TaxTMI 
TaxTMI 
2009 (3) TMI 246
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....hinery etc. for a consideration of Rs. 28,03,575 during the financial year relevant to the year under consideration. The cost of those assets was Rs. 20,71,552, while their written down value (WDV) stood at Rs. 9,39,551 as on 1st April, 1998. According to s. 50 of the Act, gain on sale of assets which formed part of a block of assets on which depreciation had been allowed shall be deemed to be the capital gains arising from the transfer of short-term capital assets. Though the assessee computed the short-term capital gains on sale of these assets, it deducted the cost of asset from the value of sale consideration. The AO was of the view that only WDV can be deducted as per the provisions of s. 50 and accordingly substituted the WDV to the original cost and completed the assessment. 2.1 Though the assessee started business activity during the year relevant for asst. yr. 1985-86, it started filing its return of income only from asst. yr. 1995-96. However, the assessee had been charging depreciation on the assets in the books of account maintained by it from the asst. yr. 1985-86 onwards. While filing the return of income for the first time for asst. yr. 1995-96 also, the assessee ....
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....Department disturb the appellant's claim. It is, therefore, to be deemed that the depreciation as claimed has been accepted by the Department. It is no longer a case of notional allowance but depreciation as claimed was actually allowed by the Department." With regard to the alternative claim of the assessee, learned CIT(A) observed as under: "In the instant case the firm has not been filing returns for any of the years prior to asst. yr. 1995-96 and so those years' losses are not available for set off. For the subsequent years i.e., from asst. yr. 1995-96 onwards, where returns have been filed, the firm could carry forward the losses and unabsorbed depreciation but the same cannot be set off against short-term capital gains." Accordingly, he dismissed the appeal of the assessee. Aggrieved, the assessee is in appeal before us. 4. Though the assessee has raised as many as five grounds, they give rise to only following two issues: (a) Whether, in the facts and circumstances of the case, the depreciation can be said to have been 'actually allowed' in earlier years? (b) Whether unabsorbed depreciation/unabsorbed eligible business loss can be set off against short-term....
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....l & Sons vs. ITO (2009) 121 TTJ (Mumbai) 180 : (2008) 16 DTR (Mumbai) 443, wherein the Tribunal, by following the decision of Hon'ble Madras High Court in the case of CIT vs. Sree Senhavalli Textiles (P) Ltd. (2003) 183 CTR (Mad) 453 : (2003) 259 ITR 77 (Mad) and the decision of Hon'ble Kerala High Court in the case of CIT vs. Kerala Electric Lamp Works Ltd. (2003) 183 CTR (Ker) 182 : (2003) 261 ITR 721 (Ker), has held that Expln. 5 will have only prospective operation. 5.3 The Hon'ble Supreme Court in the case of Gold Coin Health Food (P) Ltd. has reversed its own decision in the case of Virtual Soft Systems Ltd. vs. CIT (2007) 207 CTR (SC) 733 : (2007) 289 ITR 83 (SC). While arriving at this decision, Hon'ble apex Court considered the principles of statutory interpretation. The relevant observations are extracted below: "As noted by this Court in CIT vs. Podar Cement (P) Ltd. (1997) 141 CTR (SC) 67 : (1997) 5 SCC 482 the circumstances under which the amendment was brought in existence and the consequences of the amendment will have to be taken care of while deciding the issue as to whether the amendment was clarificatory or substantive in nature and, whether it will have re....
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....ction that every statute is prima facie prospective unless it is expressly or by necessary implication made to have a retrospective operation. But the rule in general is applicable where the object of the statute is to affect vested rights or to impose new burdens or to impair existing obligations. Unless there are words in the statute sufficient to show the intention of the legislature to affect existing rights, it is deemed to be prospective only-'nova constitutio futuris formam imponere debet non praeteritis'-a new law ought to regulate what is to follow, not the past. It is not necessary that an express provision be made to make a statute retrospective and the presumption against retrospectivity may be rebutted by necessary implication especially in a case where the new law is made to cure an acknowledged evil for the benefit of the community as a whole. 14. The presumption against retrospective operation is not applicable to declaratory statutes. In determining, therefore, the nature of the Act, regard must be had to the substance rather than to the form. If a new Act is 'to explain' an earlier Act, it would be without object unless construed retrospectively. An explanatory....
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....d as per the Finance Act, 2001, and the explanation itself was given effect to only with effect from the 1st day of April, 2002, and when the legislature has expressly given effect to the Explanation to commence from 1st day of April, 2002, only we do not see any force in the contention raised by learned counsel appearing for the Revenue that de hors the express provision the section should be given retrospective effect contrary to the legislative intention." The Hon'ble Madras High Court has also observed on the similar lines. However as pointed by learned Departmental Representative, though the amendments were made to Expln. 4 to s. 271 by the Finance Act, 2002 w.e.f. 1st April, 2003, the Hon'ble Supreme Court has held that these amendment is clarificatory and not substantive. In that case, it will have retrospective operation. 5.5 Now let us consider whether the Expln. 5 to s. 32, inserted by Finance Act, 2001 is clarificatory or substantive in nature. The notes on clauses relating to the Finance Bill, 2001 explains the amendment made to s. 32 as under: "Clause 21 seeks to amend s. 32 of the IT Act relating to depreciation. Sub-cl. (a) seeks to insert a new Expln. 5 in ....
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....t was prevailing at the relevant point of time was altogether different from the one now exists. The following points highlight the basis on which Hon'ble apex Court arrived at the decision: (a) The year under consideration in that case was asst. yr. 1974-75. (b) The Hon'ble apex Court recognized the fact that s. 32 has been amended by the Taxation Laws (Amendment and Miscellaneous Provisions) Ace 1986 w.e.f. 1st April, 1988 and hence the apex Court confined itself to the provisions of s. 32 and other sections that were applicable to asst. yr. 1974-75. (c) Sec. 32, as it stood at the relevant point of time read as under: 32(1). In respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, the following deductions shall, subject to the provisions of s. 34, be allowed:.... (ii) in the case of buildings, machinery, plant or furniture, other than ships covered by cl. (i), such percentage on the WDV thereof as may in any case or class of cases be prescribed. (d) The Hon'ble apex Court gave importance to the words "subject to the provisions of s. 34" which was available then in s. 32....
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....in s. 16 and that of ss. 34 and 37 of the Act. It is rightly said that a privilege cannot be to a disadvantage and an option cannot become an obligation,". 5.7 The effect of omission of s. 34 and r. 5AA and consequential amendment in s. 32 by omitting reference to s. 34 makes it clear that one cannot take support from the decision of the Hon'ble apex Court in the case of Mahendra Mills, after the amendment. Sec. 43(6) of the Act which defines the term "WDV" reads as under: "WDV means- (a) in the case of assets acquired in the previous year, the actual cost to the assessee; (b) in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Act or under the...." The term "actually allowed" still exists under the statute. The above analysis of provisions of IT Act makes it clear that the intention of the Parliament has always been that the allowance of depreciation is mandatory. When the Courts interpreted the term "WDV" by giving importance to s. 34 referred to in s. 32, it is evident that the Parliament has omitted s. 34 and made consequential amendment in s. 32 through Taxation Laws (A....
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.... Representative, the amendment to s. 32(2) was made w.e.f. 1st April, 1997, which restricts set off of brought forward depreciation against the income from business only, applies to the unabsorbed depreciation that arise from asst. yr. 1997-98 onwards only. Hence the earlier provisions shall apply to the unabsorbed depreciation pertaining to the asst. yr. 1996-97 and earlier years. In this regard, learned Authorised Representative relied upon the decision in CIT vs. S & S. Power Switchgear Ltd. (2008) 218 CTR (Mad) 701. However, learned Departmental Representative stood by the order of learned CIT(A) in this regard. 6.1 As contended by the learned Authorised Representative, the gain arising on sale of depreciable assets is taxed as short-term capital gain in view of the legal fiction created by s. 50 of the Act. Otherwise, such gain is normally treated as part of business receipt only. The Hon'ble Madhya Pradesh High Court in the case of Shrikishan Chandmal has held that the dividend income from shares held as stock-in-trade which is assessable as "income from other sources", can be set off against brought forward business loss. The Hon'ble Supreme Court in the case of Wester....