2006 (7) TMI 291 - AT - Income Tax

Appeal Dismissed: No Set Off for Depreciation Loss Against Capital Gains Under Income Tax Act, 1961.

Southern Travels. Versus Assistant Commissioner Of Income-tax, Circle-1 (1), Tuticorin.

The Special Bench dismissed the appeal, ruling in favor of the revenue. It concluded that under section 32(2)(iii) of the Income-tax Act, 1961, the ... Unabsorbed Depreciation - whether it is possible to set off the brought forward depreciation loss against capital gains - HELD THAT:- In the present case before us the assessment year 1999-2000, as mentioned earlier, and the depreciation allowance is for the assessment year 1997-98 which the assessee is claiming for set off against the income for the present assessment year. As explained in the earlier paragraph in the table giving comparative position before the amendment and after the amendment it is absolutely clear that it is only section 32(2)(iii) of the Act, that is operational in the case of the assessee. On that basis all that the assessee could claim is for carry forward of the unabsorbed depreciation for six more successive assessment years to be adjusted against the income from profits and gains from the same business from which the depreciation claim arose and the assessee would be entitled to carry this act for the next six assessment years. Further, the clear condition that is laid down in this section is that in the assessment year in which the assessee is claiming the set off of the unabsorbed depreciation, the assessee must be carrying on that business and the income from that business must exist. To put it in other words, if the business from which the depreciation claim arose is not carried out in any of the assessment years, the assessee would not be entitled to the set off. Thus, we decide the question in the negative, i.e., in favour of the revenue. The appeal is dismissed. No costs. Issues involved:1. Interpretation of section 32(2)(iii) of the Income-tax Act, 1961 regarding set off of brought forward depreciation loss against capital gains.Detailed Analysis:1. The case involved the interpretation of section 32(2)(iii) of the Income-tax Act, 1961, specifically addressing the question of whether it is permissible to set off brought forward depreciation loss against capital gains. The Special Bench was constituted to consider this issue arising from an appeal by a Registered firm against the Commissioner of Income-tax (Appeals)-I, Madurai's order dated 19-2-2004.2. The counsels for both the appellant and the Department presented their contentions regarding the interpretation of the relevant provisions. The Special Bench appreciated the arguments put forth by both parties and proceeded to provide its conclusions with reasons in subsequent paragraphs.3. The amendment to section 32(2) of the Act, effective from 1-4-1997, was crucial in the case. The comparison of the section before and after the amendment highlighted the changes, especially in relation to the treatment of unabsorbed depreciation allowances.4. The provisions of section 32(2) of the Act, both pre and post-amendment, were analyzed in detail to understand the implications for the case at hand. The changes brought about by the amendment aimed to consolidate various provisions into section 32(2) itself, making it comprehensive.5. The factual background of the case revealed that the claim for depreciation set off pertained to assessment year 1997-98, while the current assessment year was 1999-2000. The eligibility for set off against capital gains depended on the specific provisions applicable to the assessment years involved.6. The case primarily fell under section 32(2)(iii) of the Act due to the age difference between the unabsorbed depreciation and the current assessment year. The assessee was entitled to carry forward the unabsorbed depreciation for set off against profits and gains for the next six assessment years, subject to certain conditions.7. Previous Tribunal decisions were cited during the discussions, emphasizing the relevance of the specific provisions of the Act to the case at hand. The Tribunal's analysis of similar cases provided guidance on the interpretation of the law in relation to the set off of unabsorbed depreciation.8. The conclusion reached by the Special Bench was based on the clear provisions of section 32(2)(iii) and the specific circumstances of the case. The decision favored the revenue, denying the appellant's claim for adjusting unabsorbed depreciation against capital gains.9. Ultimately, the appeal was dismissed, and no costs were awarded, based on the interpretation of the relevant provisions and the specific facts of the case. The decision highlighted the importance of adhering to the statutory requirements for claiming set off of unabsorbed depreciation against income.