2023 (7) TMI 20 - HC - Income Tax

Appeal Dismissed: Unabsorbed Depreciation Can Be Carried Forward Indefinitely for Assessment Year 2007-08.

PRINCIPAL COMMISSIONER OF INCOME TAX 1 Versus VISHALDEEP SPINNING MILLS LTD.

The HC dismissed the appeal by the Principal Commissioner of Income Tax-1 concerning the carry forward and set off of unabsorbed depreciation for the ... Carry forward and set off of unabsorbed depreciation without any limitation of period - carry forward after period of 8 years - HELD THAT:- As the provisions of section 32(2) was introduced by Finance Act, 1998 and further came to be amended by the Finance Act, 2000. The provisions introduced by the Finance Act, 1996 was clarified by the Finance Minister to be applicable with the prospective effect. The court referred to the relevant circular of the Central Board of Direct Taxes and attached purposive and harmonious interpretation keeping in view the purpose of amendment of section 32(2) and held that the assessee becomes entitled to the benefit within the ambit of section in view of the clear language of the section. The questions framed as substantial question of law on the ground of carry forward of unabsorbed depreciation without any limitation period, does not arise as the issue is settled in General Motors India (P) Ltd. [2012 (8) TMI 714 - GUJARAT HIGH COURT] as held that once the Circular No.14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y.1997- 98 upto the A.Y.2001-02 got carried forward to the assessment year 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever. No substantial question of law. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether the Income Tax Appellate Tribunal was justified in allowing carry forward and set off of unabsorbed depreciation without any limitation of period in light of amendments to section 32(2) and relevant administrative guidance. 2. Whether the Tribunal correctly relied on CBDT Circular No.14 of 2001 (and attendant administrative exposition) for the proposition that the 8-year restriction on carry forward and set off of unabsorbed depreciation was dispensed with with effect from A.Y. 2002-03, particularly insofar as the circular's applicability to unabsorbed depreciation arising prior to A.Y. 2002-03 is concerned. 3. Whether the Tribunal erred in deciding the appeal without regard to the contention that the issue had not attained finality (i.e., whether the question was res integra or already settled by binding precedents of this Court). 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Carry forward and set off of unabsorbed depreciation without temporal limitation Legal framework: Section 32(2) of the Income-tax Act (as amended by successive Finance Acts, including enactments effective from A.Y.1997-98 and later amendments culminating in the Finance Act, 2001 amendment operative for A.Y.2002-03) governs allowance, carry forward and set off of depreciation and unabsorbed depreciation; prior to the 1996 amendment carry forward was effectively indefinite by statutory deeming; the 1996 amendment introduced an 8-year restriction operative from A.Y.1997-98; subsequent legislative and administrative action and amendments affected the operative regime for amounts existing on 1.4.2002. Precedent treatment: A binding Division Bench decision of this Court construed the amendments and the CBDT circulars and held that unabsorbed depreciation available on 1.4.2002 (i.e., carried forward from A.Y.1997-98 through A.Y.2001-02) is to be governed by section 32(2) as amended by Finance Act, 2001 and, in consequence of CBDT Circular No.14 of 2001, the 8-year restriction stood dispensed with for such amounts, permitting carry forward and set off without limitation. Interpretation and reasoning: The Court accepted the purposive and harmonious construction applied in the earlier Division Bench decision: current depreciation is first deductible against profits of the business; excess becomes absorbable against other business income or other heads; any balance is unabsorbed depreciation and is carried forward and deemed to be part of succeeding years' depreciation. Amounts unabsorbed as on 1.4.2002 fall to be dealt with under the post-2001 amended section 32(2). The administrative clarification in CBDT Circular No.14 of 2001 was held to explicate the legislative intent and to clarify that the prior 8-year restriction would not operate to bar carry forward of those amounts beyond 8 years. Ratio vs. Obiter: The holding that unabsorbed depreciation available on 1.4.2002 is governed by the amended section 32(2) and is eligible for carry forward and set off without temporal limitation constitutes ratio decidendi in the earlier Division Bench decision and is treated as binding for purposes of the present appeal. Conclusion: The Tribunal was justified in allowing carry forward and set off of the unabsorbed depreciation without temporal limitation in respect of amounts falling within the ambit of the amended section 32(2) as clarified by CBDT Circular No.14 of 2001; no substantial question of law arises on this point in view of binding precedent. Issue 2 - Reliance on CBDT Circular No.14 of 2001 and its applicability to pre-A.Y.2002-03 unabsorbed depreciation Legal framework: CBDT Circulars are administrative pronouncements interpreting or clarifying statutory amendments; their relevance is measured by consistency with statutory text and legislative intent, and by whether they address prospective or retrospective effect of amendments. Precedent treatment: The Division Bench earlier construed CBDT Circular No.14 of 2001 together with the statutory amendments, treating the circular as clarificatory of the effective operation of the amended section 32(2) as from A.Y.2002-03 and as removing the 8-year restriction for unabsorbed depreciation carried into A.Y.2002-03. Interpretation and reasoning: The Court adopted the view that the circular clarified the prospective applicability of the amendment and the treatment of balances existing on the appointed date; the administrative exposition was read harmoniously with the statute and legislative history (including ministerial statements and explanatory notes), supporting a purposive interpretation that the 8-year cap did not operate to extinguish unabsorbed depreciation carried into A.Y.2002-03. Ratio vs. Obiter: The conclusion that the CBDT circular legitimately clarifies that the 8-year restriction had been dispensed with for balances carried forward into A.Y.2002-03 forms part of the binding ratio relied upon by the Tribunal and affirmed by this Court in the present appeal. Conclusion: Reliance upon CBDT Circular No.14 of 2001 by the Tribunal/CIT(A) was justified for the limited purpose of construing the amended section 32(2) and determining the fate of unabsorbed depreciation carried into A.Y.2002-03; the circular applies to such pre-A.Y.2002-03 unabsorbed depreciation brought within the amended statutory scheme. Issue 3 - Finality of the issue and the Tribunal's competency to decide the appeal Legal framework: Where an issue has been authoritatively decided by a binding decision of a Division Bench of the same High Court, subsequent tribunals and courts within the jurisdiction are bound by that precedent; an appellate forum need not refrain from deciding an appeal on grounds already settled by binding precedent. Precedent treatment: The earlier Division Bench decision of this Court was found directly on point and determinative of the legal questions presented in the present appeal concerning carry forward of unabsorbed depreciation and applicability of the circular. Interpretation and reasoning: The Court observed that the substantial questions posed by the revenue were no longer res integra because of the binding Division Bench precedent; consequently, the Tribunal was correct in following that precedent and deciding the matter in favour of the assessee without treating the issue as unsettled. Ratio vs. Obiter: The proposition that the Tribunal was entitled to dispose of the appeal by following binding precedent of this Court is an application of settled stare decisis principles and constitutes a ratio-level reasoning for dismissal of the revenue's grounds. Conclusion: The Tribunal did not err in deciding the appeal notwithstanding contentions about non-finality; the issue had been authoritatively settled by a Division Bench of this Court and therefore presented no substantial question of law warranting admission of the Tax Appeal. Overall Disposition Given the binding precedent interpreting section 32(2) and CBDT Circular No.14 of 2001 to permit carry forward and set off of unabsorbed depreciation carried into A.Y.2002-03 without an 8-year limitation, no substantial question of law arose; the Tax Appeal was not admitted and was rejected at the admission stage. No order as to costs.