High Court permits set-off of unabsorbed depreciation against capital gains, subject to Section 34A restrictions.

The High Court allowed the set-off of unabsorbed depreciation against capital gains for Assessment Year 1992-93, in line with previous judgments. However, the Court emphasized adherence to the restrictions imposed by Section 34A, limiting the set-off to two-thirds of the allowance. The matter was remitted for reevaluation due to the company's liquidation status, ensuring compliance with legal provisions and previous judicial decisions.

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Issues:
1. Allowance of unabsorbed depreciation against capital gains for Assessment Year 1992-93.
2. Interpretation of restrictions under Section 34A of the Income Tax Act for the same assessment year.

Issue 1: Allowance of unabsorbed depreciation against capital gains for Assessment Year 1992-93

The assessee filed a return of income for the Assessment Year 1992-93 declaring nil income but claimed unabsorbed depreciation under capital gains. The Assessing Officer disallowed the set-off of unabsorbed depreciation citing Sec.34A restrictions. The Commissioner of Income Tax (Appeals) allowed the appeal, directing the Assessing Officer to set off the capital gains against unabsorbed depreciation. The Tribunal upheld this decision based on previous judgments, including the Supreme Court's decision in Garden Silk Waving Factory vs CIT. The Revenue challenged this before the High Court, arguing that the set-off was not permissible under Sec.34A.

Issue 2: Interpretation of restrictions under Section 34A for Assessment Year 1992-93

The Revenue contended that Sec.34A, effective from 1.4.1992, restricted the set-off of unabsorbed depreciation to two-thirds of the allowance and disallowed set-off against capital gains. The Official Liquidator representing the assessee acknowledged the restriction but argued for a remittance to the Assessing Officer for recomputation. The High Court referred to various case laws, including Commissioner of Income Tax vs Jaipuria China Clay Mines and Garden Silk Weaving Factory vs CIT, to support the allowance of unabsorbed depreciation against capital gains. The Court emphasized that the set-off should be limited to 2/3rd of the allowance as per Sec.34A, in line with previous judgments. The matter was remitted back to the Assessing Officer for reevaluation due to the company being in liquidation.

In conclusion, the High Court upheld the allowance of unabsorbed depreciation against capital gains for the Assessment Year 1992-93 but emphasized adherence to the restrictions imposed by Section 34A, limiting the set-off to two-thirds of the allowance. The matter was remitted for reevaluation considering the company's liquidation status, ensuring compliance with legal provisions and previous judicial decisions.

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