TaxTMI 
TaxTMI 
2015 (3) TMI 977
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....nancial year 2006-07 relevant to the assessment year 2007-08 under consideration. The assessee while computing capital gains on sale of the property adopted the cost inflation index of the year of sale of property. However, the Assessing Officer while completing the assessment adopted the cost inflation index of the financial year 1994- 95 being year of conversion of the asset into stock-in-trade. On appeal, the Commissioner of Income-tax (Appeals) upheld the action of the Assessing Officer in adopting cost inflation index of the year of conversion against which the assessee is in appeal before us. 4. Counsel for the assessee submits that property which was converted into stock-in-trade in the year 1994-95 was sold in the financial year 2006- 07 relevant to the assessment year 2007-08 and as per section 45 of the Income-tax Act, chargeability to capital gains consequently arose in the assessment year 2007-08. Counsel submits that the assessee computed long-term capital gains adopting cost inflation index of the year of sale, i.e., financial year 2006-07 as numerator figure. Counsel submits that section 45 is the chargeability section and determines the chargeability of capital gai....
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....d representative was asked to explain the reason for incorporating an incorrect cost inflation index in the computation. He stated that section 45(2) is not clear about the cost inflation index applicable. He further stated that since the taxation of capital gains is postponed to the year of sale, obviously the index of the year of sale should alone be adopted. This contention cannot be accepted for the capital gains under section 45(2) as envisaged in the Act is, '(2) Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to Income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.' It is by this logic that the long-term capital gain is subjected to taxation in the financial yea....
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....ed July 29, 2010 proposed for enhancement of income by way of reduction in the quantum of depreciation carried forward to be set off against long-term capital gains referring to the decision of the Special Bench of the Tribunal in the case of Times Guaranty Ltd. [2010] 4 ITR (Trib) 210 (Mum) [SB]. The Commissioner of Income-tax (Appeals) following the abovesaid Special Bench decision of the Tribunal directed the Assessing Officer to disallow unabsorbed depreciation prior to assessment year 2002-03, i.e., from the assessment years 1999-2000 to 2001-02 which was set off against long-term capital gains against which the assessee is in appeal before us. 8. At the time of hearing, counsel for the assessee submits that this issue is squarely covered in favour of the assessee by the decision of the hon'ble Gujarat High Court in the case of General Motors India P. Ltd. v. Deputy CIT [2013] 354 ITR 244 (Guj), wherein the hon'ble Gujarat High Court held that unabsorbed depreciation from 1997-98 up to assessment year 2001-02 got carried forward to the assessment year 2002-03 and became part thereof and was available for carry forward and set off against profits and gains of subsequen....
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....ng year. The Finance Act (No. 2) of 1996 restricted the carry forward of unabsorbed depreciation and set-off to a limit of 8 years, from the assessment year 1997-98. Circular No. 762 dated February 18, 1998 (see [1998] 230 ITR (St.) 12 ) issued by the Central Board of Direct Taxes (CBDT) in the form of Explanatory Notes categorically provided, that the unabsorbed depreciation allowance for any previous year to which full effect cannot be given in that previous year shall be carried forward and added to the depreciation allowance of the next year and be deemed to be part thereof. 32. So, the unabsorbed depreciation allowance of the assessment year 1996-97 would be added to the allowance of the assessment year 1997-98 and the limitation of 8 years for the carry forward and set-off of such unabsorbed depreciation would start from the assessment year 1997-98. 33. We may now examine the provisions of section 32(2) of the Act before its amendment by the Finance Act, 2001. The section prior to its amendment ....
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....ecial Provisions) Act, 1985.' 34. The aforesaid provision was introduced by the Finance (No. 2) Act, 1996 and further amended by the Finance Act, 2000. The pro vision introduced by the Finance (No. 2) Act was clarified by the Finance Minister to be applicable with prospective effect. 35. Section 32(2) of the Act was amended by the Finance Act, 2001 and the provision so amended reads as under : 'Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable for that previous year, owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 73, the allowance or the part of the allowance to which effect has no....
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....conserve sufficient funds to replace plant and machinery and accordingly the amendment dispenses with the restriction of 8 years for carry forward and set off of unabsorbed depreciation. The amendment is applicable from assessment year 2002-03 and subsequent years. This means that any unabsorbed depreciation available to an assessee on 1st day of April, 2002 (assessment year 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by the Finance Act, 2001 and not by the provisions of section 32(2) as it stood before the said amendment. Had the intention of the Legislature been to allow the unabsorbed depreciation allowance worked out in assessment year 1997-98 only for eight subsequent assessment years even after the amendment of section 32(2) by the Finance Act, 2001 it would have incorporated a provision to that effect. However, it does not contain any such provision. Hence keeping in view the purpose of amendment of section 32(2) of the Act, a purposive and harmonious interpretation has to be taken. While construing taxing statutes, rule of strict interpretation has to be applied, giving fair and reasonable construction to the language of the sec....