M/s. DCIT 1(3), MUMBAI V. TIMES GUARANTY LTD., MUMBAI

ITA 4918/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1392 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2004-2005
• Appeal Filed On: 04-08-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: HEMANT J LAL
• Keywords: Capital asset; Business income; Depreciation; Cost of acquisition; Unabsorbed depreciation; Capital expenditure
• Section: 72(1); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI SPECIAL BENCH E, MUMBAI BEFORE S/SHRI D.MANMOHAN, VP, R.S.SYAL, AM, N.V.VAS UDEVAN, JM ITA NOS.4917 & 4918/MUM/2008 : ASST.YEARS 2003-2004 & 2004-2005 THE DY.COMMISSIONER OF INCOME-TAX CIRCLE 1(3) MUMBAI. VS. M/S.TIMES GUARANTY LIMITED TIMES OF INDIA BUILDING, GROUND FLOOR M.K.ROAD, NEW MARINE LINES MUMBAI 400 020. PA NO.AABCT2481Q. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI HEMANT J LAL RESPONDENT BY : SH. K. SHIVRAM PER R.S.SYAL (AM) : THE HONBLE PRESIDENT OF THE INCOME TAX APPELLATE T RIBUNAL HAS CONSTITUTED THIS SPECIAL BENCH AND POSTED THE FOLLOWING QUEST ION FOR OUR CONSIDERATION AND DECISION:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE, WHETHE R THE UNABSORBED DEPRECIATION RELATING TO A.Y. 1997-1998 TO 1999-200 0 IS TO BE DEALT WITH IN ACCORDANCE WITH THE PROVISIONS OF SECTION 3 2(2) AS APPLICABLE FOR A.Y. 1997-1998 TO 1999-2000 AS CLAIMED BY THE R EVENUE OR THE SAME HAS TO BE DEALT WITH IN ACCORDANCE WITH THE SA ID PROVISIONS AS APPLICABLE TO A.Y. 2003-2004 AND 2004-2005 AS CLAIM ED BY THE ASSESSEE? 2. THESE TWO APPEALS BY THE REVENUE EMANATE FROM TH E COMMON ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) DATED 5 .5.2008 IN RELATION TO THE ASSESSMENT YEARS 2003-2004 AND 2004-2005. THE FOLL OWING EFFECTIVE COMMON GROUNDS HAVE BEEN RAISED IN BOTH THE YEARS:- ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 2 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) ERRED IN GRANTING SET OFF OF UNABSORBED D EPRECIATION AGAINST INCOME FROM OTHER SOURCES. 2. FURTHER, PLACED IN THE ABOVE FACTUAL AND LEGAL SCENARIO, THE IMPUGNED ORDER OF THE LD.CIT(A) IS, THE APPELLANT P RAYS, CONTRARY TO LAW AND CONSEQUENTLY MERITS TO BE SET ASIDE AND THA T OF THE ASSESSING OFFICER BE RESTORED. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE CONTINUED TO DERIVE INCOME FROM THE BUSINESS OF MERCHANT BANKING ACTIVI TY. IT FILED RETURN FOR ASSESSMENT YEAR 2003-2004 DECLARING LOSS OF RS.82, 86,513. ASSESSMENT ORDER WAS PASSED U/S.143(3) ON 17.3.2006 IN WHICH THE ASSESSI NG OFFICER MADE THE FOLLOWING COMPUTATION OF TOTAL INCOME AS PER NORMAL PROVISION S OF THE ACT:- I) PROFITS AND GAINS OF BUSINESS (AS SHOWN IN THE COMPUTATION OF TOTAL INCOME) (-) RS.1,10,27,156 ADD : DISALLOWANCES (+) RS.1,14,16,014 LESS : CARRIED FORWARD BUSINESS LOSS OF A.Y. 2002-03 OF RS.88,04,621/- LIMITED TO RS.3,88,858/- (-) RS.3,88,858 PROFITS AND GAINS OF BUSINESS NIL (II) INCOME FROM OTHER SOURCES (AS SHOWN) RS.27,40,658 GROSS INCOME RS.27,40,653 DEDUCTION UNDER CHAPTER VIA NIL TOTAL INCOME RS.27,40,653 TAX @ 35% ON RS.27,40,653 RS.9,59,228 SURCHARGE @ 5% ON RS.9,59,228 RS.47,961 TOTAL RS.10,07,189 ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 3 4. RETURN FOR THE ASSESSMENT YEAR 2004-2005 WAS FIL ED DECLARING TOTAL INCOME OF RS. NIL. ASSESSMENT ORDER U/S.143(3) WAS PASSED ON 21.3.2006 IN WHICH THE ASSESSING OFFICER MADE FOLLOWING COMPUTATION OF TOT AL INCOME AS PER THE NORMAL PROVISIONS OF THE ACT:- (I) BUSINESS INCOME RS. 2,93,625 (SET OFF) (II) INCOME FROM OTHER SOURCES (BANK INTEREST) RS.28,20,000 LESS : CURRENT YEAR DEPRECIATION RS.16,87,228 ---------------- TOTAL INCOME RS.11,92,772 ========== 5. AGGRIEVED, THE ASSESSEE PREFERRED APPEALS BEFORE THE LEARNED CIT(A) URGING THAT UNABSORBED DEPRECIATION DETERMINED IN ASSESSME NT YEAR 1997-98 TO 1999-2000 BE ALLOWED SET OFF AGAINST INCOME UNDER THE HEAD I NCOME FROM OTHER SOURCES. THE LEARNED CIT(A) OBSERVED THAT THE A.O. HAD NEITHER DISCUSSED THE PLEA OF THE ASSESSEE ABOUT SUCH SET OFF NOR HAD GIVEN ANY REA SON AS TO WHY SUCH SET OFF WAS NOT ALLOWED. THE ASSESSEE DETAILED THE FACTS BEFOR E THE CIT(A) EXPLAINING THAT IT HAD DECLARED INCOME OF RS.31,13,625 INCLUDING BANK INTEREST OF RS.28,80,000 WHICH WAS SOUGHT TO BE SET OFF AGAINST BROUGHT FORW ARD LOSSES INCLUDING UNABSORBED DEPRECIATION. IT WAS PUT FORTH THAT ON T HE ASSESSING OFFICERS QUESTIONING AS TO WHY THE INTEREST INCOME BE NOT T REATED AS INCOME FROM OTHER SOURCES, THE ASSESSEE DID NOT RAISE ANY OBJECTION TO THE CONSIDERATION OF SUCH INCOME UNDER THE RESIDUAL HEAD, BUT CLAIMED THAT U NABSORBED DEPRECIATION BE ALLOWED SET OFF AGAINST THE INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. IN THE FIRST APPEAL, THE ASSESSEE ALSO RELIED ON THE J UDGMENTS OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. VIRMANI INDUSTRIES PRIVATE LIMITED [216 ITR 607] AND JAIPURIA CHINA CLAY MINES (P) LTD. [59 ITR 555 (SC) ] IN SUPPORT OF ITS CONTENTION. ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 4 THE LEARNED CIT(A) CAME TO HOLD THAT UNABSORBED DE PRECIATION WAS AVAILABLE TO AN ASSESSEE PERPETUALLY FOR SET OFF AGAINST THE GROSS TOTAL INCOME. RELYING ON THE CASE OF VIRMANI INDUSTRIES PRIVATE LIMITED (SUPRA), THE LEARNED CIT(A) CONCURRED WITH THE SUBMISSIONS ADVANCED ON BEHALF OF THE ASSESSEE. THE REVENUE IS IN APPEAL AGAINST THE RELIEF ALLOWED BY THE LEARNED FIRST APP ELLATE AUTHORITY. 6. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATI VE CONTENDED THAT THE LEARNED CIT(A) ERRED IN ALLOWING SET OFF OF UNABSOR BED DEPRECIATION AGAINST `INCOME FROM OTHER SOURCES DESPITE THE FACT THAT AN AMENDMENT TO LAW TOOK PLACE BY THE FINANCE ACT, 2001 WITH EFFECT FROM 1.4.2002 SUBSTITUTING THE OLD SECTION 32(2). HE POINTED OUT THAT ACCORDING TO THE PROVISI ONS APPLICABLE WITH EFFECT FROM ASSESSMENT YEAR 2002-2003, THE ASSESSEE COULD NOT C LAIM SET OFF OF UNABSORBED DEPRECIATION RELATING TO THE ASSESSMENT YEARS 1997- 98 TO 2001-2002 AGAINST THE INCOME UNDER ANY HEAD EXCEPT PROFITS AND GAINS OF BUSINESS OR PROFESSION. HE ALSO STATED THAT SECTION 32(2), AS SUBSTITUTED WIT H EFFECT FROM ASSESSMENT YEAR 2002-2003, IS A DEEMING PROVISION AND AS SUCH ITS ROLE COULD NOT HAVE BEEN EXTENDED BEYOND WHAT WAS PRECISELY MANDATED. IN HI S OPINION THERE WAS NO WARRANT FOR INFERRING FROM THE NEW PROVISION THAT T HE UNABSORBED DEPRECIATION OF ASSESSMENT YEARS 1997-98 TO 1999-2000 WAS ELIGIBLE FOR SET OFF AGAINST INCOME FROM OTHER SOURCES IN ASSESSMENT YEARS 2003-2004 A ND 2004-2005. HE RELIED ON THE ORDER PASSED BY THE MUMBAI BENCH OF THE TRIBUNA L ON 26.11.2008 IN M/S. DURA FOAM INDUSTRIES PVT. LTD. VS. JCIT IN ITA NO.6260/ MUM/2006 HOLDING THAT THE UNABSORBED DEPRECIATION FOR ASSESSMENT YEARS 1997-9 8 TO 2001-2002 COULD BE ADJUSTED ONLY AGAINST PROFITS AND GAINS OF BUSINES S OR PROFESSION FROM ASSESSMENT YEAR 2002-2003 ONWARDS AND NO OTHER INCOME. HE ALSO INVITED OUR ATTENTION TOWARDS THE COPY OF ORDER DISMISSING THE MISCELLANE OUS PETITION APPLICATION FILED BY DURA FOAM INDUSTRIES PVT. LTD. (SUPRA) . REFERR ING TO CERTAIN DECISIONS RENDERED IN ASSESSEES FAVOUR INCLUDING ITO VS. KESHWA ENTERPRISES (P) LTD. IN ITA NO. 533 ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 5 (CHD) OF 2004 DATED 22.12.2005, THE LEARNED DEPARTM ENTAL REPRESENTATIVE CONTENDED THAT UNADJUSTED DEPRECIATION IN THIS CAS E RELATED TO PERIOD PRIOR TO ASSESSMENT YEAR 1997-98 WHICH WAS SOUGHT TO BE SET OFF AGAINST THE INCOME FROM HOUSE PROPERTY AND SHORT TERM CAPITAL GAINS IN ASSE SSMENT YEAR 2002-2003 AND THE TRIBUNAL, RELYING ON THE INTENTION OF THE LEGISLAT URE AS REFLECTED FROM THE SPEECH OF THE FINANCE MINISTER, ACCEPTED THE CONTENTION THAT SUCH UNADJUSTED DEPRECIATION COULD BE SET OFF AGAINST NON-BUSINESS INCOME. HE RE FERRED TO THE FORM OF INCOME TAX RETURN APPLICABLE TO COMPANIES IN ITR NO.6 IN T HE ASSESSMENT YEAR 2009-2010. REFERRING TO SCHEDULE BFL.A OF THE SAID FORM, HE C ONTENDED THAT A SEPARATE COLUMN HAS BEEN CREATED FOR YEAR-WISE BROUGHT FORWA RD DEPRECIATION SET OFF UNDER THE MAIN HEAD OF DETAILS OF INCOME AFTER SET OFF O F BROUGHT FORWARD LOSSES OF EARLIER YEARS. SIMILAR POSITION WAS STATED TO BE TH ERE IN THE RELEVANT INCOME-TAX RETURN FORMS FOR COMPANIES AS APPLICABLE TO ASSESSM ENT YEAR 2002-2003 ONWARDS, WHICH CONTAINED SCHEDULE CONTAINING A SEPARATE COLU MN FOR BROUGHT FORWARD DEPRECIATION SET OFF. IT WAS STATED THAT IF THE INT ENTION OF THE LEGISLATURE HAD BEEN TO TREAT UNABSORBED DEPRECIATION FOR ASSESSMENT YEARS 1997-98 TO 2001-2002 AS PART OF CURRENT DEPRECIATION IN ACCORDANCE WITH THE PROVISI ONS OF SECTION 32(2) AS APPLICABLE FROM ASSESSMENT YEAR 2002-2003, THEN T HERE WAS NO NEED FOR HAVING SUCH SEPARATE COLUMN IN THE INCOME-TAX RETURN FORM FOR SET OFF OF YEAR-WISE BROUGHT FORWARD DEPRECIATION. IT WAS STATED THAT TH E POSITION IN LAW WAS VERY CLEAR THAT THE UNABSORBED DEPRECIATION FOR ASSESSMENT YEA RS 1997-98 TO 2001-2002 WAS ELIGIBLE FOR SET OFF ONLY AGAINST THE INCOME UNDER HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION FOR A PERIOD NOT MORE THAN EIGHT ASSESSMENT YEARS AND THERE WAS NO QUESTION OF TREATING SUCH UNABSORBED DEPRECI ATION AS PART OF CURRENT DEPRECIATION IN THE YEARS AFTER SUBSTITUTION. ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 6 7. IN THE OPPUGNATION, THE LEARNED COU NSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS ADVANCED BEFORE THE FIRST APPELLATE AU THORITY AND ON THE BASIS OF HIS REASONING URGED THAT THE IMPUGNED ORDER BE APPROVED . IT WAS SPECIFICALLY SUBMITTED THAT THE LAW AS EXISTING ON THE FIRST DAY OF THE RELEVANT ASSESSMENT YEAR IS APPLICABLE AND IN THAT VIEW OF THE MATTER, SEC. 32( 2) AS SUBSTITUTED IN THE ASSESSMENT YEARS UNDER CONSIDERATION WAS APPLICABL E AS PER WHICH THE UNABSORBED DEPRECIATION OF THE EARLIER YEARS WAS LIABLE TO BE CONSIDERED AS PART OF CURRENT DEPRECIATION ALLOWANCE IN THE YEARS IN QUESTION S UBJECT TO THE PROVISIONS OF SECTIONS 72(2) AND 73(3). AS THE SUBSTITUTED LA W PERMITS THE ASSESSEE TO CLAIM SET OFF OF BROUGHT FORWARD UNABSORBED DEPRECIATION AG AINST INCOME UNDER ANY HEAD, THE LEARNED A.R. STATED THAT THE LEARNED CIT(A) TOO K A CORRECT VIEW IN HOLDING SO. IN SUPPORT OF THE PROPOSITION THAT THE LAW AS AMEND ED ON THE FIRST DAY OF THE ASSESSMENT YEAR IS TO BE APPLIED, HE RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF KARIMTHARUVI TEA ESTATE LTD. VS. STATE OF KERALA [( 1966) 60 ITR 262 (SC)] AND RELIANCE JUTE AND INDUSTRIES LTD. VS. CIT [(1979) 1 20 ITR 921 (SC)] . 8. THE LEARNED A.R. NEXT SUBMITTED T HAT THE REVENUE WAS NOT ENTITLED TO TAKE A CONFLICTING STAND. HE REFERRED TO THE ORDER PASSED BY THE DELHI BENCH OF THE TRIBUNAL IN JAI USHIN LTD. VS. DCIT IN ITA NO.3412/(DELHI)/2006 IN WHICH THE DEPARTMENTAL CONTENTION THAT THE LAW AS AMENDED BY THE FINANCE ACT, 2001 SHOULD BE APPLIED, WAS ACCEPTED BY THE TRIBUNAL. HE SUBMI TTED THAT IT WAS NOT OPEN TO THE DEPARTMENTAL REPRESENTATIVE IN OTHER STATIONS TO AR GUE CONTRARY TO WHAT WAS ARGUED BEFORE THE DELHI BENCH. TO STRENGTHEN THIS PROPOS ITION, HE RELIED ON THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN SESHASAYEE PAPER AND BOARDS LTD. VS. CIT [(2003) 260 ITR 419 (MAD.)] . THE NEXT ARGUMENT TAKEN BY THE LEARNED A.R. WAS THAT EVEN IF IT WAS HELD THAT LAW OF THE YEAR OF LO SS WAS TO BE APPLIED, THEN ALSO ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 7 UNABSORBED DEPRECIATION SHOULD BE SET OFF AGAINST I NCOME FROM HEADS OTHER THAN `PROFITS AND GAINS OF BUSINESS OR PROFESSION. HE ALSO ARGUED THAT THE EXPRESSION PROFITS AND GAINS CHARGEABLE USED IN SECTION 32(2 ) HAS BEEN INTERPRETED BY THE HONBLE SUPREME COURT IN THE CASE OF VIRMANI INDUSTRIES PRIVATE LIMITED (SUPRA) AS COVERING INCOME FROM ALL HEADS. TAKING STRONG A SSISTANCE FROM THIS JUDGMENT, THE LEARNED A.R. ARGUED THAT EVEN GOING BY THE PROV ISIONS OF LAW AS APPLICABLE IN ASSESSMENT YEARS 1997-98 TO 1999-2000 THE ASSESSEE WAS ENTITLED TO SET OFF THE UNABSORBED DEPRECIATION AGAINST INTEREST INCOME WHI CH WAS HELD TO BE FALLING UNDER THE HEAD `INCOME FROM OTHER SOURCES. HE ALSO QUES TIONED THE VERY ACTION OF THE ASSESSING OFFICER IN ASSESSING INTEREST INCOME FROM BANK UNDER THE HEAD `INCOME FROM OTHER SOURCES. HE SUBMITTED THAT THE ASSESSE E WAS ENGAGED IN THE BUSINESS OF MERCHANT BANKING AND THUS THE ENTIRE INTEREST INC OME WAS LIABLE TO BE CONSIDERED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PR OFESSION. LASTLY IT WAS STATED THAT IN VIEW OF THE CLEAVAGE OF OPINION BETWEEN VAR IOUS BENCHES OF THE TRIBUNAL IT WAS CLEAR THAT TWO INTERPRETATIONS WAS POSSIBLE. TA KING SUPPORT FROM THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. VEGETABLE PRODUCTS LTD. [(1973) 88 ITR 192 (SC)] HE INSISTED THAT VIEW IN FAVOUR OF THE ASSESSEE SH OULD BE FOLLOWED. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AT LENGTH AN D PERUSED THE RELEVANT MATERIAL ON RECORD IN THE LIGHT OF PRECEDENTS CITED BEFORE US. THE SHORT CONTROVERSY BEFORE US IS TO DECIDE AS TO WHETHER DEPRECIATION F OR ASSESSMENT YEARS 1997-98 TO 1999-2000 WHICH COULD NOT BE ABSORBED, CAN BE SET OFF AGAINST `INCOME FROM OTHER SOURCES IN ASSESSMENT YEARS 2003-2004 AND 2 004-2005. IN ORDER TO EXAMINE AND EVALUATE THE RIVAL CONTENTIONS ON THIS ISSUE, IT WOULD BE APT TO TAKE STOCK OF THE PROVISIONS OF SECTION 32(2) AS SUBSTITUTED BY THE FINANCE (NO.2) ACT, 1996 WITH EFFECT FROM 1.4.1997 (HEREINAFTER CALLED THE SECON D PERIOD) AS UNDER:- ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 8 (2) WHERE IN THE ASSESSMENT OF THE ASSESSEE FULL E FFECT CANNOT BE GIVEN TO ANY ALLOWANCE UNDER CLAUSE (II) OF SUB-SEC TION (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 BEING LESS THAN THE ALLOWANCE, THEN, THE ALLOWANCE OR THE PART OF ALLOW ANCE 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, OR 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 SHALL B E 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 AMOUNT OF ALL OWANCE NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWING ASSES SMENT YEAR AND (A) IT 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; (B) IF THE UNABSORBED DEPRECIATION ALLOWANCE CANNOT BE WHOLLY SO SET OFF, THE AMOUNT OF UNABSORBED DEPRECIATION ALLOWANC E NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWING ASSESSMEN T YEAR NOT BEING MORE THAN EIGHT ASSESSMENT YEARS IMMEDIATELY SUCCEE DING THE ASSESSMENT YEAR FOR WHICH THE AFORESAID ALLOWANCE W AS FIRST COMPUTED: PROVIDED THAT THE BUSINESS OR PROFESSION FOR WHICH THE ALLOWANCE WAS ORIGINALLY COMPUTED CONTINUED TO BE CARRIED ON BY H IM IN THE PREVIOUS YEAR RELEVANT FOR THAT ASSESSMENT YEAR : PROVIDED FURTHER THAT THE TIME LIMIT OF EIGHT ASSES SMENT YEARS SPECIFIED IN SUB-CLAUSE (B) SHALL NOT APPLY IN THE 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 COMPANIES (SPECIAL PROVISIONS) ACT, 1985 (1 OF 1986 ) AND ENDING ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 9 WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS Y EAR IN WHICH THE ENTIRE NET WORTH OF SUCH COMPANY BECOMES EQUAL TO O R 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-SE CTION (1) OF SECTION 3 OF THE SICK INDUSTRIAL COMPANIES (SPECIAL PROVISI ONS) ACT, 1985 (1 OF 1986). 10. A BARE PERUSAL OF THIS PROVISION INDICATES THAT WHERE THE AMOUNT OF DEPRECIATION ALLOWANCE U/S.32(1) FOR THE CURRENT YE AR OF A BUSINESS CANNOT BE ABSORBED FULLY OR PARTLY DUE TO INADEQUACY OF PROFI TS OR GAINS FROM SUCH BUSINESS, THEN SUCH ALLOWANCE OR PART OF IT WHICH REMAINED UN ABSORBED, IS TO BE REFERRED TO AS UNABSORBED DEPRECIATION ALLOWANCE. SUCH UNABSOR BED DEPRECIATION ALLOWANCE IS TO BE SET OFF FIRSTLY AGAINST THE INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION FROM ANY OTHER BUSINESS OR PROFESSION CARRIED ON BY THE ASSESSEE FOR THAT ASSESSMENT YEAR. IF SUCH BUSINESS PROFIT IS ALSO INSUFFICIENT TO ABSORB THE UNABSORBED DEPRECIATION ALLOWANCE, THEN THE REMAINING AMOUNT SHALL BE SET OFF AGAINST INCOME UNDER OTHER HEADS, AS M ENTIONED IN SECTION 14 OF THE ACT ASSESSABLE FOR THAT ASSESSMENT YEAR. THIS EXERCISE OF SETTING OFF THE UNABSORBED DEPRECIATION ALLOWANCE AGAINST ANY HEAD OF INCOME I S RESTRICTED TO THE YEAR IN WHICH THE CLAIM FOR DEPRECIATION HAS ARISEN U/S.32(1). IF HOWEVER INCOME OF THE ASSESSEE UNDER ALL HEADS IS INSUFFICIENT TO ABSORB THE UNA BSORBED DEPRECIATION ALLOWANCE, THEN SUCH AMOUNT IS TO BE CARRIED FORWARD TO THE FO LLOWING ASSESSMENT YEAR TO BE SET OFF AGAINST THE INCOME ARISING UNDER THE HEAD `PROF ITS AND GAINS OF BUSINESS OR PROFESSION. NOT ONLY THAT, THE BUSINESS OR PROFESS ION FOR WHICH THE ALLOWANCE WAS COMPUTED SHOULD CONTINUE TO BE CARRIED ON BY THE AS SESSEE DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR IN WHICH THE SET OFF IS CLAIMED. THE EXERCISE OF CARRYING FORWARD SUCH UNABSORBED DEPRECIATION ALLOWANCE IS T O BE CONTINUED UP TO EIGHT ASSESSMENT YEARS IMMEDIATELY SUCCEEDING ASSESSMENT YEAR FOR WHICH THE AFORESAID DEPRECIATION ALLOWANCE WAS FIRST COMPUTED. FROM HER E IT FOLLOWS THAT THE AMOUNT OF ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 10 UNABSORBED DEPRECIATION ALLOWANCE WHICH COULD NOT B E SET OFF AGAINST INCOME UNDER ANY HEAD IN THE YEAR IN WHICH THE ALLOWANCE W AS FIRST COMPUTED, SHALL BE ELIGIBLE TO BE CARRIED FORWARD FOR SET OFF ONLY AGA INST INCOME UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION TO TH E FOLLOWING ASSESSMENT YEAR(S) NOT MORE THAN EIGHT ASSESSMENT YEARS IMMEDIATELY SUCCEE DING THE ASSESSMENT YEAR FOR WHICH IT WAS FIRST COMPUTED. IN SOUTHERN TRAVELS VS. ACIT (2006) 103 ITD 198 (CHENNAI)(SB) THE ASSESSEE SOUGHT TO SET OFF THE UNABSORBED DEPR ECIATION RELATING TO A.Y. 1997-98 AGAINST THE INCOME UNDER THE HEAD CAP ITAL GAINS IN A.Y. 1999-2000. REPELLING THIS STAND, THE SPECIAL BENCH HELD THAT THE UNABSORBED DEPRECIATION RELATING TO A.Y. 1997-98 CANNOT BE SET OFF AGAINST INCOME UNDER THE HEAD CAPITAL GAINS IN A.Y. 1999-2000 AND THE ASSESSEE CAN ONLY CLAIM CARRY FORWARD OF SUCH UNABSORBED DEPRECIATION FOR SIX MORE ASSESSMENT YE ARS TO BE ADJUSTED AGAINST THE PROFITS AND GAINS FROM THE BUSINESS AS PER THE PRO VISIONS OF SECTION 32(2)(III). IT IS NOTICED FROM THE FACTS OF THE INSTANT CASE WE NOTE THAT IT IS DURING THIS PERIOD, THAT IS ASSESSMENT YEARS 1997-98 TO 1999-2000 THAT THE A MOUNT OF UNABSORBED DEPRECIATION ALLOWANCE RESULTED, WHICH COULD NOT BE SET OFF DUE TO INADEQUACY OF PROFITS AS PER THE RELEVANT PROVISIONS AND LED TO T HE PRESENT CONTROVERSY. 11. AT THIS JUNCTURE IT WILL BE BEFITTING TO NOTE THE PROVISIONS OF SECTION 32(2) PRIOR TO THE AMENDMENT MADE BY THE FINANCE (NO.2) A CT, 1996 WITH EFFECT FROM 1 ST APRIL, 1997 (HEREINAFTER CALLED THE FIRST PERIOD) AS UNDER:- (2) WHERE, IN THE ASSESSMENT OF THE ASSESSEE, FULL EFFECT CANNOT BE GIVEN TO ANY ALLOWANCE UNDER CLAUSE (II) OF SUB-SEC TION (1) IN ANY PREVIOUS YEAR, OWING TO THERE BEING NO PROFITS OR GAINS CHARGEABLE FOR THAT PREVIOUS YEAR, OR OWING TO THE PROFITS OR GAIN S CHARGEABLE BEING LESS THAN THE ALLOWANCE, THEN, SUBJECT TO THE PROVI SIONS OF SUB-SECTION (2) OF SECTION 72 AND SUB-SECTION (3) OF SECTION 73 , THE ALLOWANCE OR PART OF THE ALLOWANCE TO WHICH EFFECT HAS NOT BEEN GIVEN, AS THE CASE MAY BE, SHALL BE ADDED TO THE AMOUNT OF THE ALLOWAN CE FOR DEPRECIATION FOR THE FOLLOWING PREVIOUS YEAR AND DE EMED TO BE PART OF THAT ALLOWANCE, OR IF THERE IS NO SUCH ALLOWANCE FO R THAT PREVIOUS YEAR, BE DEEMED TO BE THE ALLOWANCE FOR THAT PREVIOUS YEA R, AND SO ON FOR THE SUCCEEDING PREVIOUS YEARS. ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 11 12. A GLANCE AT THIS PROVISION INDICATES THAT IF THERE ARE SUFFICIENT PROFITS OR GAINS TO ADJUST FULL DEPRECIATION ALLOWANCE FOR THE CURRENT YEAR U/S 32(1) OF THE ACT, THEN IT WILL BE ADJUSTED ACCORDINGLY. IF HOWEVER TH ERE ARE NO PROFITS OR GAINS AT ALL OR THEY ARE INSUFFICIENT TO ACCOMMODATE THE DEPRECIATI ON ALLOWANCE FOR THE YEAR IN FULL, THEN SUBJECT TO THE PROVISIONS OF SECTION 72( 2) AND 72(3), THE AMOUNT OF SUCH UNADJUSTED ALLOWANCE, TO WHICH EFFECT HAS NOT BEEN GIVEN, SHALL BE ADDED TO THE AMOUNT OF DEPRECIATION ALLOWANCE FOR THE FOLLOWING PREVIOUS YEAR AND DEEMED TO BE PART OF DEPRECIATION ALLOWANCE FOR THAT PREVIO US YEAR AND SO ON FOR ETERNITY. 13. SECTION 32(2) DEEMING THE UNADJUSTED DEP RECIATION ALLOWANCE OF THE CURRENT YEAR AS THE CURRENT DEPRECIATION ALLOWANCE OF THE FOLLOWING YEAR, IS SUBJECT TO THE PROVISIONS OF SECTION 72(2) AND SECTION 73(3 ). SECTION 72(1) PROVIDES THAT WHERE FOR ANY ASSESSMENT YEAR, THE NET RESULT OF TH E COMPUTATION UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION IS A LOSS TO THE ASSESSEE, NOT BEING A LOSS SUSTAINED IN A SPECULATION BUSINESS, AND SUCH LOSS CANNOT BE OR IS NOT WHOLLY SET OFF AGAINST INCOME UNDER ANY OTHER HEAD OF INCO ME IN ACCORDANCE WITH THE PROVISIONS OF SECTION 71, THEN SUCH LOSS SHALL BE C ARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR TO BE SET OFF AGAINST BUSINESS INCO ME. SUB-SECTION (3) PROVIDES THAT NO LOSS SHALL BE CARRIED FORWARD UNDER THIS SECTION FOR MORE THAN EIGHT ASSESSMENT YEARS IMMEDIATELY SUCCEEDING ASSESSMENT YEAR FOR WH ICH THE LOSS WAS FIRST COMPUTED. SUB-SECTION (2) OF SECTION 72, WHICH IS RELEVANT FOR OUR PURPOSE, STATES THAT WHERE ANY ALLOWANCE U/S.32(2) OR 35(4) IS TO B E CARRIED FORWARD, THE EFFECT SHALL FIRST BE GIVEN TO THE BROUGHT FORWARD LOSS. IN OTHER WORDS IF THERE IS A BROUGHT FORWARD BUSINESS LOSS AS WELL AS BROUGHT FORWARD UN ADJUSTED DEPRECIATION OF EARLIER YEARS, THEN BROUGHT FORWARD BUSINESS LOSS SHALL H AVE PREFERENCE OVER THE UNADJUSTED DEPRECIATION FOR THE PURPOSES OF SET OFF AGAINST THE BUSINESS INCOME OF ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 12 THE SUCCEEDING YEAR. IT IS SO FOR THE REASON THAT A TIME LIMIT HAS BEEN ENSHRINED FOR CARRY FORWARD OF BROUGHT FORWARD BUSINESS LOSS UP T O A PERIOD NOT MORE THAN EIGHT ASSESSMENT YEARS. AS AGAINST THAT THE AMOUNT OF BRO UGHT FORWARD UNADJUSTED DEPRECIATION U/S.32(2) CAN GO ON FOR INDEFINITE PE RIOD FOR SET OFF AGAINST THE BUSINESS INCOME IN THE FOLLOWING YEARS. SECTION 73 DEALS WITH LOSSES IN SPECULATION BUSINESS AND PROVIDES THAT THE UNABSORBED SPECULATI ON LOSS SHALL BE CARRIED FORWARD TO THE SUCCEEDING YEARS FOR NOT MORE THAN FOUR ASSE SSMENT YEARS IMMEDIATELY SUCCEEDING THE ASSESSMENT YEAR FOR WHICH THE LOSS WAS FIRST COMPUTED. THE PRESCRIPTION OF SUB-SECTION (3) OF SECTION 73 IS SI MILAR TO THAT OF SUB-SECTION (2) OF SECTION 72 PROVIDING FOR PREFERENCE TO THE BROUGHT FORWARD SPECULATION BUSINESS LOSS OVER THE BROUGHT FORWARD UNADJUSTED DEPRECIATI ON ALLOWANCE OR CAPITAL EXPENDITURE ON SCIENTIFIC RESEARCH. 14. THE EXPRESSION `PROFITS OR GAINS AS USED IN TH E LANGUAGE OF SECTION 32(2) IN THE FIRST PERIOD BECAME SUBJECT MATTER OF CONTROVER SY. WHILE SOME HIGH COURTS HELD IT AS COVERING ONLY THE `BUSINESS INCOME, OTH ERS TOOK DIAGONALLY OPPOSITE VIEW AS ENCOMPASSING INCOME UNDER ALL THE HEADS AN D NOT RESTRICTED TO THE BUSINESS INCOME ALONE. SUCH CONTROVERSY CAME TO BE SETTLED BY THE HONBLE SUPREME COURT IN VIRMANI INDUSTRIES PRIVATE LIMITED (SUPRA). IN THIS CASE THE ASSESSEE WAS ENGAGED IN THE MANUFACTURE OF SOAP AND OIL DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1956-57. BUSINESS W AS STOPPED IN THAT YEAR WHEREAFTER THE FACTORY WAS LET OUT ON HIRE. TEN YEA RS LATER, THAT IS, IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1965-66, THE ASSESSEE STARTED THE BUSINESS OF MANUFACTURE OF STEEL PIPES. FOR THE PURPOSE OF THIS BUSINESS A PART OF THE OLD MACHINERY USED IN THE MANUFACTURE OF SOAP AND OIL W AS UTILIZED. IN THE ASSESSMENT PROCEEDINGS RELATING TO ASSESSMENT YEAR 1956-57 DEP RECIATION U/S.32(1)(II) WAS FOUND TO BE MORE THAN THE PROFITS AND GAINS OF THE ASSESSEE FOR THAT ASSESSMENT YEAR. IN THE ASSESSMENT PROCEEDINGS RELATING TO ASSESSMEN T YEAR 1965-66, THE ASSESSEE ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 13 CLAIMED THAT UNABSORBED DEPRECIATION, TO THE EXTEN T IT PERTAINED TO THE OLD MACHINERY UTILIZED IN THE NEW BUSINESS, SHOULD BE B ROUGHT FORWARD AND SET OFF AGAINST THE PROFITS OF THE NEW BUSINESS. THIS CLAIM WAS REJECTED BY THE ITO AND BY AAC ON THE GROUND THAT SUCH A SET OFF WAS PERMISSIB LE ONLY WHERE THE BUSINESS CARRIED ON IN THE SUBSEQUENT ASSESSMENT YEAR WAS TH E SAME BUSINESS THAT WAS CARRIED ON IN THE EARLIER ASSESSMENT YEAR. THE TRIB UNAL HOWEVER UPHELD THE ASSESSEES CLAIM. WHEN THE MATTER WENT TO THE HONB LE HIGH COURT, IT WAS HELD THAT THE ASSESSEE WAS ENTITLED TO SET OFF THE UNABSORBED DEPRECIATION ALLOWANCE RELATING TO ASSESSMENT YEAR 1956-57 AGAINST THE INCOME OF AS SESSMENT YEAR 1965-66. IT WAS FURTHER HELD THAT IF SUCH DEPRECIATION ALLOWANCE CO ULD NOT BE COMPLETELY ABSORBED BY THE PROFITS AND GAINS CHARGEABLE TO TAX, WHICH EXPRESSION INCLUDED PROFITS AND GAINS ARISING NOT ONLY UNDER THE HEAD BUSINESS BU T ALSO UNDER OTHER HEADS, THEN THE UNABSORBED DEPRECIATION WAS TO BE TREATED AS T HE DEPRECIATION ALLOWANCE FOR THE NEXT YEAR AND SO ON UNTIL IT WAS COMPLETELY WIPED O UT. EVENTUALLY WHEN THE MATTER CAME UP CONSIDERATION BEFORE THE HONBLE SUPREME CO URT IT WAS NOTICED THAT FROM ASSESSMENT YEAR 1956-57 TO 1965-66 THERE WAS A GAP OF ABOUT EIGHT YEARS IN WHICH THE ASSESSEE WAS IN RECEIPT OF INCOME FROM HOUSE PR OPERTY ONLY. UPHOLDING THE ASSESSEES CONTENTION, THE HONBLE APEX COURT HELD AS UNDER:- HOWEVER, WHAT SHOULD HAVE BEEN DONE IS THIS : THE UNABSORBED DEPRECIATION ALLOWANCE RELATING TO THE ASST. YR. 19 56-57 SHOULD HAVE BEEN SET OFF AGAINST THE INCOME (INCOME FROM PROPER TY) IN THE FOLLOWING YEAR, I.E., IN THE FOLLOWING PREVIOUS YEA R (RELEVANT TO ASST. YR. 1957-58) AND IF THE INCOME IN THAT YEAR WAS NOT SUFFICIENT TO ABSORB THE ENTIRE DEPRECIATION ALLOWANCE SO CARRIED FORWARD, IT HAD TO BE CARRIED FORWARD TO THE NEXT FOLLOWING YEAR AND S O ON. ONLY IF SOME DEPRECIATION ALLOWANCE STILL REMAINED TO BE ABSORBE D, IT COULD HAVE BEEN SET OFF AGAINST THE TOTAL INCOME FOR THE ASST. YR. 1965-66. IT IS TRUE THAT THE QUESTION WHICH WAS REFERRED TO THE TRIBUNAL UNDER S. 256(1) OF THE INCOME-TAX ACT MERELY RAISES THE QUE STION WHETHER THE UNABSORBED DEPRECIATION PERTAINING TO THE ASST. YR. 1956-57 CAN BE CARRIED FORWARD AND SET OFF AGAINST THE INCOME OF THE ACCOUNTING YEAR ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 14 RELEVANT TO THE ASST. YR. 1965-66, YET WE THOUGHT IT NECESSARY TO CLARIFY THE TRUE POSITION OF LAW. 15. IN REACHING THIS CONCLUSION THE HONBLE SUPREME COURT RELIED ON AN EARLIER JUDGMENT OF THE HONBLE SUMMIT COURT IN JAIPURIA CHINA CLAY MINES (P) LTD. (SUPRA) IN WHICH IT WAS HELD THAT THE EXPRESSION `PROFITS OR GAINS CHARGEABLE FOR THAT YEAR WAS NOT CONFINED TO THE PROFITS AND GAINS DERIVED FROM THE BUSINESS ALONE. ON THE BASIS OF THE ABOVE-REFERRED JUDGMENTS, THE L EGAL POSITION ABOUT THE INTERPRETATION OF SECTION 32(2) IN THE FIRST PERIOD BECOMES CLEAR THAT THE CURRENT DEPRECIATION U/S 32(1) CAN BE ADJUSTED AGAINST THE INCOME UNDER ANY HEAD INCLUDING `CAPITAL GAIN OR `INCOME FROM HOUSE PRO PERTY ETC. IN THE SAME YEAR. BUT IF THERE REMAINS SOME UNADJUSTED DEPRECIATION ALLOWANCE, THEN THAT SHALL BE CARRIED FORWARD IN THE FOLLOWING YEAR(S) FOR SET O FF AGAINST THE INCOME UNDER ANY OTHER HEADS JUST LIKE CURRENT DEPRECIATION ALLOWANC E U/S 32(1) PERTAINING TO SUCH YEAR. 16. IN ORDER TO NEUTRALIZE THE EFFECT OF THE JUDGME NT OF THE HONBLE SUPREME COURT IN THE CASE OF VIRMANI INDUSTRIES PRIVATE LIMITED (SUPRA) EXPLAINING THE SCOPE OF EXPRESSION PROFITS OR GAINS CHARGEABLE EMPLOYED U/S.32(2) AS EXTENDING NOT ONLY TO `BUSINESS INCOME BUT ALSO TO OTHER HE ADS OF INCOME AS GIVEN IN SECTION 14, THE LEGISLATURE SUBSTITUTED SUB-SECTION (2) OF SECTION 32 BY THE FINANCE (NO.2) ACT, 1996 WITH EFFECT FROM 1.4.1997, AS DISCUSSED ABOVE. BY VIRTUE OF SUCH SUBSTITUTION, THE SCOPE OF SET OFF OF THE BROUGHT FORWARD UNABSORBED DEPRECIATION ALLOWANCE WAS CONSTRICTED TO THE INCOME UNDER THE H EAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION BY MAKING A LITTLE DEPARTU RE IN THE LANGUAGE OF THE LATER PART OF THE SUBSTITUTED PROVISION. IT IS APPARENT FROM C LAUSE (I) OF SUBSTITUTED SUB-SECTION (2), IN THE SECOND PERIOD, THAT THE UNABSORBED DEPR ECIATION ALLOWANCE SHALL BE SET OFF AGAINST PROFITS AND GAINS OF ANY BUSINESS OR PROFESSION CARRIED ON BY THE ASSESSEE FOR THAT ASSESSMENT YEAR. IT INDICATES THA T THE SET OFF PROVIDED UNDER THIS ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 15 CLAUSE IS AGAINST THE INCOME CHARGEABLE UNDER THE H EAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION. ORDINARILY THE EXPRESSION `PROFITS AND GAINS DOES NOT REFER TO THE INCOME UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION AS IS APPARENT FROM THE DEFINITION OF INCOME U/S 2(24) OF THE ACT. IT CAN BE NOTICED THAT ALTHOUGH CLAUSE (I) OF SUB-SECTION (24) OF SECTION 2 TALKS OF `PROFITS AND GAINS, YET CLAUSES (V), (VA) ETC. ALSO REFER TO INCOME U/S 28, WHICH IS PART OF CHAPTER IV-D. FROM HERE IT FOLLOWS THAT THOUGH TECHNICALLY THE EX PRESSION `PROFITS AND GAINS MAY NOT REFER TO THE INCOME UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION, BUT FOR THE PURPOSES OF CLAUSE (I) OF SUBSTITUTED SEC. 32(2), IT REFERS TO INCOME UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSI ON. CLAUSE (II) OF SUB-SECTION (2) MAKES THE POSITION CLEAR BY PROVIDING THAT IF THE UNABSORBED DEPRECIATION ALLOWANCE CANNOT BE WHOLLY SET OFF UNDER CLAUSE (I) , THEN THE AMOUNT NOT SO SET OFF SHALL BE SET OFF FROM THE `INCOME UNDER ANY OTHER H EAD, IF ANY, ASSESSABLE FOR THAT ASSESSMENT YEAR. IF THE INTERPRETATION GIVEN IN VIRMANI INDUSTRIES (SUPRA) HAD BEEN INTENDED TO BE RETAINED, THEN THERE WAS NO NEE D TO HAVE TWO LOOKING ALIKE EXPRESSIONS IN THE LANGUAGE OF SUB-SECTION (2), VI Z, FIRSTLY, `PROFITS OR GAINS IN THE MAIN PART OF SUB-SECTION (2) AND THEN, `PROFITS A ND GAINS IN CLAUSE (I). THE DOUBT, IF ANY, GETS FURTHER DISPELLED WHEN WE TURN TO CLAU SE (III) OF SUB-SECTION (2) WHICH PROVIDES THAT THE UNABSORBED DEPRECIATION ALLOWANCE NOT SO SET OFF UNDER CLAUSES (I) AND (II) SHALL BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR AND THEN SET OFF AGAINST THE PROFITS AND GAINS OF ANY BUSINESS OR PROFESSION CARRIED ON BY THE ASSESSEE IN THE FOLLOWING ASSESSMENT YEAR. HERE AG AIN WE FIND THAT THE EXPRESSION PROFITS AND GAINS HAS BEEN USED WHICH IS SIMILAR TO THAT USED IN CLAUSE (I). HAD THE LEGISLATURE DESIRED TO GIVE WIDER MEANING TO T HE EXPRESSION PROFITS AND GAINS AS INCLUDING INCOME UNDER OTHER HEADS ALSO, THEN TH ERE WAS NO NEED AT ALL TO HAVE CLAUSE (II) OF SUB-SECTION (2) PROVIDING FOR THE SE T OFF OF THE UNABSORBED DEPRECIATION ALLOWANCE AGAINST `INCOME UNDER ANY OT HER HEAD. FROM THE ABOVE DISCUSSION IT CAN BE EASILY ASCERTAINED THAT THE EX PRESSION PROFITS AND GAINS AS ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 16 USED IN CLAUSE (I) OR (III)(A) REFERS ONLY TO INCOM E UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION. 17. THE FURTHER FALLOUT OF THIS SUBSTITUTIO N OF SECTION 32(2), IN THE SECOND PERIOD, IS THAT THE PROVISION OF CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION FOR ANY NUMBER OF YEARS AGAINST INCOME UNDER ANY HE AD, WAS FURTHER DILUTED BY WAY OF CLAUSE (III)(B) TO SUB-SECTION (2) RESTRICTI NG THE RIGHT TO SET OFF OF UNABSORBED DEPRECIATION FOR A PERIOD OF NOT MORE THAN EIGHT AS SESSMENT YEARS SUCCEEDING THE ASSESSMENT YEAR IN WHICH THE ALLOWANCE WAS FIRST CO MPUTED. THIS PART OF THE PROVISION GAVE BIRTH TO ONE MORE CONTROVERSY IN THE SECOND PERIOD THAT IT DID NOT DEAL WITH THE FATE OF UNADJUSTED BROUGHT FORWARD DE PRECIATION ALLOWANCE FOR AND UPTO THE A.Y. 1996-97. FEARS WERE EXPRESSED IN TH E PARLIAMENT ON THIS ISSUE. TO THIS, THE FINANCE MINISTER CLARIFIED THE POSITION O N THE FLOOR OF THE HOUSE, AS UNDER:- THE PROPOSED AMENDMENT IS ONLY PROSPECTIVE INASMUC H AS THE CUMULATIVE UNABSORBED DEPRECIATION BROUGHT FORWARD AS ON 1 ST APRIL, 1997, CAN STILL BE SET OFF AGAINST TAXABLE PROFITS OR INCOME UNDER ANY OTHER HEAD FOR THE ASSESSMENT YEAR 1997-98 AND SEVE N SUBSEQUENT ASSESSMENT YEARS. THEREFORE, THE PROPOSED CHANGE WI LL HAVE EFFECT ONLY AFTER 8 YEARS AND THERE IS NO CAUSE FOR IMMEDI ATE CONCERN ABOUT ITS LIKELY IMPACT ON INDUSTRY. EIGHT YEARS IS A PER IOD LONG ENOUGH FOR INDUSTRY TO ADJUST ITSELF TO THE NEW DISPENSATION A ND PROVIDE FOR DEPRECIATION ACCORDINGLY. 18. IT IS THIS CLARIFICATION BY THE FINANC E MINISTER THAT SEALED THE FATE OF THE UNADJUSTED BROUGHT FORWARD DEPRECIATION UPTO THE EN D OF THE FIRST PERIOD AS AVAILABLE FOR SET OFF AGAINST TAXABLE PROFITS OR INCOME UNDER AN Y OTHER HEAD FOR THE ASSESSMENT YEAR 1997-98 AND SEVEN SUBSEQUENT ASSESS MENT YEARS. HERE IT WILL BE USEFUL CONSIDER THE ORDER PASSED BY THE CHANDIGARH BENCH OF THE TRIBUNAL IN KESHWA ENTERPRISES (P) LTD. (SUPRA) IN WHICH QUESTION FOR CONSIDERATION WAS THE ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 17 SET OFF OF CARRIED FORWARD UNABSORBED DEPRECIATION FOR PERIOD PRIOR TO ASSESSMENT YEAR 1996-97 AGAINST THE INCOME FROM HOUSE PROPERTY AND SHORT TERM CAPITAL GAIN RELEVANT TO ASSESSMENT YEAR 2002-2003. THE TRIBUNAL DECIDED THE CONTROVERSY IN ASSESSEES FAVOUR BY HOLDING THAT THE UNABSORBED DE PRECIATION PERTAINING TO THE A.Y. 1996-97 AND EARLIER PERIOD COULD BE SET OFF AGAINST INCOME UNDER OTHER HEADS IN A.Y. 2002-03. IN REACHING THIS CONCLUSION THE TRIBUNAL MAINLY RELIED ON THE SPEECH GIVEN BY THE FINANCE MINISTER. 19. FROM THE ABOVE DISCUSSION IT IS PATENT THAT IN THE SECOND PERIOD, RELAXATION WAS ALLOWED BY THE FINANCE MINISTER ON TWO COUNTS, VIZ., FIRSTLY, THE CUMULATIVE UNADJUSTED BROUGHT FORWARD DEPRECIATION AS ON 1.4.1 997 COULD STILL BE SET OFF AGAINST TAXABLE INCOME UNDER ANY HEAD IN EIGHT ASSE SSMENT YEARS AND SECONDLY, THE PERIOD OF EIGHT YEARS WOULD COMMENCE FROM ASSESSME NT YEAR 1997-98 IRRESPECTIVE OF THE YEAR TO WHICH SUCH UNADJUSTED DEPRECIATION RELATED. IN OTHER WORDS, THE PERIOD OF EIGHT YEARS AS PER CLAUSE (III)(B) OF SEC TION 32(2) CAME TO BE RECKONED FROM ASSESSMENT YEAR 1997-98 IRRESPECTIVE OF THE FA CT THAT THE UNADJUSTED BROUGHT FORWARD DEPRECIATION AROSE IN ASSESSMENT YEAR 1984 -85 OR 1994-95. IT IS IN THE LIGHT OF THE SPEECH GIVEN BY THE FINANCE MINISTER THAT THE CHANDIGARH BENCH OF THE TRIBUNAL IN KESHWA ENTERPRISES (P) LTD. (SUPRA) HELD THAT THE UNABSORBED DEPRECIATION FOR A PERIOD PRIOR TO ASSESSMENT YEAR 1996-97 COULD BE SET OFF AGAINST INCOME FROM HOUSE PROPERTY AND SHORT TERM CAPITAL G AIN FOR ASSESSMENT YEAR 2002- 2003. ON THE SAME PATTERN, THE HONBLE MADRAS HIG H COURT IN CIT VS. PIONEER ASIA PACKING P.LTD. [(2009) 310 ITR 198 (MAD.)] HAS HELD THAT THE UNABSORBED DEPRECIATION BROUGHT FORWARD AS ON 1.4.1997 COULD B E SET OFF AGAINST THE BUSINESS INCOME OR INCOME UNDER ANY OTHER HEAD FOR ASSESSMEN T YEARS 1997-98 AND SEVEN SUBSEQUENT ASSESSMENT YEARS ON THE BASIS OF THE CLA RIFICATION GIVEN BY THE FINANCE MINISTER. AGAIN THE HONBLE MADRAS HIGH COURT IN CIT VS. S & S POWER SWITCHGEAR LTD. (2009) 318 ITR 187(MAD) REITERATED THE SAME VIEW BY LAYING DOWN ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 18 THAT THE UNADJUSTED DEPRECIATION BROUGHT FORWARD A S ON 1.4.1997 COULD BE SET OFF AGAINST BUSINESS INCOME OR INCOME UNDER ANY OTHER H EAD FOR ASSESSMENT YEARS 1997-98 AND SEVEN SUBSEQUENT ASSESSMENT YEARS BY RE LYING ON THE CLARIFICATION OF THE FINANCE MINISTER AS WELL AS THE CBDT CIRCULAR N O.762 DATED 18.2.1997. THUS IT IS AXIOMATIC THAT THE UNADJUSTED DEPRECIATION B ROUGHT FORWARD UP TO 1.4.1997 BECAME ELIGIBLE FOR SET OFF NOT ONLY AGAINST THE BU SINESS INCOME BUT ALSO AGAINST INCOME UNDER OTHER HEADS IN EIGHT ASSESSMENT YEARS ONLY ON THE STRENGTH OF THE CLARIFICATION GIVEN BY THE FINANCE MINISTER. 20. NOW WE TURN TO THE LANGUAGE OF SECTION 32(2) AS PREVAILING IN ASSESSMENT YEARS UNDER CONSIDERATION (HEREINAFTER CALLED THE THIRD PERIOD) WHICH RUNS AS UNDER:- (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 B EING 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 EFFECT HAS NOT BEEN GIVEN, AS TH E CASE MAY BE, SHALL BE ADDED TO THE AMOUNT OF THE ALLOWANCE FOR D EPRECIATION FOR THE FOLLOWING PREVIOUS YEAR AND DEEMED TO BE PART OF TH AT 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. 21. THE ABOVE PROVISION HAS BEEN SUBSTITUTED BY THE FINANCE ACT, 2001 WITH EFFECT FROM 1.4.2002. IN FACT, IT IS REINFORCEMENT OF THE PROVISION AS EXISTING IN THE FIRST PERIOD. THUS THE LAW AS EXISTING IN THE SECO ND PERIOD WAS COMPLETELY TAKEN BACK AND AS A RESULT OF THAT THE PROVISION AS PREVA ILING IN THE FIRST PERIOD WAS RESTORED. FROM THE LANGUAGE OF THE SUB-SECTION (2) OF SECTION 32 IT IS MANIFEST THAT ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 19 IT IS A SUBSTANTIVE PROVISION AND NOT A PROCEDURAL ONE. IT IS SETTLED LEGAL POSITION THAT THE AMENDMENT TO SUBSTANTIVE PROVISION IS NORMALLY PROSPECTIVE UNLESS EXPRESSLY STATED OTHERWISE OR IT APPEARS SO BY NECESSARY IMPL ICATION. IT IS NOWHERE COMING UP EITHER FROM THE NOTES ON CLAUSES OR MEMORANDUM EX PLAINING THE PROVISION OF THE FINANCE BILL 2001, THAT SUBSTITUTION OF SUB-SECTION (2) OF SECTION 32 IS RETROSPECTIVE. IT IS, THEREFORE, PATENT THAT THE SUBSTANTIVE PROV ISION CONTAINED IN SECTION 32(2) AS SUBSTITUTED BY THE FINANCE ACT, 2001 WITH EFFECT FR OM 1.4.2002, IS PROSPECTIVELY APPLICABLE TO A.YS. 2002-2003 ONWARDS. 22. A GREAT DEAL OF EMPHASIS HAS BEEN LAID BY THE L EARNED A.R. ON THE APPLICABILITY OF LAW AS PREVAILING ON FIRST APRIL O F THE RELEVANT ASSESSMENT YEAR. THE HONBLE SUPREME COURT IN CIT VS. SCINDIA STEAM NAVIGATION CO. LTD. [(1961) 42 ITR 589 (SC)] HAS HELD THAT THE LAW AVAILABLE AS ON THE FIRST DA Y OF THE RELEVANT ASSESSMENT YEAR IS APPLICABLE. IN THIS CAS E THE FOURTH PROVISO TO SECTION 10(2)(VII) OF 1922 ACT CAME INTO FORCE ON 5 TH MAY, 1946. THE HONBLE BOMBAY HIGH COURT IN SCINDIA STEAM NAVIGATION CO. LTD. VS. CIT [(1954) 26 ITR 686 (BOM.)] HELD THAT THERE WAS NO LIABILITY ON THE ASSESSEE T O PAY TAX ON THE AMOUNT AS ON 1 ST APRIL, 1946 AND HENCE THE AMENDMENT BROUGHT ABOUT ON 4 TH MAY, 1946 COULD NOT FIX SUCH LIABILITY. UPHOLDING THIS VIEW, THE H ONBLE SUPREME COURT HELD THAT THE AMENDMENT WHICH CAME INTO FORCE IN MAY 1946, B EING NOT RETROSPECTIVE, COULD NOT APPLY TO ASSESSMENT YEAR 1946-47. SIMILA R VIEW HAS BEEN EXPRESSED BY THE HONBLE MADRAS HIGH COURT IN THE CASE OF OM SINDHOORI CAPITAL INVESTMENTS LTD. VS. JCIT [(2005) 274 ITR 427 (MAD.)] IN WHICH THE QUESTION FOR CONSIDERATION WAS THE APPLICABILITY OF EXPLANATION (4A) TO SECTION 43(1) INSERTED WITH EFFECT FROM 1 ST OCTOBER, 1996. THE HONBLE COURT HELD THAT SUCH AM ENDMENT COULD HAVE NO APPLICATION TO ASSESSMENT YEAR 1996-97 AS THE LAW P REVAILING ON THE 1 ST APRIL OF THE RELEVANT ASSESSMENT YEAR WOULD GOVERN THE ASSESSMEN T. FROM THE ABOVE DISCUSSION ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 20 WE FIND THAT ORDINARILY THE LAW PREVAILING AS ON TH E 1 ST DAY OF THE RELEVANT ASSESSMENT YEAR IS APPLICABLE UNLESS THE AMENDMENT IS EXPRESSLY OR BY NECESSARY IMPLICATION RETROSPECTIVE. TO THIS EXTENT WE ARE I N FULL AGREEMENT WITH THE LEARNED A.R. THAT THE LAW PREVAILING AS ON THE 1 ST DAY OF THE RELEVANT ASSESSMENT YEAR SHALL RULE THE ASSESSMENT. HOWEVER WE NEED TO EXAMINE AS TO WHAT IS, IN FACT, THE MANDATE OF LAW AS ON THE 1 ST APRIL OF THE RELEVANT ASSESSMENT YEARS. PROVISION OF SECTION 32(2), AS SUBSTITUTED BY THE FINANCE ACT, 2001 WITH EFFECT FROM 1.4.2002 HAS BEEN SET OUT ABOVE. SUCH PROVISION IS APPLICAB LE TO ASSESSMENT YEARS 2003- 2004 AND 2004-2005 UNDER CONSIDERATION. ON DISSECTI ON OF THIS PROVISION WE FIND THAT IT HAS FOLLOWING NECESSARY INGREDIENTS:- -WHERE IN THE ASSESSMENT OF THE ASSESSEE , FULL EFF ECT CANNOT BE GIVEN TO ANY ALLOWANCE UNDER SUB-SECTION (1) IN ANY PREVIOUS YEA R -OWING TO THERE BEING NO PROFITS OR GAINS CHARGEABL E FOR THAT PREVIOUS YEAR OR OWING TO THE PROFITS OR GAINS CHAR GEABLE BEING LESS THAN THE ALLOWANCES -THEN, SUBJECT TO THE PROVISIONS OF SUB-SECTION (2 ) OF SECTION 72 AND SUB-SECTION (3) OF SECTION 73 - THE ALLOWANCE OR PART OF ALLOWANCE TO WHICH EFFEC T 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 THA T PREVIOUS YEAR AND SO ON FOR THE SUCCEEDING PREVIOUS YEARS. ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 21 23. FIRSTLY IT IS OBVIOUS THAT SECTION 32(2) IS A DEEMING PROVISION AND BY THE LEGAL FICTION, THE AMOUNT OF DEPRECIATION ALLOWANCE U/S.32(1) WHICH IS NOT FULLY ABSORBED AGAINST INCOME FOR THAT YEAR IS DEEMED TO BE THE PART OF DEPRECIATION ALLOWANCE FOR THE SUCCEEDING YEAR(S). A DEEMING PR OVISION OR A LEGAL FICTION AS IT IS COMMONLY CALLED IS ONE, THE MANDATE OF WHICH DO ES NOT EXIST BUT FOR SUCH PROVISION. DUE TO SUCH PROVISION ONLY THE GIVEN IM AGINARY STATE OF AFFAIRS IS TAKEN AS REALITY DESPITE IT BEING AT VARIANCE WITH THE S COPE OF THE ENACTMENT. IT IS TRITE LAW THAT A DEEMING PROVISION CANNOT BE EXTENDED BEY OND THE PURPOSE FOR WHICH IT IS INTENDED. THE HONBLE SUPREME COURT IN CIT VS. AMARCHAND N.SHROFF [(1963) 48 ITR 59 (SC)] CONSIDERED THE SCOPE OF A DEEMING PROVISION AND H ELD THAT THE FICTION CANNOT BE EXTENDED BEYOND THE OBJECT FOR WHICH IT I S ENACTED. IN CIT VS. MOTHER INDIA REFRIGERATION INDUSTRIES P.LTD. [(1985) 155 I TR 711 (SC)] THE SAME VIEW WAS REITERATED BY HOLDING THAT THE LEGAL FICTIONS ARE CREATED ONLY FOR SOME DEFINITE PURPOSE AND THESE MUST BE LIMITED TO THAT PURPOSE A ND SHOULD NOT BE EXTENDED BEYOND THEIR LEGITIMATE FIELD. WE WILL DISCUSS TH IS CASE AT LENGTH INFRA . THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. ACE BUILDERS P. LTD. [(2006) 281 ITR 210 (BOM.)] CONSIDERED A CASE IN WHICH THE ASSESSEE WAS A PART NER IN A FIRM WHICH WAS DISSOLVED IN THE YEAR 1984 AND THE ASSESSEE WAS ALLOTTED A FLAT TOWARDS ITS CREDIT IN THE CAPITAL ACCOUNT WITH THE FIRM. THE ASSESSEE SHOWED THE FLAT AS CAPITAL ASSET IN ITS BOOKS OF ACCOUNT AND DEPRECIATION WAS CLAIMED A ND ALLOWED FROM YEAR TO YEAR. IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEA R 1992-93 THE ASSESSEE SOLD THE FLAT AND INVESTED THE NET SALE PROCEEDS IN A SCHEME ELIGIBLE U/S.54E OF THE ACT AND ACCORDINGLY DECLARED NIL INCOME UNDER THE HEAD `CAP ITAL GAINS. THE ASSESSING OFFICER OPINED THAT SINCE THE BLOCK OF BUILDING CEA SED TO EXIST ON ACCOUNT OF SALE OF FLAT DURING THE YEAR, THE WRITTEN DOWN VALUE OF TH E FLAT WAS LIABLE TO TAKEN AS COST OF ACQUISITION U/S.54E OF THE ACT. HE FURTHER HELD THA T SINCE THE ASSESSEE HAD AVAILED DEPRECIATION ON SUCH ASSET WHICH WAS OTHERWISE LONG TERM CAPITAL ASSET, THE DEEMING PROVISION U/S.50 WOULD APPLY AND IT WOULD B E TREATED AS CAPITAL GAIN ON THE ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 22 SALE OF SHORT TERM CAPITAL ASSET AND RESULTANTLY NO BENEFIT U/S.54E COULD BE ALLOWED. WHEN THE MATTER CAME UP BEFORE THE HONBLE BOMBAY H IGH COURT, IT NOTED THAT SUB-SECTIONS (1) AND (2) OF SECTION 50 CONTAINED A DEEMING PROVISION AND SUCH FICTION WAS RESTRICTED ONLY TO THE MODE OF COMPUTAT ION OF CAPITAL GAIN CONTAINED IN SECTIONS 48 AND 49 AND HENCE IT DID NOT APPLY TO O THER PROVISIONS. CONSEQUENTLY THE ASSESSEE WAS HELD TO BE ELIGIBLE FOR EXEMPTION U/S. 54E IN RESPECT OF CAPITAL GAIN ARISING OUT OF THE CAPITAL ASSET ON WHICH DEPRECIAT ION WAS ALLOWED. ON THE APPRAISAL OF ABOVE JUDGMENTS, THE LEGAL POSITION WHICH TURNS OUT IS THAT WHENEVER A LEGAL FICTION IS CREATED BY WAY OF A DEEMING PROVISION, I T IS OF PARAMOUNT IMPORTANCE TO GO STRICTLY BY THE PRESCRIPTION OF SUCH PROVISION. SUCH DEEMING PROVISION CANNOT BE EXTENDED BEYOND THE PURPOSE FOR WHICH IT IS INTENDE D. WITH THIS BACKGROUND IN MIND WE WILL PROCEED TO CONSIDER THE COMMAND OF SEC TION 32(2), WHICH IS A DEEMING PROVISION. 24. IT HAS BEEN NOTICED ABOVE THAT SECTION 32(2) IN THE THIRD PERIOD IS A SUBSTANTIVE PROVISION AND HENCE PROSPECTIVE IN NATU RE. WHEN THAT IS SO, NATURALLY ITS RECOMMENDATION SHALL APPLY FROM ONLY FROM ASSESSM ENT YEARS 2002-2003 ONWARDS. NECESSARY INGREDIENTS OF THE PROVISION, I N THE THIRD PERIOD, HAVE BEEN DOTTED ABOVE. FIRST THING IN SUB-SECTION (2) IS THE REFERENCE TO THE ASSESSMENT OF THE ASSESSEE IN WHICH FULL EFFECT CANNOT BE GIVEN TO ANY ALLOWANCE UNDER SUB-SECTION (1) IN ANY PREVIOUS YEAR. LATER PART OF THE PROVIS ION PROVIDES THAT THE ALLOWANCE OR PART OF THE ALLOWANCE TO WHICH EFFECT HAS NOT BEEN GIVEN, SHALL BE ADDED TO THE AMOUNT OF ALLOWANCE FOR DEPRECIATION IN THE SUCCEED ING YEARS. AT BOTH THE PLACES, PRESENT TENSE HAS BEEN USED IN NEGATIVE TERMS WHILE REFERRING TO THE ALLOWANCE TO WHICH EFFECT `CANNOT BE AND `HAS NOT BEEN GIVEN. SO THE STARTING POINT OF SUB- SECTION (2) IS THE ASSESSMENT OF THE ASSESSEE AND T HE ALLOWANCE U/S.32(1) TO WHICH FULL EFFECT CANNOT BE GIVEN. SECTION 32(1) DEALS WI TH DEPRECIATION ALLOWANCE FOR THE CURRENT YEAR. IT IMPLIES THAT IT IS ONLY WHEN THE A SSESSMENT OF THE ASSESSEE FROM ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 23 A.Y. 2002-2003 ONWARDS IS MADE IN WHICH DEPRECIATIO N ALLOWANCE FOR THE CURRENT YEAR U/S.32(1) CANNOT BE GIVEN FULL EFFECT TO OWING TO THE INADEQUACY OF THE PROFIT, THAT THE DIRECTIVE OF THE DEEMING PROVISION U/S.32( 2) SHALL APPLY. THE MENTION OF THE WORDS CANNOT BE AND `HAS NOT BEEN INDICATES THAT IT SPEAKS OF THE DEPRECIATION ALLOWANCE U/S.32(1) FOR THE CURRENT YE AR. THE POINT BECOMES MORE LUCID WHEN WE MULL OVER THE LANGUAGE OF SECTION 71B , DEALING WITH THE CARRY FORWARD AND SET OFF OF LOSSES FROM HOUSE PROPERTY W ITHIN THE SAME YEAR. IT PROVIDES THAT WHERE FOR ANY ASSESSMENT YEAR THE NET RESULT O F COMPUTATION UNDER THE HEAD `INCOME FROM HOUSE PROPERTY IS A LOSS TO THE ASSES SEE AND SUCH LOSS `CANNOT BE OR IS NOT WHOLLY SET OFF AGAINST INCOME FROM ANY OTHER HEAD OF INCOME IN ACCORDANCE WITH THE PROVISIONS OF SECTION 71, SO MUCH OF THE L OSS AS HAS NOT BEEN SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWING ASSESSMEN T YEARS. SECTION 72(1) DEALS WITH CARRY FORWARD AND SET OFF OF BUSINESS LOSSES ( OTHER THAN SPECULATION BUSINESS). IT PROVIDES THAT WHERE FOR ANY ASSESSMENT YEAR THE NET RESULT OF THE COMPUTATION UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PR OFESSION IS A LOSS TO THE ASSESSEE, NOT BEING LOSS SUSTAINED IN SPECULATION B USINESS AND SUCH LOSS CANNOT BE OR IS NOT WHOLLY SET OFF AGAINST THE INCOME UNDER A NY HEAD OF INCOME IN ACCORDANCE WITH THE PROVISIONS OF SECTION 71, THEN SO MUCH OF THE LOSS AS HAS NOT BEEN SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWING ASSE SSMENT YEARS. FROM THESE PROVISIONS IT IS AMPLY CLEAR THAT PRESENT TENSE IN NEGATIVE HAS BEEN USED HERE ALSO TO REPRESENT LOSS UNDER THE HEAD `INCOME FROM HOUSE P ROPERTY OR BUSINESS LOSS OF THE CURRENT YEAR. IN THE LIKE MANNER, OTHER SECTIONS S UCH AS 74 AND 74A ETC., TO THE EXTENT THEY TALK OF LOSS FOR THE CURRENT YEAR, REF ER TO CANNOT BE AND HAS NOT BEEN SET OFF. ON GOING THROUGH THESE SECTIONS IT I S PALPABLE THAT WHEREVER THERE IS MENTION TO LOSS UNDER A PARTICULAR HEAD FOR THE CUR RENT YEAR WHICH IS SOUGHT TO BE SET OFF AGAINST THE INCOME UNDER THE SAME HEAD OR O THER HEADS OF THE INCOME FOR THAT VERY YEAR, THE SET OF WORDS `CANNOT BE AND `H AS NOT BEEN HAVE BEEN BROUGHT INTO PLAY. THE NECESSARY COROLLARY WHICH, THEREFOR E, FOLLOWS IS THAT THE ENGAGING OF ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 24 SAME SET OF WORDS, THAT IS, `CANNOT BE AND `HAS N OT BEEN IN SECTION 32(2) FAIRLY SUGGEST THAT THE REFERENCE TO DEPRECIATION ALLOWA NCE U/S.32(1), WHICH COULD NOT BE ADJUSTED DUE TO INADEQUACY OF PROFITS, IS FOR CURR ENT YEAR ALONE STARTING FROM A.Y. 2002-03 ONWARDS. THIS POSITION CEASES TO ADMIT ANY DOUBT WHEN WE GO TO SECTION 75, AS SUBSTITUTED BY THE FINANCE ACT, 1992, WITH E FFECT FROM 1.4.1993. THIS SECTION, DEALING WITH LOSSES OF FIRMS, PROVIDES T HAT WHERE THE ASSESSEE IS A FIRM, ANY LOSS IN RELATION TO THE ASSESSMENT YEAR COMMENC ING ON OR BEFORE 1 ST APRIL, 1992, WHICH `COULD NOT BE SET OFF AGAINST ANY OTH ER INCOME OF THE FIRM AND WHICH `HAD BEEN APPORTIONED TO A PARTNER OF THE FIRM BUT COULD NOT BE SET OFF BY SUCH PARTNER PRIOR TO THE ASSESSMENT YEAR COMMENCING ON 1 ST APRIL, 1993, THEN, SUCH LOSS SHALL BE ALLOWED TO BE SET OFF AGAINST THE INCOME O F THE FIRM SUBJECT TO THE CONDITION THAT THE PARTNER CONTINUES IN THE SAID FIRM AND TO BE CARRIED FORWARD FOR SET OFF U/SS. 70, 71, 72, 73, 74 AND 74A. AT THIS POINT IN TIME I T WOULD BE RELEVANT TO MENTION THAT SECTION 75 HAS BEEN SUBSTITUTED FOR SECTIONS 7 5, 76 AND 77 BY THE FINANCE ACT, 1992. SECTION 75(1), BEFORE SUBSTITUTION, PROVIDE D THAT WHERE THE ASSESSEE IS A REGISTERED FIRM, AND ANY LOSS WHICH `CANNOT BE SET OFF AGAINST ANY OTHER INCOME OF THE FIRM SHALL BE APPORTIONED BETWEEN THE PARTNERS OF THE FIRM, AND THEY ALONE SHALL BE ENTITLED TO HAVE THE AMOUNT OF THE LOSS SET OFF AND CARRIED FORWARD FOR SET OFF UNDER SECTIONS 70, 71, 72, 73, 74 AND 74A. ON A CO NJOINT READING OF SECTION 75, BEFORE AND AFTER SUBSTITUTION, IT IS DISCERNIBLE T HAT PRIOR TO 1.4.1993, WHEN THE REFERENCE WAS MADE TO THE UNABSORBED LOSS OF A FIRM FOR THE CURRENT YEAR GETTING APPORTIONED BETWEEN THE PARTNERS OF FIRM, THE WOR DS USED WERE CANNOT BE SET OFF. HOWEVER, WITH EFFECT FROM 1.4.1993, DUE TO CHANGE IN THE SCHEME OF TAXATION OF FIRMS, UNABSORBED LOSSES OF THE REGISTERED FIRMS FOR EARLIER YEARS, WHICH WERE APPORTIONED BETWEEN THE PARTNERS BUT COULD NOT BE S ET OFF AGAINST THEIR SEPARATE INCOME, HAVE COME BACK TO THE COFFERS OF THE FIRM. IN ORDER TO MAKE REFERENCE TO SUCH LOSSES OF EARLIER YEARS, THE WORDS USED HAVE B EEN `COULD NOT BE SET OFF. THUS IT IS MANIFEST THAT THE WORDS CANNOT BE AS USED IN SECTION 32(2) IN THE THIRD ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 25 PERIOD, REFER ONLY TO THE CURRENT YEARS DEPRECIATI ON, WHICH IS PARALLEL TO SECTION 75 BEFORE SUBSTITUTION. THE BROUGHT FORWARD UNABSORBED DEPRECIATION OF EARLIER YEARS CANNOT BE INCLUDED WITHIN THE SCOPE OF SECTION 32(2 ). IF THE INTENTION OF THE LEGISLATURE HAD BEEN TO ALLOW SUCH B/FD UNABSORBED DEPRECIATION RESPECTING THE SECOND PERIOD ALSO AT PAR WITH THE DEPRECIATION FOR THE YEAR U/S 32(1) IN THIRD PERIOD, THEN SUB-SECTION WOULD HAVE BEEN DIFFERENT LY WORDED SOMEWHAT LIKE WHERE IN THE ASSESSMENT OF THE ASSESSEE FULL EFFEC T COULD NOT BE GIVEN TO ANY ALLOWANCE OR EMPLOYING THE EXPRESSION `COULD NOT BE AKIN TO THAT USED IN THE POST-SUBSTITUTED SEC. 75. SINCE SUB-SECTION (2 ) OF SEC. 32 HAS BEEN WORDED IN PRESENT AND NOT IN PAST OR PAST PREFECT TENSE AND THIS BEING A DEEMING PROVISION, THE BROUGHT FORWARD UNABSORBED DEPRECIATION OF THE SECO ND PERIOD CANNOT BE BROUGHT WITHIN ITS PURVIEW. 25. THIS POSITION CAN BE APPRECIATED FROM ANOTHER ANGLE ALSO. FROM THE LANGUAGE OF SECTION 32(2), IN THE SECOND PERIOD, WE HAVE NOTED THAT THE DEPRECIATION ALLOWANCE FOR THE CURRENT YEAR TO WHICH FULL EFFECT CANNOT BE GIVEN DUE TO THE PAUCITY OF PROFIT, HAS BEEN REFERRED TO AS UNABS ORBED DEPRECIATION ALLOWANCE. IN THAT VIEW OF THE MATTER SUCH UNABSORBED DEPRECIATI ON ALLOWANCE FOR THE ASSESSMENT YEARS 1997-98 TO 2001-2002 STRICTLY COMES U/S.32(2) WITH A SPECIAL NAME AND CHARACTER OF UNABSORBED DEPRECIATION ALLOWANCE C HANGING ITS SITUATION FROM SEC. 32(1). ONCE IT BECOMES SO AND FINDS ITS PLACE U/S.3 2(2), THEN THERE CANNOT BE ANY WARRANT FOR CONSIDERING IT AS ALLOWANCE U/S.32(1) I N THE THIRD PERIOD, SO AS TO BE COVERED WITHIN SUB-SECTION (2) OF SECTION 32. AS TH E LANGUAGE OF THIS DEEMING PROVISION DOES NOT TALK OF ANY BROUGHT FORWARD UNA BSORBED DEPRECIATION ALLOWANCE OR THE DEPRECIATION ALLOWANCE WHICH COUL D NOT BE GIVEN EFFECT TO IN THE ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 26 EARLIER YEARS THAT RESULTANTLY BECAME PART OF SECT ION 32(2), THERE IS NO QUESTION OF EXPANDING THE SCOPE OF LEGAL FICTION. 26. IN THE CASE OF MOTHER INDIA REFRIGERATION INDUSTRIES P.LTD. (SUPRA ), WHICH HAS BEEN DECIDED IN THE CONTEXT OF PROVISION SIMILA R TO THE FIRST PERIOD OF SECTION 32(2), THE ASSESSMENT YEARS UNDER CONSIDERATION WE RE 1951-52 AND 1952-53. AT THE END OF ASSESSMENT YEAR 1950-51 THERE WAS AN UNABSOR BED BUSINESS LOSS OF RS.67,534 AND UNABSORBED DEPRECIATION OF RS.1,78,15 4. THE ASSESSEES INCOME WITHOUT TAKING INTO ACCOUNT THE CURRENT DEPRECIATIO N WAS RS.50,624 IN ASSESSMENT YEAR 1951-52 AND RS.64,332 IN ASSESSMENT YEAR 1952- 53. THE ASSESSEE CONTENDED BEFORE THE ITO THAT BEFORE DEDUCTING CURRENT DEPREC IATION FROM THE ABOVE PROFITS, THE UNABSORBED LOSS OF THE EARLIER YEAR 1950-51 SHO ULD BE FIRST SET OFF. THE ITO DID NOT ACCEPT THE CONTENTION AND WHAT HE DID WAS THAT FROM THE PROFIT OF RS.50,624 FOR ASSESSMENT YEAR 1951-52, THE DEPRECIATION ALLOWANCE FOR THAT YEAR AMOUNTING TO RS.58,140 WERE PARTIALLY SET OFF AND THE BALANCE OF DEPRECIATION OF RS.7,516 WAS ORDERED TO BE CARRIED FORWARD WITH THE RESULT THAT THE TOTAL UNABSORBED DEPRECIATION CARRIED FORWARD AMOUNTED TO RS.1,85,670. SIMILARLY IN ASSESSMENT YEAR 1952-53, THE FULL DEPRECIATION ALLOWANCE OF THAT YEAR AMOUNT ING TO RS.44,580 WAS SET OFF AGAINST THE INCOME OF RS.64,232 AND THE NET INCOME OF RS.19,652 (RS.64,232 RS.44,580) WAS UTILIZED FOR SETTING OFF A PART OF C ARRIED FORWARD BUSINESS LOSS OF RS.67,534 LEAVING A BALANCE OF UNABSORBED LOSS TO T HE EXTENT OF RS.47,832. BOTH THE UNABSORBED AMOUNTS OF RS.1,85,670 AND RS.47,832 WE RE DIRECTED TO BE CARRIED FORWARD. AGGRIEVED BY THE ITOS REFUSAL TO GIVE PRE FERENCE IN THE MATTER OF SET OFF TO THE EARLIER CARRIED FORWARD BUSINESS LOSS BEFORE DEDUCTING THE CURRENT YEARS DEPRECIATION, THE ASSESSEE PREFERRED APPEALS AND TH E AAC ACCEPTED THE ASSESSEES CONTENTION DIRECTING THAT THE UNABSORBED CARRIED FO RWARD BUSINESS LOSS SHOULD BE SET OFF FIRST IN EACH YEAR BEFORE DEDUCTING CURRENT YEA RS DEPRECIATION. THE TRIBUNAL ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 27 ACCEPTED THE DEPARTMENTAL CONTENTION BUT THE HONBL E HIGH COURT RESTORED THE ACTION OF THE AAC. IT WAS ARGUED ON BEHALF OF THE A SSESSEE BEFORE THE HONBLE SUPREME COURT THAT THE LEGAL FICTION ARISING FROM T HE DEEMING PROVISION OF SECTION 32(2) OF THE ACT WAS APPLICABLE AND HENCE THE UNAB SORBED DEPRECIATION WAS NOT MERELY TO BE CARRIED FORWARD TO THE FOLLOWING YEAR BUT ALSO DEEMED TO BE DEPRECIATION FOR THAT YEAR. IT WAS PUT FORTH THAT T HE LEGAL FICTION CONTAINED IN SECTION 32(2) MUST BE GIVEN FULL EFFECT WITHOUT ANY RESERVA TION. REJECTING THIS CONTENTION, THE HONBLE SUPREME COURT HELD THAT IN THE MATTER O F SET OFF OF THE UNABSORBED BUSINESS LOSS OF EARLIER YEARS THERE WAS NO PREFERE NCE TO THE UNABSORBED DEPRECIATION AND ONLY THE CURRENT DEPRECIATION WAS TO BE FIRST DEDUCTED BEFORE ANY QUESTION OF EITHER CARRIED FORWARD OF UNABSORBED DE PRECIATION OR THAT OF UNABSORBED DEPRECIATION ARISE. THE PURPOSE OF LEGAL FICTION U/ S.32(2) HAS BEEN CLARIFIED BY THE HONBLE SUPREME COURT IN THE FOLLOWING WORDS : CLEARLY, THE AVOWED PURPOSE OF THE LEGAL FICTION CREATED BY THE DEEMING PROVISION CONTAINED IN PROVISO (B) TO SECTION 10(2)(VI) IS TO MAKE THE UNABSORBED CARRIED FORWARD DEPRECIATION PARTAKE OF THE SAME CHARACTER AS THE CURRENT DEPRECIATION I N THE FOLLOWING YEAR, SO THAT IT IS AVAILABLE, UNLIKE UNABSORBED CARRIED FORWARD BUSINE SS LOSS, FOR BEING SET OFF AGAINST OTHER HEADS OF INCOME OF THAT YEAR. SUCH BE ING THE PURPOSE FOR WHICH THE LEGAL FICTION IS CREATED, IT IS DIFFICULT TO EXTEND THE SAME BEYOND ITS LEGITIMATE FIELD AND WILL HAVE TO BE CONFINED TO THAT PURPOSE. 27. THUS IT CAN BE SEEN THAT THE PURPOSE OF LEGAL FICTION IN SECTION 32(2) (WHICH IS ANALOGOUS TO PROVISO (B) TO SECTION 10(2) (VI) OF THE INDIAN INCOME- TAX ACT, 1922) IS TO MAKE THE UNABSORBED CARRIED FO RWARD DEPRECIATION PARTAKE THE SAME CHARACTER AS THE CURRENT DEPRECIATION IN T HE FOLLOWING YEAR . IN OTHER WORDS THE OBJECT OF THE PROVISION, AS INTERPRETED B Y THE HONBLE SUPREME COURT, IS TO TREAT THE WHOLE OR PART OF THE DEPRECI ATION ALLOWANCE U/S 32(1), ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 28 WHICH COULD NOT BE ADJUSTED IN THE FIRST YEAR, AS T HE CURRENT DEPRECIATION U/S 32(1) IN THE SECOND YEAR. IN THE SECOND YEAR, SUCH DEPRECIATION OF FIRST YEAR BECOMES PART AND PARCEL OF DEPRECIATION U/S 32(1) OF THE SECOND YEAR. IF AGAIN IN THE SECOND YEAR, THE TOTAL OF DEPRECIATION U/S 3 2(1) [INCLUDING THE AMOUNT OF ALLOWANCE WHICH CAME FROM FIRST YEAR AND BECAME DEP RECIATION U/S 32(1) IN THE SECOND YEAR] CANNOT BE ABSORBED, IT SHALL BECOM E CURRENT DEPRECIATION FOR THE THIRD YEAR TO BE DEALT WITH IN THE SAME MANNER AS THE AMOUNT OF DEPRECIATION IN THE THIRD YEAR AND SO ON. ONCE THE UNABSORBED DEPRECIATION FOR THE FIRST YEAR IS GIVEN THE CHARACTER OF CURRENT DE PRECIATION IN THE SECOND YEAR, THE PURPOSE OF SECTION 32(2) IS FULFILLED. IT IS NO WHERE LAID DOWN THAT THE `UNABSORBED DEPRECIATION ALLOWANCE OF THE SECOND P ERIOD IS TO BE GIVEN THE CHARACTER OF CURRENT DEPRECIATION IN THE THIRD PERI OD. THE FUNCTION OF THE DEEMING PROVISION IN SECTION 32(2) IS RESTRICTED ON LY TO GIVING THE CURRENT YEARS UNABSORBED DEPRECIATION THE STATUS OF CURREN T DEPRECIATION IN THE FOLLOWING YEAR. AS SOON AS THAT IS DONE, THE PURPOS E OF THE SUB-SECTION IS ACHIEVED. NOTHING MORE AND NOTHING LESS THAN THAT C AN BE DEDUCED FROM IT. WHEN THE HONBLE SUPREME COURT, BEING THE HIGHEST COURT OF THE LAND, ITSELF HELD THAT THE OBJECT OF SECTION 32(2) IS TO CARRY FORWAR D THE UNABSORBED DEPRECIATION FOR THE CURRENT YEAR IN THE FOLLOWING YEAR, THERE CANNO T BE ANY QUESTION OF ARGUING TO THE EFFECT THAT SECTION 32(2) IN THE THIRD PERIOD, ALSO REFERS TO UNABSORBED BROUGHT FORWARD DEPRECIATION OF THE SECOND PERIOD. 28. THIS POSITION CAN BE EXAMINED FROM STILL ANOTHER ANGLE. THE RELEVANT PART OF THE PROVISION, IN THE SECOND PERIOD, IS AS UNDER :- ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 29 (2) 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 OWING TO THERE BEING NO PROFITS OR GAINS CHARGEABLE FOR THAT PREVI OUS YEAR OR OWING TO THE PROFITS OR GAINS BEING LESS THAN THE ALLOWANCE, THEN, THE A LLOWANCE OR THE PART OF ALLOWANCE TO WHICH EFFECT HAS NOT BEEN GIVEN (HEREINAFTER REFERRED TO AS UNABSORBED DEPRECIATION ALLOWANCE, AS THE CASE MAY BE, - 29. HIGHLIGHTED PORTION IS THE RELEVANT P ART OF THE LANGUAGE OF SUB-SECTION (2) IN THE THIRD PERIOD. FROM THE ABOVE LANGUAGE OF T HE PROVISION FOR THE SECOND PERIOD IT IS NOTICED THAT THE AMOUNT OF DEPRECIATI ON ALLOWANCE FOR THE CURRENT YEAR UNDER SUB-SECTION (1), TO WHICH FULL EFFECT CANNOT BE GIVEN OWING TO THE INADEQUACY OF PROFITS, HAS BEEN REFERRED TO AS `UNABSORBED DE PRECIATION ALLOWANCE. WHEN THE RELEVANT PART OF THE LANGUAGE OF SUB-SECTION (2) FO R THE SECOND PERIOD (AS HIGHLIGHTED ABOVE) WHICH IS SIMILARLY WORDED, IS SEEN IN JUXTAPOSITION TO THAT OF THE THIRD PERIOD, , THERE REMAINS ABSOLUTELY NO DO UBT WHATSOEVER, THAT THE REFERENCE TO SUB-SECTION (1) IS TO THE DEPRECIATION ALLOWANCE FOR THE CURRENT YEAR ALONE. IT, THEREFORE, BOILS DOWN THAT THE LAW PREVAILING AS ON THE 1 ST APRIL OF THE ASSESSMENT YEARS UNDER CONSIDERATION DOES NOT PERMIT THE BROUG HT FORWARD UNABSORBED DEPRECIATION ALLOWANCE OF THE SECOND PERIOD TO ASSU ME THE CHARACTER OF DEPRECIATION U/S 32(1) IN THE THIRD PERIOD. 30. THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT THE DEPARTMENT IN JAI USHIN LTD. (SUPRA) HAS TAKEN OPPOSITE STAND TO WHAT IS THEIR CASE HE RE. IT WAS THUS ARGUED THAT THE LD. DR SHOULD NOW BE STOPPED FROM ARGUING CONTRARY TO WHAT WAS ARGUED BEFORE SOME OTHER BENCH. WE ARE UNABLE TO ACCEPT THIS PROPOSITION FOR THE OBVIOUS REASON THAT IF SOME DEPARTMENTAL REPRES ENTATIVE HAS RIGHTLY OR WRONGLY ARGUED AN ISSUE BEFORE ANY BENCH OF THE TRIBUNAL, O THER DEPARTMENTAL REPRESENTATIVES ACROSS THE COUNTRY CANNOT BE INHIBI TED FROM ARGUING WHAT THEY FEEL ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 30 CORRECT NOTWITHSTANDING THE EARLIER SUBMISSION MADE BY THE LEARNED DEPARTMENTAL REPRESENTATIVE IN SOME DIFFERENT CASE AT SOME DIFFE RENT BENCH. THE JUDGMENT RELIED ON BY THE LEARNED A.R., TO BUTTRESS THIS ARGUMENT, IN THE CASE OF SESHASAYEE PAPER AND BOARDS LTD. (SUPRA), IS NOT APPLICABLE. WHAT HAS BEEN HELD IN THAT CASE IS THAT THE REVENUE CANNOT BE PERMITTED TO TAKE CONFLICTING STANDS AT DIFFERENT STAGES OF THE PROCEEDINGS WITH A VIEW TO PRESERVING A BENEFIT WHI CH IT HAD DERIVED AFTER HAVING INVOKED THE JURISDICTION OF THE TRIBUNAL. THE LIMIT ATION ON THE REVENUE TO ARGUE CONTRARY, IN THAT CASE, WAS IMPOSED QUA THE SAME CASE. IF THIS CONTENTION OF THE LD. AR IS TAKEN TO A LOGICAL CONCLUSION AND THE DEPARTM ENTAL REPRESENTATIVES ARE PREVENTED FROM ARGUING DIFFERENTLY IN ANOTHER CASE, THEN THE SAME YARDSTICK SHOULD ALSO APPLY TO ASSESSES AS ONE UNIT, WHICH OBVIOUSLY CANNOT BE THE CASE. 31. BE THAT AS IT MAY WE NOTE THAT THE POSI TION BEFORE THE DELHI BENCH OF THE TRIBUNAL IN JAI USHIN LTD. (SUPRA) WAS RATHER CONVERSE. IN THAT CASE THE ASSESSEE ADJUSTED CARRIED FORWARD BUSINESS LOSS AND UNABSORBED DEPRECIATION AGAINST BUSINESS INCOME ONLY AND IT WAS THE A.O. W HO HELD THAT THE REMAINING AMOUNT OF UNABSORBED DEPRECIATION WAS LIA BLE TO BE SET OFF AGAINST NON-BUSINESS INCOME. THE INSTANT FACTUAL MATRIX IS OTHERWISE, INASMUCH AS HERE THE ASSESSEE IS CLAIMING THAT THE UNABSORBED D EPRECIATION ALLOWANCE BE ALLOWED SET OFF AGAINST THE NON-BUSINESS INCOME, WH ICH HAS BEEN DENIED BY THE A.O. NO AUTHORITY NEEDS TO BE CITED FOR THE PR OPOSITION THAT IT IS IMPERMISSIBLE TO VIEW THE RATIONALE AND REASONING O F ANY DECISION DIVORCED FROM ITS FACTS. ANOTHER IMPORTANT ASPECT WHICH CAN NOT BE LOST SIGHT OF HERE IS THAT IT IS A SPECIAL BENCH, WHICH HAS BEEN CONSTITU TED TO RESOLVE THE CONFLICT OF OPINION AMONGST SOME OF THE BENCHES OF THE TRIBUNAL ON THIS ASPECT OF THE MATTER. NATURALLY DIFFERENT AND CONTRARY ARGUMENTS, WHICH PREVAILED UPON THE ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 31 MINDS OF THE MEMBERS CONSTITUTING THE DIVISION BENC HES TO DECIDE THE ISSUE IN ONE WAY OR THE OTHER, NEED TO BE THOROUGHLY TAKEN I NTO CONSIDERATION. IT WILL BE TOO HARSH ON THE ASSESSEE OR THE REVENUE, IF WE STOP THEM FROM ARGUING THE CASE IN THE WAY THEY LIKE. WE, THEREFORE, JETTISON THIS ARGUMENT. 32. THE LEARNED A.R. HAS ALSO CANVASSED A VIEW THAT IF TWO INTERPRETATIONS ARE POSSIBLE, THEN THE VIEW IN FAVOUR OF THE ASSESSEE S HOULD BE ADOPTED. IN SUPPORT OF THIS ARGUMENT, HE RELIED ON THE JUDGMENT OF THE HON BLE SUPREME COURT IN VEGETABLE PRODUCTS LTD. (SUPRA) . WE ARE IN FULL AGREEMENT WITH THE LAW PROPOUNDED BY THE HONBLE SUPREME COURT THAT : IF TWO REASONABLE CONSTRUCTIONS OF A TAXING PROVISION ARE POSSIBLE THEN THE ONE FAV OURABLE TO THE ASSESSEE TO BE ADOPTED. THIS RULE IS APPLICABLE WHERE THE PROVISI ON IN QUESTION IS SUCH WHICH IS CAPABLE OF TWO EQUALLY CONVINCING INTERPRETATIONS. IT CANNOT BE APPLIED IN A LOOSE MANNER SO AS TO DEBAR A SUPERIOR AUTHORITY FROM EX AMINING THE LEGAL VALIDITY OF THE CONFLICTING VIEWS EXPRESSED BY THE LOWER AUTHORITI ES. IF THAT BE THE POSITION, THEN THE HONBLE SUPREME COURT, IN A CASE OF RESOLVING C ONFLICT BETWEEN THE CONTRARY VIEWS EXPRESSED BY THE DIFFERENT HONBLE HIGH COURT S, ONE IN FAVOUR AND OTHER AGAINST THE ASSESSEE, NEED NOT EXAMINE THE NICETIES OF ISSUE AND SIMPLY UPHOLD THE VIEW IN FAVOUR OF THE ASSESSEE. THE PRINCIPLE OF FA VOURABLE INTERPRETATION CANNOT BE EXPANDED BEYOND ITS REASONABLE LIMITS. IF WE GO AHE AD WITH THIS RULE, THEN IN NO CASE THERE WILL BE A NEED TO HEAR ARGUMENTS BY THE SPECIAL BENCH, AS ONE VIEW IN FAVOUR OF THE ASSESSEE WILL ALWAYS BE THERE IN ADDI TION TO ANOTHER IN FAVOUR OF THE REVENUE. THIS PRINCIPLE OF FAVOURABLE INTERPRETAT ION IS APPLICABLE ONLY WHERE THERE EXISTS A LOGICAL AND BONAFIDE DOUBT ABOUT THE INTERPRETATION OF A PROVISION AND NOT OTHERWISE. THE HONBLE JURISDICTIONAL HIGH COUR T IN THE CASE OF CIT VS. [(1993) 202 ITR 291 (BOM.)] HAS HELD : PRINCIPLE OF INTERPRETATION OF A STATU TE THAT IN THE EVENT OF ANY DOUBT IN REGARD TO THE INTERPRE TATION, THE BENEFIT OF DOUBT SHOULD BE GIVEN TO THE ASSESSEE AND THE INTERPRETATION BEN EFICIAL TO THE TAX PAYER SHOULD BE ACCEPTED APPLIES ONLY WHEN THERE IS REASONABLE AND GENUINE DOUBT IN REGARD TO THE INTERPRETATION OF A PARTICULAR PROVISION. IT HAS NO APPLICATION TO A CASE WHERE THE ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 32 PROVISION IS CLEAR AND THE LAW IS WELL SETTLED. THI S PRINCIPLE CANNOT BE STRETCHED TOO FAR. IT CANNOT BE USED TO MISINTERPRET A STATUTORY PROVISION WHICH IS OTHERWISE CLEAR AND BROOKS NO DOUBT ABOUT ITS MEANING OR INTERPRETA TION JUST TO GIVE THE BENEFIT TO THE TAX PAYER WHICH THE STATUTE DID NOT INTEND TO G IVE. IN VIEW OF THIS BINDING PRECEDENT COMING FROM THE HONBLE JURISDICTIONAL H IGH COURT, IT IS OBVIOUS THAT THE PRINCIPLE OF FAVOURABLE INTERPRETATION TO THE A SSESSEE APPLIES ONLY WHERE THERE IS A DOUBT AS REGARDS THE INTERPRETATION OF THE PROVIS ION. IF HOWEVER THE PROVISION IS UNAMBIGUOUS ALBEIT TICKLISH, THEN LEGISLATIVE INTEN TION, AS REFLECTED FROM ITS LANGUAGE, HAS TO BE GIVEN ITS TRUE MEANING NOTWITHS TANDING THE FACT THAT IT GOES AGAINST THE ASSESSEE. 33. IT WAS ALSO ARGUED ON BEHALF OF THE ASSESSEE T HAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN TREATING INTEREST INCOME AS FALLIN G UNDER THE HEAD `INCOME FROM OTHER SOURCES. HE SUBMITTED THAT SINCE THE BUSINES S OF THE ASSESSEE IS THAT OF MERCHANT BANKING, THE INTEREST INCOME OUGHT TO HAVE BEEN CONSIDERED AS BUSINESS INCOME. WE ARE UNABLE TO ACCEPT THIS CONTENTION AT THIS STAGE OF PROCEEDINGS FOR MORE THAN ONE REASONS. IT IS A SETTLED LEGAL POSITI ON THAT TO FIND OUT HEAD UNDER WHICH INTEREST INCOME WOULD FALL, NEEDS TO BE TESTE D BY CONSIDERING THE CUMULATIVE EFFECT OF SEVERAL FACTORS, SUCH AS THE NATURE OF BU SINESS, NATURE AND SOURCE OF INTEREST INCOME, CIRCUMSTANCES IN WHICH THE FUNDS W ERE PARKED. HOWEVER THERE IS UNANIMITY OF THE OPINION THAT IF THE SURPLUS FUNDS ARE DEPOSITED IN A BANK, THE INTEREST INCOME WILL PARTAKE OF THE CHARACTER OF IN COME FROM OTHER SOURCES IRRESPECTIVE OF THE NATURE OF ASSESSEES BUSINESS. IN THE INSTANT CASE INTEREST WAS EARNED ON FDRS FROM BANK. IT WAS NEVER THE CASE OF THE ASSESSEE BEFORE THE AUTHORITIES BELOW THAT THE FUNDS WERE REQUIRED TO B E DEPOSITED IN BANK NECESSARILY FOR CARRYING ON ITS BUSINESS. FURTHER THE LEARNED CIT(A) HAS RECORDED A FINDING IN PARA 6.1 OF THE IMPUGNED ORDER THAT THE ASSESSEE WAS NOT CONTINUOUSLY ENGAGED IN THE ACTIVITY OF MONEY LENDING DURING THE YEAR AND T HIS INTEREST WAS RECEIVED THROUGH ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 33 ITS DEPOSITS WITH THE BANK. IT CAN FURTHER BE NOTED FROM PARA 3.1 OF THE IMPUGNED ORDER THAT THE ASSESSEE ACCEPTED THE TREATMENT GIVE N BY THE A.O. TO THE INTEREST INCOME AS FALLING UNDER THE HEAD `INCOME FROM OTHER SOURCES. IN VIEW OF THE FOREGOING REASONS WE ARE NOT INCLINED TO ACCEPT THE VIEW POINT OF THE LEARNED A.R. THAT THE INTEREST INCOME BE CONSIDERED AS FALLING U NDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. 34. ANOTHER LEG OF THE SUBMISSIONS OF TH E LD. AR WAS THAT EVEN IF IT WAS HELD THAT THE PROVISION OF SECOND PERIOD SHALL APPLY, S TILL THE EXPRESSION `PROFITS AND GAINS SHOULD BE HELD AS COVERING NOT ONLY THE BUSI NESS INCOME BUT ALSO INCOME UNDER OTHER HEADS OF INCOME INCLUDING `INCOME FROM OTHER SOURCES. TO BRING HOME THIS INTERPRETATION, HE RELIED ON THE CASE OF VIRMANI INDUSTRIES PRIVATE LIMITED (SUPRA). WE DO NOT FIND ANY MERIT IN THIS SUBMISSION FOR THE REASON DISCUSSED ABOVE THAT IT WAS A CASE ON THE INTERPRE TATION OF THE EXPRESSIONS `PROFITS OR GAINS AS USED IN THE LANGUAGE OF SUB-SECTION (2 ) FOR THE FIRST PERIOD. BY MEANS OF SUBSTITUTION OF THE PROVISION IN THE SECOND PERI OD, THE INTERPRETATION GIVEN BY THE HONBLE SUPREME COURT TO THE EXPRESSION `PROFITS OR GAINS CHARGEABLE AS COVERING ALL THE HEADS OF INCOME AND NOT ONLY RESTRICTING IT THE BUSINESS INCOME WAS DONE AWAY WITH. HOWEVER THE EFFECT OF SUBSTITUTION OF SECTION 32(2) BY THE FINANCE ACT, 2001 IS THAT WHATEVER PROVISION AND ITS INTERPRETAT ION WAS THERE IN SECOND PERIOD STOOD OMITTED AND THE STATUS QUO ANTE AS EXISTING PRIOR TO AMENDMENT BY FINANCE ACT, 1996 WAS RESTORED. RESULTANTLY THE INTERPRETAT ION GIVEN BY THE HONBLE SUPREME COURT TO THE EXPRESSION `PROFITS OR GAINS CHARGEABLE HAS ONCE AGAIN RESURFACED IN THE THIRD PERIOD AS COVERING NOT ONLY INCOME UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION BUT ALSO INCOM E UNDER OTHER HEADS. THE RATIO DECIENDI OF THIS CASE IS NOT RELEVANT IN RELATION TO THE PROVISIONS OF THE SECOND PERIOD. RESULTANTLY THE UNABSORBED DEPRECIATION A LLOWANCE AS GENERATED DURING THE SECOND PERIOD CANNOT HAVE A SET OFF AGAINST INCOME UNDER THE HEAD `INCOME FROM OTHER SOURCES IN THE THIRD PERIOD. ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 34 35. ONE MORE ARGUMENT WAS TAKEN BY THE LD. AR THAT THERE WAS SUBSTITUTION OF SECTION 32(2) BY THE FINANCE ACT, 2001 WITH EFFECT FROM 1.4.2002 AND IT WAS NOT A CASE OF AMENDMENT. HE TRIED TO MAKE OUT A CASE THA T THE EFFECT OF REPEAL OF THE EARLIER SECTION 32(2) WOULD BE THAT THE BENEFIT WHI CH HAD ACCRUED TO THE ASSESSEE AS PER OLD PROVISION, WILL AUTOMATICALLY COME INTO BE ING UNDER THE NEW PROVISION. IN THAT VIEW OF THE MATTER IT WAS ARGUED THAT THE BROU GHT FORWARD UNABSORBED DEPRECIATION ALLOWANCE FOR THE SECOND PERIOD MAY BE TREATED AS DEPRECIATION ALLOWANCE FOR THE CURRENT YEAR IN THE THIRD PERIOD. 36. IT IS SEEN THAT SECTION 32(2) AS PRE VAILING IN THE SECOND PERIOD WAS SUBSTITUTED WITH A NEW PROVISION IN THE THIRD PERIO D AND IT WAS NOT A CASE OF SOME AMENDMENT. IF THERE IS BOTH REPEAL OF THE OLD PROVI SION AND ALSO SIMULTANEOUS INSERTION OF A NEW PROVISION IN ITS PLACE THEREOF, IT IS CALLED AS SUBSTITUTION. THE SUBMISSION MADE ON BEHALF OF THE ASSESSEE THAT THE RIGHT OF UNABSORBED DEPRECIATION ALLOWANCE THAT ACCRUED IN THE SECOND PERIOD SHALL REMAIN INTACT AND CONTINUE TO BE GOVERNED BY THE PROVISIONS OF SECTIO N 32(2) AS INSERTED IN THE THIRD PERIOD, IS DEVOID OF MERIT. IN CRAWFORDS INTERPRE TATION OF LAWS IT HAS BEEN STATED AS UNDER:- EFFECT OF REPEAL, GENERALLY:- IN THE FIRST PLACE, AN OUTRIGHT REPEAL WILL DESTROY INCHOATE RIGHTS DEPENDENT ON IT, AS A GENERAL RULE. IN MANY CASES, HOWEVER, WHERE STATUTES ARE REPEALED, T HEY CONTINUE TO BE THE LAW OF THE PERIOD DURING WHICH THEY WERE IN FOR CE WITH REFERENCE TO NUMEROUS MATTERS (PP. 640-641) THE OBSERVATION OF LORD TENTERDEN TINDAL, CJ. REFE RRED IN THE ABOVE MENTIONED PASSAGES IN CRAIES ON STATUTE LAWS ALSO I NDICATE THAT THE PRINCIPLE THAT ON REPEAL A STATUTE IS OBLITERATED I S SUBJECT TO THE EXCEPTION THAT IT EXISTS IN RESPECT OF TRANSACTIONS PAST CLOSED. TO THE SAME EFFECT IS THE LAW LAID DOWN BY THIS COURT (SEE QUDRAT ULLAH V. MUNICIPAL BOARD [1974] 1 SCC 202: [1974] 2 SCC 530. ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 35 37. FROM ABOVE IT CAN BE NOTICED THAT A S PER GENERAL RULE THE REPEAL OF A PROVISION DESTROYS THE RIGHTS DEPENDENT ON IT. IF W E EXAMINE THE GENERAL EFFECT OF REPEAL OF SECTION 32(2) AS PREVAILING IN THE SECOND PERIOD, THEN BROUGHT FORWARD UNABSORBED DEPRECIATION ALLOWANCE SHOULD OBLITERATE AND DIE ITS NATURAL DEATH IN THE THIRD PERIOD. BUT THAT IS NOT THE CASE HERE AS TH E EXCEPTION SHALL COME INTO PLAY AS AGAINST THE GENERAL EFFECT OF REPEAL AS PER WHICH THE REPEALED LAW SHALL CONTINUE TO BE THE LAW OF THE PERIOD DURING WHICH IT WAS IN FO RCE. AS A RESULT OF THAT THE BENEFIT ALREADY EARNED IN SECOND PERIOD BY WAY OF B ROUGHT FORWARD UNABSORBED DEPRECIATION ALLOWANCE SHALL COME TO THE THIRD PE RIOD TO BE DEALT WITH IN ACCORDANCE WITH THE PROVISION OF THE SECOND PERIOD FOR SET OFF AGAINST THE INCOME UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PR OFESSION FOR A PERIOD NOT MORE THAN EIGHT ASSESSMENT YEARS IMMEDIATELY SUCCEEDING THE ASSESSMENT YEAR FOR WHICH THE AFORESAID ALLOWANCE WAS FIRST COMPUTED. IT IS STILL FURTHER NOTED THAT THE FINANCE (NO.2) ACT, 1996 ALSO SUBSTITUTED SECTION 3 2(2) AND THAT ALSO WAS NOT A CASE OF AMENDMENT. BY VIRTUE OF THIS SUBSTITUTION BY THE FINANCE ACT, 1996 THE CURRENT YEARS DEPRECIATION IN THE SECOND PERIOD BECAME ELI GIBLE FOR SET OFF AGAINST INCOME UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PR OFESSION AND THEN AGAINST ANY OTHER HEAD. IN THE ABSENCE OF ANY PROVISION TO DEAL WITH THE UNADJUSTED BROUGHT FORWARD DEPRECIATION OF THE FIRST PERIOD IN THE SEC OND PERIOD, SUCH AMOUNT WAS NOT AVAILABLE FOR SET OFF IN AND THUS IT WOULD HAVE CE ASED TO HAVE ANY EFFECT. TO FILL THE VACUUM AND SAVE THE LOSS OF BENEFIT ALREADY ACCRUED TO THE ASSESSES IN THE FIRST PERIOD IN THE SHAPE OF BROUGHT FORWARD UNADJUSTED D EPRECIATION DUE TO THE REPEAL OF THE EARLIER PROVISION, THE FINANCE MINISTER CAME OU T WITH THE RELAXATION. BUT FOR SUCH RELAXATION GIVEN BY THE FINANCE MINISTER IN TH E PARLIAMENT, THE BROUGHT FORWARD UNADJUSTED DEPRECIATION OF THE FIRST PERIOD WOULD HAVE ELAPSED. WE ARE UNABLE TO FIND ANY SUCH CONCESSION GIVEN BY THE FIN ANCE MINISTER WHILE SUBSTITUTING THE PROVISIONS OF SECTION 32(2) IN THE THIRD PERIOD. EX CONSEQUENTI, THE BROUGHT FORWARD UNABSORBED DEPRECIATION ALLOWANCE O F THE SECOND PERIOD CANNOT BE TREATED AS THE CURRENT DEPRECIATION IN THE THIRD PE RIOD. ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 36 38. THE LEGAL POSITION OF CURRENT AND BROUGHT FORWARD UNADJUSTED/UNABSORBED DEPRECIATION ALLOWANCE IN THE THREE PERIODS, IS SUM MARIZED AS UNDER :- A. IN THE FIRST PERIOD (I.E. UPTO A.Y. 1996-97) I. CURRENT DEPRECIATION , THAT IS THE AMOUNT OF ALLOWA NCE FOR THE YEAR U/S 32(1), CAN BE SET OFF AGAINST INCOME UNDER ANY HEAD WITHIN THE SAME YEAR. II. AMOUNT OF SUCH CURRENT DEPRECIATION WHICH CAN NOT B E SO SET OFF WITHIN THE SAME YEAR AS PER I. ABOVE SHALL BE DEEMED AS DE PRECIATION U/S 32(1), THAT IS DEPRECIATION FOR THE CURRENT YEAR IN THE FO LLOWING YEAR(S) TO BE SET OFF AGAINST INCOME UNDER ANY HEAD, LIKE CURRENT DE PRECIATION. B. IN THE SECOND PERIOD (I.E. A.Y. 1997-98 TO 2 001-02) I. BROUGHT FORWARD UNADJUSTED DEPRECIATION ALLOWANCE F OR AND UPTO A.Y. 1996-97 (HEREINAFTER CALLED THE `FIRST UNADJUSTED D EPRECIATION ALLOWANCE) , WHICH COULD NOT BE SET OFF UPTO A.Y. 1996-97, SHA LL BE CARRIED FORWARD FOR SET OFF AGAINST INCOME UNDER ANY HEAD FOR A MAX IMUM PERIOD OF EIGHT A.YS. STARTING FROM A.Y. 1997-98. II. CURRENT DEPRECIATION FOR THE YEAR U/S 32(1) ( FOR E ACH YEAR SEPARATELY STARTING FROM A.Y. 1997-98 UPTO 2001-02) CAN BE SET OFF FIRSTLY AGAINST BUSINESS INCOME AND THEN AGAINST INCOME UNDER ANY OTHER HEAD. III. AMOUNT OF CURRENT DEPRECIATION FOR A.YS. 1997-98 TO 2001-02 WHICH CANNOT BE SO SET OFF AS PER II. ABOVE, HEREINAFTER CALLED THE `SECOND UNABSORBED DEPRECIATION ALLOWANCE SHALL BE CARRIE D FORWARD FOR A MAXIMUM PERIOD OF EIGHT ASSESSMENT YEARS FROM THE A .Y. IMMEDIATELY SUCCEEDING THE A.Y. FOR WHICH IT WAS FIRST COMPUTED , TO BE SET OFF ONLY AGAINST THE INCOME UNDER THE HEAD `PROFITS AND GAIN S OF BUSINESS OR PROFESSION. ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 37 C. IN THE THIRD PERIOD ( I.E. A.Y. 2002-03 ONWAR DS) I. `FIRST UNADJUSTED DEPRECIATION ALLOWANCE CAN BE SE T OFF UPTO A.Y. 2004- 05, THAT IS, THE REMAINING PERIOD OUT OF MAXIMUM P ERIOD OF EIGHT A.Y.S (AS PER BI. ABOVE) AGAINST INCOME UNDER ANY HEAD. II. `SECOND UNABSORBED DEPRECIATION ALLOWANCE CAN BE SET OFF ONLY AGAINST THE INCOME UNDER THE HEAD `PROFITS AND GAINS OF BU SINESS OR PROFESSION WITHIN A PERIOD OF EIGHT A.YS. SUCCEEDING THE A.Y. FOR WHICH IT WAS FIRST COMPUTED. III. CURRENT DEPRECIATION FOR THE YEAR U/S 32(1), FOR E ACH YEAR SEPARATELY, STARTING FROM A.Y. 2002-03 CAN BE SET OFF AGAINST INCOME UNDER ANY HEAD. AMOUNT OF DEPRECIATION ALLOWANCE NOT SO SET O FF (HEREINAFTER CALLED THE `THIRD UNADJUSTED DEPRECIATION ALLOWANCE) SH ALL BE CARRIED FORWARD TO THE FOLLOWING YEAR. IV. THE `THIRD UNADJUSTED DEPRECIATION ALLOWANCE SHALL BE DEEMED AS DEPRECIATION U/S 32(1), THAT IS DEPRECIATION FOR T HE CURRENT YEAR IN THE FOLLOWING YEAR(S) TO BE SET OFF AGAINST INCOME UNDE R ANY HEAD, LIKE CURRENT DEPRECIATION, IN PERPETUITY. 39. ADVERTING TO THE FACTS OF THE INSTANT CASE WE FIND THAT THE UNABSORBED DEPRECIATION ALLOWANCE AROSE IN THE SECOND PERIOD I .E. ASSESSMENT YEARS 1997-98 TO 1999-2000 WHICH COULD NOT BE ADJUSTED AGAINST THE INCOME UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION UP TO ASSESSM ENT YEAR 2002-2003. NOW THE ASSESSEE CANNOT CLAIM SET OFF OF SUCH UNABSORBED D EPRECIATION ALLOWANCE AGAINST INCOME UNDER ANY HEAD OTHER THAN PROFITS AND GAINS OF BUSINESS OR PROFESSION IN THE YEARS UNDER CONSIDERATION. AS THE ASSESSEE IS SEEKING TO CLAIM THE SET OFF OF SUCH BROUGHT FORWARD UNABSORBED DEPRECIATION ALLOWA NCE AGAINST INCOME UNDER THE HEAD `INCOME FROM OTHER SOURCES, THAT CANNOT BE AC CEPTED. IN VIEW OF THE FOREGOING REASONS WE ARE OF THE CONSIDERED OPINION THAT THE LEARNED CIT(A) ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 38 ERRED IN NOT CORRECTLY INTERPRETING THE LAW IN THIS REGARD. THE IMPUGNED ORDER IS HEREBY VACATED AND THE ACTION OF THE ASSESSING OFFICER IS RESTORED IN BOTH THE YEARS UNDER CONSIDERATION. 40. THE QUESTION POSED BEFORE THIS SPECIAL BENCH IS, THEREFORE, ANSWERED IN FAVOUR OF THE REVENUE BY HOLDING THAT T HE UNABSORBED DEPRECIATION RELATING TO ASSESSMENT YEAR 1997-98 TO 1999-2000 IS TO BE DEALT WITH IN ACCORDANCE WITH THE PROVISIONS OF SECTION 3 2(2) AS APPLICABLE FOR ASSESSMENT YEAR 1997-98 TO 1999-2000. 41. BEFORE PARTING WITH THESE APPEALS WE WOULD LIKE TO MAKE IT CLEAR THAT ALL THE CASES RELIED ON BY BOTH THE SIDES HAVE BEEN DU LY TAKEN INTO CONSIDERATION WHILE DECIDING THE MATTER. WE HAVE DESISTED FROM MAKING A REFERENCE TO SOME OF SUCH CASES IN THE ORDER EITHER BECAUSE OF THEIR IRRELEVA NCE OR BECAUSE OF THEIR REPETITIVE NATURE. FURTHER WE APPRECIATE THE ILLUMINATING AR GUMENTS PUT FORTH BY BOTH THE SIDES WHICH HAVE ASSISTED US IN DISPOSING OF THIS I SSUE. 42. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED. ORDER PRONOUNCED ON THIS 30 TH DAY OF JUNE, 2010. SD/- SD/- SD/- ( D. MANMOHAN) ( N.V.VASUDEVAN ) ( R.S.SYAL ) VICE PRESIDENT JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI : 30 TH JUNE, 2010. DEVDAS* ITA NOS.4917 & 4918/MUM/2008 M/S.TIMES GUARANTY LIMITED. 39 COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A)-XXI, MUMBAI. 5. THE DR/ITAT, MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI.