TaxTMI 
TaxTMI 
TaxTMI 
2004 (9) TMI 12
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed to accept the contention of the assessee and deducted the unabsorbed depreciation for the earlier years first, which reduced the taxable income to "nil". In his assessment order dated February 15, 1993, relating to the assessment year 1991-92, the assessing authority observed as follows: "The assessee has claimed priority for carry forward of investment allowance over carry forward depreciation. The assessee's claim is untenable under the provisions of the Act as unabsorbed depreciation gets precedence over unabsorbed investment allowance and hence the assessee's claim is not acceded." The said order of assessment dated February 15, 1993, relating to the assessment year 1991-92, was, on appeal, confirmed by the Commissioner of Income-tax (Appeals) by his order dated July 6, 1993, and in turn again on appeal, confirmed by the Income-tax Appellate Tribunal, by its order dated November 20, 2000, aggrieved by which the petitioner has preferred T.C. (A) No. 300 of 2001. Pending the above appeal, the assessing authority by his order dated December 6, 1993, relating to the assessment year 1992-93 again refused to grant the benefit of deduction of carry forward of investment allowanc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the previous year before the allowance of unabsorbed investment allowance carried forward from the previous years holding that the assessee is not entitled to the allowance of the unabsorbed investment allowance before allowance of the unabsorbed depreciation in computing the income for the assessment year 1991-92.?" T.C. (A) No. 41 of 2002: (a) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in holding that the unabsorbed depreciation should be allowed before the allowance of the unabsorbed investment allowance in computing income of the assessee for the assessment year 1992-93? (b) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal having noticed that the appellant's case is that after quantifying the allowance of depreciation for each previous year, the assessee could exercise option not to claim the unabsorbed depreciation against the income of the current year and postpone such adjustment till unabsorbed investment allowance is absorbed, is right in coming to the conclusion that there was competition regarding the priority of claims and that the claim for depreciation should p....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Ltd. v. CIT [1985] 153 ITR 810 of the Kerala High Court; and (v) Mysore Paper Mills Ltd. v. CIT [1979] 117 ITR 132 of the Karnataka High Court. Per contra, Mrs. Pushya Sitharaman, learned senior counsel appearing for the Income-tax Department, contended that the law is well settled on the point that any unabsorbed depreciation allowance should be allowed before the unabsorbed investment allowance, irrespective of the facts, (i) whether the assessee claimed unabsorbed depreciation or not, and (ii) even assuming the order of priority should go, only the unabsorbed depreciation allowance should be allowed, as against the unabsorbed investment allowance, placing reliance on the Division Bench decisions of various High Courts, viz.,- (i) Shree Ramesh Cotton Mills Ltd. v. CIT [1979] 116 ITR 366 of the Calcutta High Court; (ii) Monogram Mills Co. Ltd. v. CIT [1982] 135 ITR 122 of the Gujarat High Court; (iii) Calicut Modern Spinning and Weaving Mills Ltd. v. CIT [1985] 153 ITR 810 of the Kerala High Court; (iv) Bihar State Industrial Development Corporation Ltd. v. CIT [1987] 165 ITR 671 of the Patna High Court; (v) Utkal Machinery Ltd. v. CIT [1987] 167 ITR 119 of the Orissa High....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... he does not wish to avail of that benefit for some reason or other, the benefit cannot be forced upon him. In Mahendra Mills' case [2000] 243 ITR 56 (SC), it was also held that the Assessing Officer cannot grant depreciation allowance when the same is not claimed by the assessee. Following the ratio laid down by the apex court in Mahendra Mills' case [2000] 243 ITR 56, the Punjab and Haryana High Court in Ram Nath Jindal v. CIT [2001] 252 ITR 590, held that the Assessing Officer could not grant the depreciation allowance when it is not claimed by the assessee as there is no provision by which depreciation could be fictionally deemed to have been claimed and granted. It is thus held by the Punjab and Haryana High Court that when the assessee had not claimed any depreciation, it was not permissible for the Assessing Officer to allow depreciation when it was not claimed, while passing assessment orders for the relevant assessment years under section 143(1) of the Income-tax Act. It is also true that this court in Guindy Machine Tools P. Ltd. v. CIT [2002] 254 ITR 780, following the ratio laid down in Mahendra Mills' case [2000] 243 ITR 56 (SC), held that a privilege, namely, the pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Income-tax, 6th edition., Vol. I at page 837, Chaturvedi & Pithisaria's Income-tax Law, 2nd edition, at page 1128, and V.S. Sundaram's The Law of Income-tax in India, has clearly held that both, by way of process of interpretation and looking to the rationale, viz., preventing erosion of the capital base of the assessee's business, the order of priority, viz., that the unabsorbed depreciation allowance gets priority over the unabsorbed investment allowance, is a correct order even as per the scheme of the Act. The relevant portion of the judgment in Monogram Mills' case [1982] 135 ITR 122 (Guj) reads as follows: "The scheme of priority as between the carried forward business losses, unabsorbed depreciation and unabsorbed development rebate, which Mr. Patel has asked for in this case, cannot be said to be the correct order of priority. In our opinion, the correct order of priority is as under: (1) current year's depreciation-because that is the first charge on the receipts in the profit and loss account; (2) carried forward business losses under section 72(2) read with section 72(1); (3) unabsorbed depreciation by virtue of the provisions of section 32(2); (4) unabsorbed devel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t making any allowance under sub-section (1), i.e., for the deduction of the rebate, but after making all other deductions, it follows that unabsorbed depreciation of earlier years will have first to be deducted before development rebate is deducted. The absence of a provision, as in sections 72(2) and 73(3), may, therefore, deprive assessees of a part of the rebate owing to the eight years limit. But cases are unlikely to occur in practice having regard to business conditions of these days. Mr. Patel is right when he says that the view that such cases of development rebate of earlier years being not available to the assessees concerned owing to the lapse of eight years are unlikely to occur in practice, is unfortunately not correct in some of the cases now coming up before the Income-tax authorities, the case before us being an instance of one of such cases. In Depreciation, Investment Allowance, Development Rebate and Balancing Charge in Income Tax, by Ramesh C. Sharma, at page 223, the question of priority has been dealt with and there also the learned author, like V.S. Sundaram has relied upon the specific language of section 33(2). In Chopra's Income Tax Law and Practice, 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of priority for allowing unabsorbed depreciation of the earlier years in the subsequent years, vis-a-vis carried forward unabsorbed development rebate. This is because development rebate is not a traditional loss or expenditure in the ordinary sense of the term. It is intended to give an incentive to business to investment in machinery or in modernisation of plant and equipment. It is available to an assessee on fulfilment of certain conditions specified in the Act and in the event of non-availability of sufficient profit to enable allowance of the same in the year of acquisition, a provision has been made for carry forward of the same for a period of eight years. In the case of unabsorbed depreciation, there is no time limit. The scheme of the Act makes it clear that between unabsorbed development rebate and the unabsorbed depreciation, the latter will have priority in respect of set off against the profits of subsequent years, vide the decision of the Bombay High Court in CIT v. Premier Automobiles Ltd. [1994] 206 ITR 1, wherein the decision of various High Courts in Mysore Paper Mills Ltd. v. CIT [1979] 117 ITR 132 (Karn); CIT v. Coromandel Steels Ltd. [1981] 130 ITR 856 (Mad); ....