Section 72A overrides general depreciation rules in amalgamation, limiting the assessee to the BIFR-sanctioned tax benefit.

Section 72A operated as a special, overriding provision for amalgamation benefits, so the assessee could not claim depreciation beyond the limit fixed in the BIFR-sanctioned rehabilitation scheme. Although written down value and depreciation might have been available in the absence of Section 72A, the statutory benefit was invoked here and the BIFR ceiling controlled the claim. The Bombay HC therefore treated the general depreciation provisions as subordinate to the amalgamation-specific regime and upheld disallowance of the excess depreciation claim.

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Issues: Whether the assessee was entitled to depreciation on the assets of the amalgamating company in view of the BIFR order and Section 72A of the Income-tax Act, 1961, notwithstanding the claim based on Section 32(2) and Section 43(6) of the Income-tax Act, 1961.

Analysis: The amalgamation took place under a rehabilitation scheme sanctioned in proceedings under the Sick Industrial Companies (Special Provisions) Act, 1985. The BIFR order granted tax benefit under Section 72A of the Income-tax Act, 1961 with a ceiling of Rs. 75 lakhs. The claim for further depreciation was examined against the statutory scheme governing amalgamation benefits and the cap fixed by BIFR. The Court held that Section 72A is a special provision dealing with carry forward and set off of losses and unabsorbed depreciation in amalgamation cases and has overriding effect over the general depreciation provisions. The decision in Hindustan Petroleum Corporation Ltd. was found inapplicable because it did not consider the impact of Section 72A. The Court also accepted the principle that, in the absence of Section 72A, the assessee could have claimed the written down value and depreciation, but once the statutory benefit was invoked and the BIFR restriction operated, the assessee could not claim beyond the permitted limit.

Conclusion: The disallowance of depreciation of Rs. 27,09,294 was upheld and the question was answered against the assessee and in favour of the Revenue.

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