Tribunal Supports Revenue, Allows Surcharge Inclusion; Approves Assessee's Cross Objection for Depreciation Set-off.

The Tribunal ruled in favor of the Revenue regarding the inclusion of Rs. 36,72,918 as a surcharge on Municipal-tax collected by the assessee, reversing the ld. CIT(A)'s order. Additionally, the Tribunal allowed the assessee's Cross Objection, permitting the set-off of unabsorbed depreciation from earlier years against income from house property for the assessment year 1998-99. Both the Revenue's appeal and the assessee's Cross Objection were allowed, with the Tribunal's decisions aligning with precedents and legislative amendments.

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Issues Involved:
1. Inclusion of surcharge on Municipal-tax collected by the assessee.
2. Setting off unabsorbed depreciation brought forward from earlier years against income from any head other than business.

Summary:

Issue 1: Inclusion of surcharge on Municipal-tax collected by the assessee

The Revenue appealed against the ld. CIT(A)'s order regarding the inclusion of Rs. 36,72,918 collected by the assessee from tenants as surcharge on Municipal-tax. The Tribunal found that this issue is fully covered in favor of the Revenue by the ITAT, Special Bench decision in Joint CIT v. Poddar Projects Ltd. [2004] 88 ITD 247 (Kol.)(SB) for the assessment year 1997-98. Respectfully following this decision, the Tribunal reversed the ld. CIT(A)'s order and restored the Assessing Officer's order, deciding the issue in favor of the Revenue.

Issue 2: Setting off unabsorbed depreciation brought forward from earlier years against income from any head other than business

The assessee filed a Cross Objection disputing the ld. CIT(A)'s order upholding the Assessing Officer's rejection of the assessee's claim to set off cumulative unabsorbed depreciation of Rs. 4,37,186 from assessment years 1995-96 and 1996-97 against income under the head "income from house property" for the assessment year 1998-99. The Assessing Officer rejected this claim based on the amended provisions of section 32(2) by the Finance Act, 1996, which restricted the set-off to business income only.

Upon appeal, the Tribunal examined the provisions of section 32(2) as they stood before and after the amendment by the Finance (No. 2) Act, 1996, and the subsequent amendment by the Finance Act, 2001. The Tribunal noted that the unabsorbed depreciation for assessment years up to 1996-97 could be set off against any income head for assessment year 1997-98 and the next seven years, as clarified by the Finance Minister's Speech and CBDT Circular No. 762.

The Tribunal concluded that the unabsorbed depreciation brought forward from assessment years 1995-96 and 1996-97 could be set off against income under any head, including "income from house property," for the assessment year 1998-99. This decision was supported by similar views in other ITAT decisions, including ITO v. Selchem Engineers (P.) Ltd. [2004] 90 ITD 732 and Joint CIT v. India Steamship Co. Ltd. [IT Appeal No. 1308 (Cal.) of 2000].

Conclusion:

Both the Revenue's appeal and the assessee's Cross Objection were allowed. The Tribunal decided the issue of surcharge on Municipal-tax in favor of the Revenue and allowed the assessee's claim to set off unabsorbed depreciation against income from house property.

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