initially denied. The Commissioner of Income Tax (Appeals) also rejected the claim, stating that losses should be exhausted before claiming depreciation set off. However, the Tribunal allowed the set off of unabsorbed depreciation against income from other sources based on Section 32(2) of the Act.

Conclusion:
The High Court upheld the Tribunal's decision, emphasizing that Section 32(2) permits the set off of unabsorbed depreciation against income from other sources, even if there is no business income available to absorb the carried forward losses. The Court clarified that Section 72(2) does not prevent such set off and rejected the Revenue's argument that it controls the operation of Section 32(2). The judgment dismissed the appeal by the Revenue, confirming the Tribunal's order.

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