M/s. Best & Crompton Engg Ltd., CHENNAI V. ACIT, CHENNAI

ITA 457/CHNY/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73684 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 28-01-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 01-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GURU BHASHYAM
• Assessee Lawyers: S SUBRAMANIAM
• Keywords: Capital asset; Depreciation; Date of conversion; Fair market value; Unabsorbed depreciation
• Section: 45(2); 32; 147

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . , ! '# $ , % & BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./I.T.A.NO. 457/MDS/2012 ( / ASSESSMENT YEAR : 2007-08) M/S. BEST & CROMPTON ENGINEERING LTD., 28, INDUSTRIAL ESTATE, AMBATTUR, CHENNAI-600 098. VS. ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY RANGE-1(2), CHENNAI. PAN AAACB2753N ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. S.SUBRAMANIAM, C.A., /RESPONDENT BY : MR. GURU BHASHYAM, JCIT / DATE OF HEARING : 28 TH JANUARY, 2014 ! /DATE OF PRONOUNCEMENT : 19 TH FEBRUARY, 2014 ' / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-III, CHENN AI DATED 26.12.2011 FOR THE ASSESSMENT YEAR 2007-08. ITA NO.457/MDS/2012 2 2. THE FIRST ISSUE IN THE GROUNDS OF APPEAL OF THE ASSESSEE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ASSESSING OFFICERS ACTION OF ADOPTI NG COST INFLATION INDEX OF THE YEAR OF CONVERSION OF PROPER TY INTO STOCK- IN-TRADE INSTEAD OF YEAR OF SALE. 3. BRIEF FACTS ARE THAT ASSESSEE CONVERTED ITS PRO PERTY AT TEYNAMPET ADMEASURING 56 GROUNDS AND 1031 SQ.FT ALO NG WITH A BUILDING THEREON INTO STOCK-IN-TRADE DURING THE FINANCIAL YEAR 1994-95 AND THIS PROPERTY WAS SOLD BY THE ASSE SSEE DURING THE FINANCIAL YEAR 2006-07 RELEVANT TO THE A SSESSMENT YEAR 2007-08 UNDER CONSIDERATION. THE ASSESSEE WHIL E COMPUTING CAPITAL GAINS ON SALE OF THE PROPERTY ADO PTED THE COST INFLATION INDEX OF THE YEAR OF SALE OF PROPERT Y. HOWEVER, ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT A DOPTED COST INFLATION INDEX OF THE FINANCIAL YEAR 1994-95 BEING YEAR OF CONVERSION OF THE ASSET INTO STOCK-IN-TRADE. ON AP PEAL, COMMISSIONER OF INCOME TAX (APPEALS) UPHELD THE ACT ION OF THE ASSESSING OFFICER IN ADOPTING COST INFLATION IN DEX OF THE ITA NO.457/MDS/2012 3 YEAR OF CONVERSION AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE COUNSEL FOR THE ASSESSEE SUBMITS THAT PROPER TY 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 TH E INCOME TAX ACT, CHARGEABILITY TO CAPITAL GAINS CONS EQUENTLY AROSE IN THE ASSESSMENT YEAR 2007-08. COUNSEL SUBMI TS THAT THE ASSESSEE COMPUTED LONG TERM CAPITAL GAINS ADOPT ING 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 CHARGEABIL ITY OF CAPITAL GAINS IN CASE OF CONVERSION OF PROPERTY INT O STOCK-IN- TRADE TO THE ASSESSMENT YEAR TO ITS YEAR OF SALE IR RESPECTIVE OF YEAR OF CONVERSION INTO STOCK-IN-TRADE. COUNSEL SU BMITS THAT IN ITS CASE THE PROPERTY IN QUESTION WAS CONVERTED IN THE FINANCIAL YEAR 1994-95 BUT WAS SOLD ONLY IN THE FIN ANCIAL YEAR 2006-07. THE DETERMINATION OF INDEXED COST OF ACQU ISITION IS COVERED BY SECTION 48 OF THE ACT. HE SUBMITS THAT O NLY ITA NO.457/MDS/2012 4 DETERMINING THE SALE CONSIDERATION IN CASE OF CONVE RSION OF STOCK-IN-TRADE SECTION 45 CREATES A DEEMING FICTION OF TAKING THE MARKET VALUE OF THE PROPERTY ON THE DATE OF CON VERSION AS SALE CONSIDERATION. THUS, THE COUNSEL SUBMITS THAT BOTH SECTION 45 AND 48 OF THE ACT ARE DISTINCT AND CLEAR LY STIPULATES THE CHARGEABILITY AND COMPUTATION OF LONG TERM CAPI TAL GAINS RESPECTIVELY. HE SUBMITS THAT ASSESSING OFFICER ERR ED IN ADOPTING THE YEAR OF CONVERSION AS YEAR OF SALE ON AN ERRONEOUS BELIEF THAT SECTION 48 NEEDS TO BE READ I N CONJUNCTION WITH SECTION 45 WHICH IS NOT THE CASE. THE COUNSEL SUBMITS THAT A PLAIN READING OF SECTION 48 CLEARLY REQUIRES COMPUTATION OF LONG TERM CAPITAL GAINS ADO PTING THE COST INFLATION INDEX OF THE YEAR OF SALE AND A PLAI N READING OF SECTION 45 DEEMS ADOPTION OF MARKET VALUE ON THE DA TE OF CONVERSION AS THE SALE CONSIDERATION. THE BENEFIT O F CHOOSING THE YEAR OF SALE FOR INDEXATION PURPOSES IS ONLY TO GRANT BENEFIT TO THE ASSESSEE FOR TAKING CARE OF THE INFL ATION. 5. THE DEPARTMENTAL REPRESENTATIVE SUPPORTED THE OR DERS OF LOWER AUTHORITIES IN ADOPTING COST INFLATION IND EX OF THE YEAR ITA NO.457/MDS/2012 5 IN WHICH THE ASSET WAS CONVERTED INTO STOCK-IN-TRAD E IN COMPUTING LONG TERM CAPITAL GAINS. 6. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSME NT ADOPTED THE COST INFLATION INDEX OF THE YEAR IN WHI CH THE ASSET WAS CONVERTED INTO STOCK-IN-TRADE INSTEAD OF YEAR OF SALE AS ADOPTED BY THE ASSESSEE IN COMPUTING THE LONG TERM CAPITAL GAINS ON SALE OF THE ASSET OBSERVING AS UNDER:- IN THE COMPUTATION PROVIDED, THE ASSESSEE HAS ARRIVED AT A LONG TERM CAPITAL GAIN OF ` 15,50,46,710/- BY APPLYING THE COST INFLATION INDEX (519) OF F.Y. 2006-07 BEING THE YEAR OF SALE WRONGLY INSTEAD OF APPLYING THE COST INFLATION INDEX (259) OF F.Y. 1994-95 BEING THE YEAR OF CONVERSION. THE AUTHORIZED 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 U/S.45(2) AS ENVISAGED IN THE ACT IS (2) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECTION (1), THE ITA NO.457/MDS/2012 6 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 F.Y . 2007-08. BUT, THE MARKET VALUE CONSIDERED FOR THE PURPOSE OF THIS COMPUTATION AS THE SALE VALUE IS RS. 22.71 CRORES BEING THE VALUE FOR F.Y. 1994-95. TAKING A MARKET V ALUE AS ON THE DATE OF CONVERSION INTO STOCK-IN-TRADE OF F.Y. 1994-95 AND APPLYING COST INFLATION INDEX OF F . Y . 2006-07 IS FOUND TO LACK LUCIDITY. ' BY APPLYING THE COST INFLATION INDEX OF F . Y. 2006-07, IT IS PERCEIVED THAT THE CONVERSION ALSO HAPPENS IN F.Y. 2006-07 . THE HON'BLE MADRAS HIGH COURT IN THE CASE OF M. NACHIAPPAN VS. CIT (1998) 230ITR 98 (MAD) HAD HELD THAT THE CONDITION WHICH MUST BE SATISFIED IN ORDER TO ATTRACT THE CHARGE TO TAX U / S . 45 IS A PROPERTY CONVERTED MUST BE A CAPITAL ASSET AS ON THE DATE OF CONVERSION. IN THE INSTANT CASE, DURING F.Y . 2006-07 THE ASSET WAS HELD AS STOCK- IN-TRADE. ONLY DU R ING F.Y. 1994-95 THE ASSET WAS A CAPITAL ASSET. THEREFORE , THE MARKET VA L UE AND THE COST INFLATION INDEX ITA NO.457/MDS/2012 7 APPLICABLE FOR THE F.Y . 1994-95 SHOULD BE APPLIED TOGETHER AND NOT DI S P A RAGINGLY LIKE THE ONE C LAIMED BY THE ASSESSEE . THE SAID ACTION WAS CONFIRMED BY THE COMMISSIONER O F INCOME TAX (APPEALS). ON A READING OF THE ASSESSMEN T ORDER AND THE REASONING OF THE ASSESSING OFFICER IN ADOPT ING THE COST INFLATION INDEX OF YEAR IN WHICH THE ASSET WAS CONVERTED INTO STOCK-IN-TRADE IN COMPUTING LONG TERM CAPITAL GAINS, THE REASONING OF THE ASSESSING OFFICER APPEARS TO BE CO RRECT AND LOGICAL. IN THE CIRCUMSTANCES, WE ARE IN AGREEMENT WITH THE VIEW OF THE ASSESSING OFFICER THAT THE COST INFLATI ON INDEX AS STOOD IN THE YEAR OF CONVERSION ONLY HAS TO BE APPL IED NOT THE COST INFLATION INDEX AS STOOD IN THE YEAR OF TAXATI ON OF CAPITAL GAINS OF THE ASSET. THE GROUND RAISED BY THE ASSESS EE ON THIS ISSUE IS REJECTED. 7. THE NEXT ISSUE IN THE GROUNDS OF APPEAL OF THE A SSESSEE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN ACCEPTING ENHANCEMENT PROPOSAL OF THE ASSESSING OFF ICER AND DENYING SET OFF OF UNABSORBED DEPRECIATION PRIO R TO THE ASSESSMENT YEAR 1997-98 BASED ON THE DECISION OF SP ECIAL ITA NO.457/MDS/2012 8 BENCH OF MUMBAI TRIBUNAL IN THE CASE OF DCIT VS. TI MES GUARANTY LTD. IN ITA NO.4917 AND 4918/MUM/2008 DATE D 30.06.2010. IN THE COURSE OF PROCEEDINGS BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS), THE ASSESSING OFFICER BY LETTER DATED 29.07.2010 PROPOSED FOR ENH ANCEMENT OF INCOME BY WAY OF REDUCTION IN THE QUANTUM OF CAR RIED FORWARD DEPRECIATION TO BE SET OFF AGAINST LONG TER M CAPITAL GAINS REFERRING TO THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF TIMES GUARANTEE LTD. (SUPRA ). THE COMMISSIONER OF INCOME TAX (APPEALS) FOLLOWING THE ABOVE SAID SPECIAL BENCH DECISION OF THE TRIBUNAL DIRECTE D THE ASSESSING OFFICER TO DISALLOW UNABSORBED DEPRECIATI ON PRIOR TO ASSESSMENT YEAR 2002-03 I.E. FROM THE ASSESSMENT YE AR 1999-2000 TO 2001-02 WHICH WAS SET OFF AGAINST LON G TERM CAPITAL GAINS AGAINST WHICH THE ASSESSEE IS IN APPE AL BEFORE US. 8. AT THE TIME OF HEARING, THE COUNSEL FOR THE ASSE SSEE SUBMITS THAT THIS ISSUE IS SQUARELY COVERED IN FAVO UR OF THE ASSESSEE BY THE DECISION OF HONBLE GUJARAT HIGH CO URT IN THE ITA NO.457/MDS/2012 9 CASE OF GENERAL MOTORS INDIA PVT. LTD. VS. DCIT, WH EREIN THE HONBLE GUJARAT HIGH COURT HELD THAT UNABSORBED DEP RECIATION FROM 1997-98 UPTO ASSESSMENT YEAR 2001-02 GOT CARR IED FORWARD TO THE ASSESSMENT YEAR 2002-03 AND BECAME P ART THEREOF AND WAS AVAILABLE FOR CARRY FORWARD AND SET OFF AGAINST PROFITS AND GAINS OF SUBSEQUENT YEARS WITHOUT ANY L IMIT WHATSOEVER. HE ALSO PLACES RELIANCE ON THE MUMBAI BENCH OF THIS TRIBUNAL IN THE CASE OF M/S. ARCH FINE CHEMICA LS VS. ACIT IN ITA NO.2414 & 2415/MUM/2012 DATED 9.10.2013 WHERE SIMILAR VIEW WAS TAKEN BY THE TRIBUNAL FOLLOW ING THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF GENERAL MOTORS INDIA PVT.LTD. (SUPRA). 9. THE DEPARTMENTAL REPRESENTATIVE SUPPORTED THE OR DERS OF LOWER AUTHORITIES ON THIS ISSUE. 10. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTH ORITIES AND THE DECISIONS RELIED ON. ON READING OF THE ORDE R OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF GENERAL M OTORS INDIA PVT. LTD. (SUPRA), WE FIND THAT THIS ISSUE IS SQUARELY ITA NO.457/MDS/2012 10 COVERED IN FAVOUR OF THE ASSESSEE. THE HONBLE HIGH COURT CONSIDERING THE ISSUE ELABORATELY HELD AS UNDER:- 30. THE LAST QUESTION WHICH ARISES FOR CONSIDERATIO N IS THAT WHETHER THE UNABSORBED DEPRECIATION PERTAINING TO A .Y. 1997-98 COULD BE ALLOWED TO BE CARRIED FORWARD AND SET OFF AFTER A PERIOD OF EIGHT YEARS OR IT WOULD BE GOVERNED BY SECTION 3 2 AS AMENDED BY FINANCE ACT 2001? THE REASON GIVEN BY THE ASSESS ING OFFICER UNDER SECTION 147 IS THAT SECTION 32(2) OF THE ACT WAS AMENDED BY FINANCE ACT NO.2 OF 1996 W.E.F. A.Y. 1997-98 AND THE UNABSORBED DEPRECIATION FOR THE A.Y. 1997-98 COULD BE CARRIED FORWARD UP TO THE MAXIMUM PERIOD OF 8 YEARS FROM TH E YEAR IN WHICH IT WAS FIRST COMPUTED. ACCORDING TO THE ASSES SING OFFICER, 8 YEARS EXPIRED IN THE A.Y. 2005-06 AND ONLY TILL THE N, THE ASSESSEE WAS ELIGIBLE TO CLAIM UNABSORBED DEPRECIATION OF A. Y. 1997-98 FOR BEING CARRIED FORWARD AND SET OFF AGAINST THE INCOM E FOR THE A.Y. 2005-06. BUT THE ASSESSEE WAS NOT ENTITLED FOR UNAB SORBED DEPRECIATION OF RS.43,60,22,158/- FOR A.Y. 1997-98, WHICH WAS NOT ELIGIBLE FOR BEING CARRIED FORWARD AND SET OFF AGAINST THE INCOME FOR THE A.Y. 2006-07. 31. PRIOR TO THE FINANCE ACT NO.2 OF 1996 THE UNABS ORBED DEPRECIATION FOR ANY YEAR WAS ALLOWED TO BE CARRY F ORWARD INDEFINITELY AND BY A DEEMING FICTION BECAME ALLOWA NCE OF THE IMMEDIATELY SUCCEEDING YEAR. THE FINANCE ACT NO.2 O F 1996 RESTRICTED THE CARRY FORWARD OF UNABSORBED DEPRECIA TION AND SET- OFF TO A LIMIT OF 8 YEARS, FROM THE A.Y.1997-98. CI RCULAR NO.762 DATED 18.2.1998 ISSUED BY THE CENTRAL BOARD OF DIRE CT TAXES (CBDT) IN THE FORM OF EXPLANATORY NOTES CATEGORICAL LY PROVIDED, THAT THE UNABSORBED DEPRECIATION ALLOWANCE FOR ANY PREVIOUS YEAR TO WHICH FULL EFFECT CANNOT BE GIVEN IN THAT P REVIOUS YEAR SHALL BE CARRIED FORWARD AND ADDED TO THE DEPRECIAT ION ALLOWANCE OF THE NEXT YEAR AND BE DEEMED TO BE PART THEREOF. 32. SO, THE UNABSORBED DEPRECIATION ALLOWANCE OF A. Y. 1996-97 WOULD BE ADDED TO THE ALLOWANCE OF A.Y. 1997-98 AND THE LIMITATION OF 8 YEARS FOR THE CARRY-FORWARD AND SET -OFF OF SUCH UNABSORBED DEPRECIATION WOULD START FROM A.Y. 1997- 98. 33. WE MAY NOW EXAMINE THE PROVISIONS OF SECTION 32 (2) OF THE ACT BEFORE ITS AMENDMENT BY FINANCE ACT 2001. THE S ECTION PRIOR TO ITS AMENDMENT BY FINANCE ACT, 2001, READ AS UNDE R:- WHERE IN THE ASSESSMENT OF THE ASSESSEE FULL EFFEC T CANNOT BE GIVEN TO ANY ALLOWANCE UNDER CLAUSE (II) OF SUB-SEC TION (1) IN ANY ITA NO.457/MDS/2012 11 PREVIOUS YEAR OWNING TO THERE BEING NO PROFITS OR G AINS CHARGEABLE FOR THAT PREVIOUS YEAR OR OWING TO THE P ROFITS OR GAINS BEING LESS THAN THE ALLOWANCE, THEN, THE ALLOWANCE OR THE PART OF ALLOWANCE TO WHICH EFFECT HAS NOT BEEN GIVEN (HEREI NAFTER 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 ASSESS ABLE FOR THAT ASSESSMENT YEAR; (II) IF THE UNABSORBED DEPRECIATION ALLOWANCE CANNO T BE WHOLLY SET OFF UNDER CLAUSE (I), THE AMOUNT NOT SO SET OFF SHA LL BE SET OFF FROM THE INCOME UNDER ANY OTHER HEAD, IF ANY, ASSESSABLE FOR THAT ASSESSMENT YEAR; (III) IF THE UNABSORBED DEPRECIATION ALLOWANCE CANN OT BE WHOLLY SET OFF UNDER CLAUSE (I) AND CLAUSE (II), THE AMOUN T OF ALLOWANCE NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLL OWING ASSESSMENT YEAR AND (A) IT SHALL BE SET OFF AGAINST THE PROFITS AND GAI NS, IF ANY, OF ANY BUSINESS OR PROFESSION CARRIED ON BY HIM AND ASSESS ABLE FOR THAT ASSESSMENT YEAR; (B) IF THE UNABSORBED DEPRECIATION ALLOWANCE CANNOT BE WHOLLY SO SET OFF, THE AMOUNT OF UNABSORBED DEPRECIATION ALLO WANCE NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWING A SSESSMENT YEAR NOT BEING MORE THAN EIGHT ASSESSMENT YEARS IMMEDIAT ELY SUCCEEDING THE ASSESSMENT YEAR FOR WHICH THE AFORES AID ALLOWANCE WAS FIRST COMPUTED: PROVIDED THAT THE TIME LIMIT OF EIGHT ASSESSMENT YE ARS SPECIFIED IN SUB CLAUSE (B) SHALL NOT APPLY IN CASE OF A COMP ANY FOR THE ASSESSMENT YEAR BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE SAID COMPANY HAS BEC OME A SICK INDUSTRIAL COMPANY UNDER SUB-SECTION (1) OF SECTION 17 OF THE SICK INDUSTRIAL COMPANY (SPECIAL PROVISIONS) ACT, 1 985 (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 S UB-SECTION (1) OF SECTION 3 OF THE SICK INDUSTRIAL COMPANIES (SPEC IAL PROVISIONS) ACT, 1985. 34. THE AFORESAID PROVISION WAS INTRODUCED BY FINAN CE (NO.2) ACT, 1996 AND FURTHER AMENDED BY THE FINANCE ACT, 2 000. THE PROVISION INTRODUCED BY FINANCE (NO.2) ACT WAS CLAR IFIED BY THE FINANCE MINISTER TO BE APPLICABLE WITH PROSPECTIVE EFFECT. 35. SECTION 32 (2) OF THE ACT WAS AMENDED BY FINANC E ACT, 2001 AND THE PROVISION SO AMENDED READS AS UNDER :- ITA NO.457/MDS/2012 12 WHERE, IN THE ASSESSMENT OF THE ASSESSEE, FULL EFF ECT 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 T O 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-S ECTION (2) OF SECTION 72 AND SUB-SECTION (3) OF SECTION 73 , THE ALLOWANCE OR THE PART OF THE ALLOWANCE TO WHICH EFF ECT HAS NOT BEEN GIVEN, AS THE CASE MAY BE, SHALL BE ADDED TO THE AMOUNT OF THE ALLOWANCE FOR DEPRECIATION FOR THE FO LLOWING PREVIOUS YEAR AND DEEMED TO BE PART OF THAT ALLOWAN CE, OR IF THERE IS NO SUCH ALLOWANCE FOR THAT PREVIOUS YEA R, BE DEEMED TO BE ALLOWANCE OF THAT PREVIOUS YEAR, AND S O ON FOR THE SUCCEEDING PREVIOUS YEARS. 36. THE PURPOSE OF THIS AMENDMENT HAS BEEN CLARIFIE D BY CENTRAL BOARD OF DIRECT TAXES IN THE CIRCULAR NO.14 OF 2001 . 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 DE PRECIATION IS ALLOWED FOR 8 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 DISP ENSED WITH THE RESTRICTION OF 8 YEARS FOR CARRY FORWARD AND SE T OFF OF UNABSORBED DEPRECIATION. THE ACT HAS ALSO CLARIFIED THAT IN COMPUTING THE PROFITS AND GAINS OF BUSINESS OR PROF ESSION FOR ANY PREVIOUS YEAR, DEDUCTION OF DEPRECIATION UNDER SECT ION 32 SHALL BE MANDATORY. 30.3 UNDER THE EXISTING PROVISIONS, NO DEDUCTION FO R DEPRECIATION IS ALLOWED ON ANY MOTOR CAR MANUFACTURED OUTSIDE IN DIA UNLESS IT IS USED (I) IN THE BUSINESS OF RUNNING IT ON HIRE F OR TOURISTS, OR (II) OUTSIDE IN THE ASSESSEES BUSINESS OR PROFESSION IN ANOTHER COUNTRY. 30.4 THE ACT HAS ALLOWED DEPRECIATION ALLOWANCE ON ALL IMPORTED MOTOR CARS ACQUIRED ON OR AFTER 1 ST APRIL, 2001. 30.5 THESE AMENDMENTS WILL TAKE EFFECT FROM THE 1 ST APRIL, 2002, AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASS ESSMENT YEAR 2002-03 AND SUBSEQUENT YEARS. 37. THE CBDT CIRCULAR CLARIFIES THE INTENT OF THE A MENDMENT THAT IT IS FOR ENABLING THE INDUSTRY TO CONSERVE SUFFICI ENT FUNDS TO ITA NO.457/MDS/2012 13 REPLACE PLANT AND MACHINERY AND ACCORDINGLY THE AME NDMENT DISPENSES WITH THE RESTRICTION OF 8 YEARS FOR CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION. THE AMENDMENT IS AP PLICABLE FROM ASSESSMENT YEAR 2002-03 AND SUBSEQUENT YEARS. THIS MEANS THAT ANY UNABSORBED DEPRECIATION AVAILABLE TO AN ASSESSEE ON 1ST DAY OF APRIL, 2002 (A.Y. 2002- 03) WILL BE DEALT WITH IN ACCORDANCE WITH THE PROVISIONS OF SECTION 3 2(2) AS AMENDED BY FINANCE ACT, 2001 AND NOT BY THE PROVISI ONS OF SECTION 32(2) AS IT STOOD BEFORE THE SAID AMENDMENT . HAD THE INTENTION OF THE LEGISLATURE BEEN TO ALLOW THE UNAB SORBED DEPRECIATION ALLOWANCE WORKED OUT IN A.Y. 1997-98 ONLY FOR EIGHT SUBSEQUENT ASSESSMENT YEARS EVEN AFTER THE AMENDMEN T OF SECTION 32(2) BY FINANCE ACT, 2001 IT WOULD HAVE IN CORPORATED A PROVISION TO THAT EFFECT. HOWEVER, IT DOES NOT CONT AIN ANY SUCH PROVISION. HENCE KEEPING IN VIEW THE PURPOSE OF AME NDMENT OF SECTION 32(2) OF THE ACT, A PURPOSIVE AND HARMONIOU S INTERPRETATION HAS TO BE TAKEN. WHILE CONSTRUING TA XING STATUTES, RULE OF STRICT INTERPRETATION HAS TO BE APPLIED, GI VING FAIR AND REASONABLE CONSTRUCTION TO THE LANGUAGE OF THE SECT ION WITHOUT LEANING TO THE SIDE OF ASSESSEE OR THE REVENUE. BUT IF THE LEGISLATURE FAILS TO EXPRESS CLEARLY AND THE ASSESS EE BECOMES ENTITLED FOR A BENEFIT WITHIN THE AMBIT OF THE SECT ION BY THE CLEAR WORDS USED IN THE SECTION, THE BENEFIT ACCRUING TO THE ASSESSEE CANNOT BE DENIED. HOWEVER, CIRCULAR NO.14 OF 2001 H AD CLARIFIED THAT UNDER SECTION 32(2), IN COMPUTING THE PROFITS AND GAINS OF BUSINESS OR PROFESSION FOR ANY PREVIOUS YEAR, DEDUC TION OF DEPRECIATION UNDER SECTION 32 SHALL BE MANDATORY. T HEREFORE, THE PROVISIONS OF SECTION 32(2) AS AMENDED BY FINANCE A CT, 2001 WOULD ALLOW THE UNABSORBED DEPRECIATION ALLOWANCE A VAILABLE IN THE A.Y. 1997-98, 1999-2000, 2000-01 AND 2001-02 TO BE CARRIED FORWARD TO THE SUCCEEDING YEARS, AND IF ANY UNABSOR BED DEPRECIATION OR PART THEREOF COULD NOT BE SET OFF T ILL THE A.Y. 2002- 03 THEN IT WOULD BE CARRIED FORWARD TILL THE TIME I T IS SET OFF AGAINST THE PROFITS AND GAINS OF SUBSEQUENT YEARS. 38. THEREFORE, IT CAN BE SAID THAT, CURRENT DEPRECI ATION IS DEDUCTIBLE IN THE FIRST PLACE FROM THE INCOME OF TH E BUSINESS TO WHICH IT RELATES. IF SUCH DEPRECIATION AMOUNT IS LA RGER THAN THE AMOUNT OF THE PROFITS OF THAT BUSINESS, THEN SUCH E XCESS 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 O F INCOME FROM ANY SOURCE UNDER ANY OF THE OTHER HEADS OF INC OME DURING THAT YEAR. IN CASE THERE IS A STILL BALANCE LEFT OV ER, IT IS TO BE TREATED AS UNABSORBED DEPRECIATION AND IT IS TAKEN TO THE NEXT SUCCEEDING YEAR. WHERE THERE IS CURRENT DEPRECIATI ON FOR SUCH SUCCEEDING YEAR THE UNABSORBED DEPRECIATION IS ADDE D TO THE CURRENT DEPRECIATION FOR SUCH SUCCEEDING YEAR AND IS DEEMED AS PART THEREOF. IF, HOWEVER, THERE IS NO CURRENT DEP RECIATION FOR SUCH SUCCEEDING YEAR, THE UNABSORBED DEPRECIATION B ECOMES THE ITA NO.457/MDS/2012 14 DEPRECIATION ALLOWANCE FOR SUCH SUCCEEDING YEAR. WE ARE OF THE CONSIDERED OPINION THAT ANY UNABSORBED DEPRECIATION AVAILABLE TO AN ASSESSEE ON 1 ST DAY OF APRIL 2002 (A.Y. 2002-03) WILL BE DEALT WITH IN ACCORDANCE WITH THE PROVISIONS OF SECTION 3 2(2) AS AMENDED BY FINANCE ACT, 2001. AND ONCE THE CIRCULAR NO.14 OF 2001 CLARIFIED THAT THE RESTRICTION OF 8 YEARS FOR CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION HAD BEEN DISPENS ED WITH, THE UNABSORBED DEPRECIATION FROM A.Y.1997-98 UPTO THE A .Y.2001-02 GOT CARRIED FORWARD TO THE ASSESSMENT YEAR 2002-03 AND BECAME PART THEREOF, IT CAME TO BE GOVERNED BY THE PROVISI ONS OF SECTION 32(2) AS AMENDED BY FINANCE ACT, 2001 AND WERE AVAI LABLE FOR CARRY FORWARD AND SET OFF AGAINST THE PROFITS AND G AINS OF SUBSEQUENT YEARS, WITHOUT ANY LIMIT WHATSOEVER. 11. RESPECTFULLY FOLLOWING THE DECISION OF THE HON BLE GUJARAT HIGH COURT, WE ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON WEDNESDAY, T HE 19 TH DAY OF FEBRUARY, 2014 AT CHENNAI. SD/- SD/- (A.MOHAN ALANKAMONY) (CHALLA NAGEN DRA PRASAD) ACCOUNTANT MEMBER JUDI CIAL MEMBER CHENNAI, DATED THE 19 TH FEBRUARY, 2014. SOMU COPY TO: (1) APPELLANT (4) CIT (A) (2) RESPONDENT (5) D.R. (3) CIT (6) G.F.