TaxTMI 
TaxTMI 
2002 (9) TMI 282
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (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 BIFR order dated 6-5-1992, the assessee-com....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 is entitled for depreciation allowance of Rs. 27,09,294 on the unabsorbed depreciation of the amalgamating company to the extent it remained inadmissible because of the limitation specified in the BIFR order. The asset-wise break up of such unabsorbed depreciation which remained inadmissible and the depreciation allowance in respect of the same was furnished by the assessee as under:-- --------------------------------------------------------------------------------------------- Sl. Depreciation of Total Value of Rate Depreciation for W.D.V as on No. Assets unabsorbed depcn. A. Y 1992-93 31-3-1992 As per Ann. B to the return for A. Y 1992-93 filed --------------------------------------------------------------------------------------------- 1.Building-Block-2 18,73,296 10% 1,87,330 16,85,996 2.Furniture & Fittiiigs-Block-I 70,673 10% 7,067 63,606 3.Machinery & Plant-Block-I 100,59,588 25% 27,14,897 75,44,691 ---------- --------- -----....
X X X X Extracts X X X X
X X X X Extracts X X X X
....- "I have considered the arguments of appellant's counsel. The decision of the Bombay High Court referred to by the Authorised Representative has held clearly that unabsorbed depreciation of amalgamating company cannot be allowed in the hands of amalgamated company. However, it has also held that W.D.V. of assets in the hands of amalgamated company would be actual cost of assets of amalgamating company less depreciation actually 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 amalgamati....
X X X X Extracts X X X X
X X X X Extracts X X X X
....see-company under section 72A could not have been declined/restricted by BIFR. 42. The learned Departmental Representative on the other hand strongly relied on the orders of the authorities on this issue. She submitted that the decision of Hon'ble Bombay High Court in the case of Hindustan Petroleum Corpn. Ltd. on which heavy reliance has been placed by the learned counsel for the assessee, was rendered prior to insertion of 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 Tribuna....
X X X X Extracts X X X X
X X X X Extracts X X X X
....see filed a letter claiming further benefit on account of depreciation allowance in respect of unabsorbed depreciation of the amalgamating company which had remained inadmissible. The said claim was made by the assessee before the Assessing Officer mainly relying on the decision of the Hon'ble Bombay High Court in the case of Hindustan Petroleum Corpn. Ltd. and even in the appellate proceedings before the learned CIT(A) as 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nabsorbed depreciation allowance in the case of amalgamation by section 72A, the issue now is required to be decided in accordance with the said provisions which, being the special provisions will prevail over the other general provisions. Moreover, the language of section 72A makes the legislative intention quite clear that the said provisions override the other provisions of the Act. The rule of construction/interpretation, 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 (....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Secondly, when a depreciable asset is sold, discarded or destroyed, etc., in a previous year, the extent to which its scrap value falls short of the written down value is allowed under the Income-tax Act as deduction under section 32(1)(iii). But for Explanation 3, the assessee would be entitled to deduction under section 32(1)(iii) on the basis of the written down value without taking into account the unabsorbed 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 u....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... depreciation "actually allowed". 47. From the perusal of the aforesaid observations of Hon'ble Bombay High Court, it is evident that the fiction created by Explanation 3 was found to be applicable by Their Lordships in a particular situation in which the unabsorbed depreciation allowance is carried forward under section 32(2) and added to the depreciation allowances of the Assessee for the following year/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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the case of Hindustan Petroleum Corpn. Ltd. stands removed. As a matter of fact, the Hon'ble Bombay High Court itself considered the effect of section 72A inserted with effect from 1-4-1978 and we find it worthwhile to reproduce the relevant observations of Their Lordships appearing on page No. 11 of the report hereunder:-- "In this context, it may not be out of place to mention that section 72A has 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) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f any merits and hence unacceptable. Nevertheless, even with the limitation of Rs. 75 lakhs in terms of tax relief, the assessee-company could have absorbed the entire unabsorbed depreciation of amalgamating company amounting to Rs. 1,23,55,847 by giving preference to it over the unabsorbed business loss. However, it choose to exhaust the business loss first which resulted in a portion of the unabsorbed 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 secti....