TaxTMI 
TaxTMI 
2002 (9) TMI 282
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....t of the assets of M/s. Modern Stramit (I) Ltd., a company amalgamated with the appellant company in terms of order of the BIFR. (b) That, on the facts and in the circumstances of the case, the learned Commissioner of Income-tax(A) has erred in not allowing the appellants' claim towards depreciation on the value of assets of the amalgamating company not actually allowed under section 32, 43(6) and 72A of the Income-tax Act since such value remained as unabsorbed depreciation in accordance with the order of the BIFR. 3. That without prejudice to the contentions in 2(a) and 2(b) above, the learned CIT(A) has erred in not allowing the benefit of unabsorbed depreciation despite the facts that the provisions of section 72A of the Income-tax Act read with sections 18 and 32(2) of the Sick Industrial Companies (Special Provisions) Act, 1985 have been complied with." 38. Modern Stramit (I) Ltd. was a sick company which had closed down its operation at the end of 1986 and its case was referred to BIFR on 30-9-1989. The BIFR declared the said company to be a sick industrial company and under the scheme of rehabilitation, the same was amalgamated with the assessee-company. As per the....
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....bsp; 2267739 2892151 5159890 1990-91 2193851 2072702 4266553 1991-92 2183993 1063906 3247899 -------- -------- -------- 14140464 11136744 &nb....
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....p; -------- -------- -------- 39. As shown in the above statement, the benefit in respect of the entire accumulated business loss of Rs. 1,41,40,464 was availed by the assessee in accordance with the provisions of section 72A read with BIFR order dated 6-5-1992. However, the benefit in respect of unabsorbed depreciation could be availed only to the extent of Rs. 3,52,290 due to the restriction imposed by the BIFR for a maximum tax relief of Rs. 75 lakhs and the balance amount of Rs. 1,20,03,557 remained inadmissible due to the said restriction. During the course of assessment proceedings, the assessee-company filed a letter dated 14-2-1995 claiming that the unabsorbed depreciation of amalgamating company to the extent of Rs. 1,20,03,557 having not been actually allowed to the amalgamated company i.e. Assessee Company, the same cannot be deducted from the WDV of assets of the amalgamated company for depreciation allowances and as such the Assessee-company ....
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.... 27,14,897 75,44,691 ---------- --------- --------- Total 120,03,557 27,09,294 92,94,263 --------------------------------------------------------------------------------------------- 40. In support of its above claim, heavy reliance was placed by the assessee-company on the decision of Hon'ble Bombay High Court in the case of CIT v. Hindustan Petroleum Corpn. Ltd [1991] 187 ITR 1. The main thrust of the assessee's contention in support of this claim was that if the deprecia....
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.... allowed to that company. The unabsorbed depreciation which could not be set off of or carried forward could not be deducted while computing W.D.V. Hence, according to this decision appellant is entitled to enhance W.D.V. of the assets of amalgamating company by Rs. 1,20,03,557 and claim depreciation thereon. However, this decision cannot be applied because it was delivered before insertion of section 72A. Section 72A now lays down specifically as to how and in what circumstances, amalgamated company can avail the benefit of carry forward business loss and unabsorbed depreciation of amalgamating company. Pursuant to regulations of this section, BIFR has laid down condition that benefit of carry forward business loss and unabsorbed depreciation of amalgamating company should be given only to the extent of tax effect of Rs. 75 lakhs. The Assessing Officer has accordingly allowed the carry forward business loss and unabsorbed depreciation of amalgamating company to the appellant. If appellant's claim is accepted, amalgamated company would get tax benefit of more than Rs. 75 lakhs because Rs. 1,20,03,557 would be allowed by way of depreciation in future years. This is against the stipu....
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.... section 72A in the statute. She submitted that the provisions of section 72A, are very specific and the assessee is not entitled to claim benefits more than what were available in terms of BIFR order passed in pursuance of provisions of section 72A. Relying on the decision of Hon'ble Madras High Court in the case of Bhavani Mills Ltd. v. Member (IT&J) CBDT [1999] 105 Taxman 335, she contended that the provisions of section 72A and the order of BIFR passed under the said section have overriding effects over the other provisions of the Act. She also contended that the assessee cannot claim benefit of BIFR order read with section 72A as well as the decision of Hon'ble Bombay High Court in Hindustan Petroleum Corpn. Ltd.'s case. As regards the order of the Tribunal passed in IT Appeal No. 397/Nag/94, she pointed out that the same was passed in the context of powers invoked by the CIT under section 263 and moreover no order under section 72A was passed in that case by the specified authority. She contended that after the insertion of section 72A, issue relating to the unabsorbed depreciation and accumulated loss of amalgamating company in the hands of amalgamated company is to be dealt....
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....s well as before us, heavy reliance is placed on the said judgment of Hon'ble Jurisdictional High Court in support of assessee's claim for the further depreciation allowance. After carefully perusing the entire text of the said judgment as well as the relevant provisions of law including that of section 72A and considering the facts of the present case, we are of the view that the assessee-company can not derive any benefits from the said decision for the reasons more than one. The said judgment pertains to a period prior to the introduction of section 72A when the benefits of accumulated loss and unabsorbed depreciation allowance of the amalgamating company were not available to the amalgamated company as pet, the relevant provisions prevailing at the time. Their Lordships of Hon'ble Bombay High Court, therefore, referred to the general provisions of sections 32(2) and 43(6)(b) as well as the relevant Explanations to the said sections and after considering the anomaly noticed therein, allowed the assessee's claim for adjustment of the WDV of assets of amalgamated company in order to give benefits of unabsorbed depreciation of amalgamating company which was not actually allowed. Su....
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....ion, as expressed in the Maxim "Generalia Specialibus non derogant" and further explained in the book "Craies on statute law" 5th edition, page No. 205 is that whenever there is a particular enactment and general enactment in the same statute, and the latter taken in its most comprehensive sense, would overrule the former, the particular enactment must be operative and the general enactment must be taken to affect only the other parts of the statute to which it may properly apply. 45. In the case of Hindustan Petroleum Corpn. Ltd., the Assessee had claimed the adjustment of unabsorbed depreciation of amalgamating company which was not actually allowed to be deducted from the WDV of assets of amalgamated company, on the basis of provisions contained in section 43 (6) wherein the expression "written down value" is defined to mean, in the case of assets acquired before the previous year, the actual cost to the Assessee less depreciation actually allowed to him under this Act. The revenue on the other hand had relied on Explanation 24 and Explanation 3 to section 43(6) to support its case. The said Explanations read as under:-- "Explanation 2A: Where, in a scheme of amalgamation,....
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....d depreciation carried forward under section 32(2), even though the assessee will be entitled to the set-off of the unabsorbed depreciation carried forward under section 32(2). Thus, the object of Explanation 3 was to remove such anomalies." However, this by itself does not justify the conclusion that Explanation 3 will not apply to a case of amalgamation covered by Explanation 2A. For that purpose, it would be necessary to examine the provisions of Explanation 3 closely. Explanation 3, no doubt, creates a fiction. But the fiction is not created in vacuum. The fiction operates in a particular situation. That situation is a case in which any allowance in respect of depreciation is carried forward under section 32(2). Depreciation allowance can be said to be carried forward under section 32(2) when that allowance can be added to the depreciation allowance of the assessee for the following previous year and deemed to be part of the allowance and so on for the following previous years. In the present case, Lube India Ltd., being no longer in existence by reason of its amalgamation with the assessee-company, the unabsorbed depreciation allowance of Rs. 21,42,815 is not carried forwar....
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....ar/years. In the case before the court, such a situation was not found to be in existence because M/s Lube India Ltd., the amalgamating company was no longer in existence by the reason of its amalgamation with the assessee-company and unabsorbed depreciation allowance was not allowed to be carried forward and added to the depreciation of the current year under section 32(2) even in the hands of the assessee-company which was amalgamated company. In these peculiar facts and circumstances of that case, the Hon'ble Bombay High Court held that the situation necessary for the application of the fiction created in Explanation 3 was not obtained in the said case. The court therefore was of the opinion that the application of Explanation 3 to a case on hand, in which unabsorbed depreciation allowance was not actually allowed, is likely to cause injustice to the assessee and accordingly held that Explanation 3 is not applicable to the facts of the said case. 48. After the insertion of section 72A by the Finance (No. 2) Act, 1977 containing special and specific provisions relating to carry forward and set off of accumulated loss and unabsorbed depreciation allowance in certain cases of am....
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.... been inserted in the Income-tax Act, 1961, by the Finance (No. 2) Act, 1977 with effect from April 1, 1978. The section provides for carry forward and set off of accumulated loss and unabsorbed depreciation in certain cases of amalgamation. The result is that in cases falling under section 72A, unabsorbed depreciation in the hands of the amalgamating company will hereafter be carried forward under section 32(2) in the hands of the amalgamated company. In such a case Explanation 3 will undoubtedly apply as the pre-condition for the application of the fiction will their exist." 49. As observed by the Hon'ble Bombay High Court in the aforesaid portion of its order, the unabsorbed depreciation in the hands of the amalgamating company would hereafter be carried forward under section 32(2) in the hands of the amalgamated company in a case 'falling under section 72A' and in such a case Explanation 73 to section 43(6) would undoubtedly apply since the precondition for the application of the fiction will then exist. It, therefore, follows that when a recourse is made to section 72A for availing benefits in respect of accumulated loss and unabsorbed depreciation allowance of the amalgama....
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....nabsorbed depreciation to the extent of Rs. 1,20,03,557, remaining inadmissible. In these facts and circumstances, it cannot be said that the assessee-company was otherwise entitled for more benefits without the application of section 72A and that the benefits allowed to the assessee-company as per the BIFR order issued in accordance with the provisions of section 72A as a result of taking a way any benefit which otherwise was available to the Assessee. 52. Before us, the Learned Counsel for the Assessee has contended that the BIFR cannot restrict/limit the benefits available to the assessee under section 72A as held by Hon'ble Supreme Court in the case of Indian Shaving Products Ltd. In this regard, it is observed that the BIFR in the said case had declined to make a declaration under section 72 while sanctioning a scheme of amalgamation of a sick industrial undertaking with the assessee-company and the Hon'ble Apex Court held that the BIFR could not have sanctioned such scheme declining to make a declaration under section 72A. In the present case, a declaration under section 72A has been made by the BIFR allowing tax benefits to the assessee-company in respect of accumulated l....