$~3
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of decision: 09.01.2018
+ ITA 1031/2017
PR. COMMISSIONER OF INCOME TAX - 2 ..... Appellant
Through: Mr. Zoheb Hossain, Sr. Standing
Counsel.
versus
BRITISH MOTOR CAR CO. (1934) LTD ..... Respondent
Through: Mr. Salil Kapoor, Mr. Sumit
Lalchandani and Ms. Soumya Singh,
Advocates.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE A. K. CHAWLA
HON'BLE MR. JUSTICE S. RAVINDRA BHAT (ORAL)
%
CM APPL. 42239/2017 (for condonation of delay)
1. For the reasons mentioned in the application, the delay in re-
filing the present appeal is hereby condoned.
CM stands disposed of.
ITA 1031/2017
2. The question of law urged by the Revenue in the appeal is
whether the interpretation of Section 32(2) of the Income Tax Act,
ITA 1031/2017 Page 1 of 10
1961 (`the Act') as amended by Finance Act, 2001, could be given
effect to beyond the period of eight years, prior to its commencement?
3. The assessee in this case had carried forward depreciation for a
number of years the earliest of which, was 1998-99.
4. For Assessment Year (A.Y.) 2010-11, the Assessing Officer
(AO) disallowed the amounts claimed as depreciation on the ground
that the amendment to Section 32(2) of the Act, which removed the
cap, was prospective and effective only from 01.04.2002. The CIT(A)
however reversed that decision relying upon CIT v. Govind Nagar
Sugar Ltd., (2011) 334 ITR 13 (Del); CIT V s. Haryana Hotels Ltd.,
(2005) 276 ITR 521 (P&H); CIT v. Fabriquip Private Ltd., (2003) 260
ITR 207 (Guj), and several other decisions.
5. The ITAT, by its impugned order, upheld the decision of the
CIT(A) and relied upon a subsequent judgment of the Gujarat High
Court in General Motors India Pvt. Ltd. v. DCIT, 354 ITR 244 (Guj).
That judgment had been followed by this Court in Motor & General
Finance Ltd. v. ITO, 2017 80 Taxxman.com 14 (Delhi). Mr. Zoheb
Hossain, learned counsel for the Revenue contends that the decision in
Motor & General Finance Ltd (supra) cannot be considered
conclusive because it was rendered in the context of validity of a re-
opening of an assessment under Section 147 of the Act and the Court
was not really called upon to decide on the scope of Section 32(2) of
the Act.
ITA 1031/2017 Page 2 of 10
6. Learned counsel for the assessee on the other hand, appearing
on advance notice, contended that the decision in Motor & General
Finance (supra) has been approved on the Special Leave Petition
rejected by the Supreme Court, and, more particularly, this Court has
approved the reasoning in General Motors India Pvt. Ltd.(supra) by
the Gujarat High Court.
7. Section 32(2) of the Act to the extent is relevant, reads, as
follows:-
"32. Depreciation
(1) ....... ....... ....... ......
(2) 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 being less than the
allowance, then, subject to the provisions or 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
not been given, as the case may be, shall be added to the
amount of the allowance for depreciation for the
following previous year and deemed to be part of that
allowance, or if there is no such allowance for that
previous year, be deemed to be the allowance for that
previous year, and so on for the succeeding previous
years."
8. Prior to its amendment, the provision had limited the carry
forward of depreciation to 8 years. This restriction was brought in, by
Finance Act, 1996. Prior to that amendment, there was no restriction
or cap in the carrying forward of depreciation. In General Motors
ITA 1031/2017 Page 3 of 10
India Pvt. Ltd. (supra), the entire history of the legislation was
considered by the Gujarat High Court including the reasons for the
Finance Act No.2 of 1996, the amendment of 2001-brought into force
with effect from 01.04.20002 as well as the circular of the Central
Board of Direct Taxes (Circular No.14 of 2001). The Gujarat High
Court, after considering and noticing these relevant facts, observed as
follows:-
"34. 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 by the
Finance Act, 2001, read as under:
"Where in the assessment of the assessee full effect
cannot be given to any allowance under clause (ii) of
sub-section (1) in any previous year owning to there
being no profits or gains chargeable for that previous
year or owing to the profits or gains being less than the
allowance, then, the allowance or the part of allowance
to which effect has not been given (hereinafter referred
to as unabsorbed depreciation allowance), as the case
may be,--
(i) shall be set off against the profits and gains, if any, of
any business or profession carried on by him and
assessable for that assessment year;
(ii) if the unabsorbed depreciation allowance cannot be
wholly set off under clause (i), the amount not so set off
shall be set off from the income under any other head, if
any, assessable for that assessment year;
(iii) if the unabsorbed depreciation allowance cannot be
wholly set off under clause (i) and clause (ii), the
amount of allowance not so set off shall be carried
forward to the following assessment year, and--
ITA 1031/2017 Page 4 of 10
(a) it shall be set off against the profits and gains, if any,
of any business or profession carried on by him and
assessable for that assessment year;
(b) if the unabsorbed depreciation allowance cannot be
wholly so set off, the amount of unabsorbed depreciation
allowance not so set off shall be carried forward to the
following assessment year not being more than eight
assessment years immediately succeeding the
assessment year for which the aforesaid allowance was
first computed:
Provided that the time limit of eight assessment years
specified in sub-clause (b) shall not apply in case of a
company for the assessment year beginning with the
assessment year relevant to the previous year in which
the said company has become a sick industrial company
under sub-section (1) of section 17 of the Sick Industrial
Company (Special Provisions) Act, 1985 (1 of 1986),
and ending with the assessment year relevant to the
previous year in which the entire net worth of such
company becomes equal to or exceeds the accumulated
losses.
Explanation.-- For the purposes of this clause, `net
worth' shall have the meaning assigned to it in clause
(ga) of sub-section (1) of section 3 of the Sick Industrial
Companies (Special Provisions) Act, 1985."
35. The aforesaid provision was introduced by the
Finance (No. 2) Act, 1996, and further amended by the
Finance Act, 2000. The provision introduced by the
Finance (No. 2) Act was clarified by the Finance
Minister to be applicable with prospective effect.
36. 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)
ITA 1031/2017 Page 5 of 10
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 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 not been given, as the case may be, shall be added
to the amount of the allowance for depreciation for the
following previous year and deemed to be part of that
allowance, or if there is no such allowance for that
previous year, be deemed to be the allowance of that
previous year, and so on for the succeeding previous
years."
37. The purpose of this amendment has been clarified
by the Central Board of Direct Taxes in Circular No. 14
of 2001 (see [2001] 252 ITR (St.) 65, 90). The relevant
portion of the said Circular reads as under:
"Modification of provisions relating to depreciation
30.1 Under the existing provisions of section 32 of the
Income-tax Act, carry forward and set off of unabsorbed
depreciation is allowed for eight assessment years.
30.2 With a view to enable the industry to conserve
sufficient funds to replace plant and machinery,
specially in an era where obsolescence takes place so
often, the Act has dispensed with the restriction of eight
years for carry forward and set off of unabsorbed
depreciation. The Act has also clarified that in
computing the profits and gains of business or
profession for any previous year, deduction of
depreciation under section 32 shall be mandatory.
30.3 Under the existing provisions, no deduction for
depreciation is allowed on any motor car manufactured
outside India unless it is used (i) in the business of
running it on hire for tourists, or (ii) outside in the
assessee's business or profession in another country.
ITA 1031/2017 Page 6 of 10
30.4 The Act has allowed depreciation allowance on all
imported motor cars acquired on or after 1st April,
2001.
30.5 These amendments will take effect from the 1st
April, 2002, and will, accordingly, apply in relation to
the assessment year 200203 and subsequent years."
38. The Central Board of Direct Taxes Circular
clarifies the intent of the amendment that it is for
enabling the industry to conserve sufficient funds to
replace plant and machinery and accordingly the
amendment dispenses with the restriction of eight years
for cany forward and set off of unabsorbed depreciation.
The amendment is applicable from the assessment year
200203 and subsequent years. This means that any
unabsorbed depreciation available to an assessee on the
1st day of April, 2002 (the assessment year 200203),
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 the assessment year 199798 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 the amendment of section
32(2) of the Act, a purposive and harmonious
interpretation has to be taken. While construing the
taxing statutes, rule of strict interpretation has to be
applied, giving fair and reasonable construction to the
language of the section without leaning to the side of the
assessee or the Revenue. But if the Legislature fails to
express clearly and the assessee becomes entitled for a
benefit within the ambit of the section by the clear words
ITA 1031/2017 Page 7 of 10
used in the section, the benefit accruing to the assessee
cannot be denied. However, Circular No. 14 of 2001
had clarified that under section 32(2), in computing the
profits and gains of business or profession for any
previous year, deduction of depreciation under section
32 shall be mandatory. Therefore, the provisions of
section 32(2) as amended by the Finance Act, 2001,
would allow the unabsorbed depreciation allowance
available in the assessment years 199798, 19992000,
200001 and 200102 to be carried forward to the
succeeding years, and if any unabsorbed depreciation or
part thereof could not be set off till the assessment year
200203 then it would be carried forward till the time it
is set off against the profits and gains of subsequent
years. Therefore, it can be said that, current
depreciation is deductible in the first place from the
income of the business to which it relates. If such
depreciation amount is larger than the amount of the
profits of that business, then such excess comes for
absorption from the profits and gains from any other
business or business, if any, carried on by the assessee.
If a balance is left even thereafter, that becomes
deductible from out of income from any source under
any of the other heads of income during that year. In
case there is a still balance left over, it is to be treated
as unabsorbed depreciation and it is taken to the next
succeeding year. Where there is current depreciation for
such succeeding year the unabsorbed depreciation is
added to the current depreciation for such succeeding
year and is deemed as part thereof. If, however, there is
no current depreciation for such succeeding year, the
unabsorbed depreciation becomes the depreciation
allowance for such succeeding year. We are of the
considered opinion that any unabsorbed depreciation
available to an assessee on the 1st day of April, 2002
ITA 1031/2017 Page 8 of 10
(the assessment year 200203), will be dealt with in
accordance with the provisions of section 32(2) as
amended by the Finance Act, 2001. And once Circular
No. 14 of 2001 clarified that the restriction of eight
years for carry forward and set off of unabsorbed
depreciation had been dispensed with, the unabsorbed
depreciation from the assessment year 199798 up to
the assessment year 200102 got carried forward to the
assessment year 200203 and became part thereof, it
came to be governed by the provisions of section 32(2)
as amended by the Finance Act, 2001, and were
available for carry forward and set off against the
profits and gains of subsequent years, without any limit
whatsoever."
9. This Court is in agreement with the reasoning of the Gujarat
High Court. The rationale for the amendment appears to be that the
restriction against set off and carry forward limited to 8 years, beyond
which the benefit could not be claimed under provisions of the Income
Tax Act, was for the reasons deemed appropriate by the Parliament.
The limit was imposed in 1996 through Finance Act No.2. As the
Gujarat High Court observed, Had the intention of Parliament being
really to restrict the benefit (of unlimited carry forward prospectively),
there were more decisive ways of doing so-such as, an expressed
provision or an exception or proviso etc. The absence of any such
legislative devise meant that provisions had to be construed in its own
term and not so as to restrict the benefit or advantage, it sought to
confirm.
ITA 1031/2017 Page 9 of 10
10. For these reasons, the Court is of the opinion that the reasoning
in Motor & General Finance Ltd. (supra) does not call for re-
examination.
11. The Court also approves and follows the judgment in General
Motors India Ltd. (supra) of the Gujarat High Court. No substantive
question of law arises.
The appeal is therefore dismissed.
S. RAVINDRA BHAT, J
A. K. CHAWLA, J
JANUARY 09, 2018
nn
ITA 1031/2017 Page 10 of 10
|