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2009 (3) TMI 246 - AT - Income TaxClaim set off of unabsorbed depreciation and eligible business loss - Computation of income from short-term capital gains u/s. 50 - Whether AO is right in deducting only the WDV in order to compute the short-term capital gain? - retrospective operation - assessee had been charging depreciation on the assets in the books of account maintained by it from the AY 1985-86 onwards - While filing the return of income for the first time for AY 1995-96 also, the assessee computed the WDV as on 1st April, 1994 and claimed depreciation on the WDV only - However for computing the short-term capital gain u/s. 50, the assessee has sought deduction of original cost instead of the WDV. HELD THAT:- The ld AR contended that there is no decision to support the view that Expln. 5 to s. 32 is retrospective and further submitted that the facts pertaining to Gold Coin Health Food (P) Ltd. are totally different from the instant case. However, we are unable to agree with his contentions, in view of the decision of Hon'ble Supreme Court in the case of Gold Coin Health Food (P) Ltd.[2008 (8) TMI 5 - SUPREME COURT], which lays down the proposition for interpretation of law. Under Art. 141 of the Constitution of India, the law declared by the Supreme Court shall be binding on all Courts within the territory of India. Hence, in our opinion, the Expln. 5 to s. 32 is clarificatory in nature and hence it will have retrospective operation. Accordingly, the depreciation cannot be taken as "notionally allowed", but only as 'actually allowed.' Hence the AO is right in deducting only the WDV in order to compute the short-term capital gain. Eligibility of unabsorbed depreciation/business loss for set off against short-term capital gain - As contended by ld AR, the gain arising on sale of depreciable assets is taxed as short-term capital gain in view of the legal fiction created by s. 50. Otherwise, such gain is normally treated as part of business receipt only. The High Court in the case of Shrikishan Chandmal [1965 (4) TMI 117 - MADHYA PRADESH HIGH COURT] has held that the dividend income from shares held as stock-in-trade which is assessable as "income from other sources", can be set off against brought forward business loss. The Hon'ble Supreme Court in the case of Western States Trading Co. (P) Ltd.[1971 (1) TMI 11 - SUPREME COURT] has also approved the decision of Hon'ble Madhya Pradesh High Court cited above. In view of the propositions laid down in the above, we are of the opinion that the assessee is entitled to claim set off of unabsorbed depreciation and eligible business loss, if any, against short-term capital gain computed u/s 50. Hence we find merit in the contention of the ld AR. In any case, the dispute with regard to the eligibility of set off does not arise in respect of unabsorbed depreciation relating to AY 1996-97 and earlier years, in view of the decision in the case of S & S Power Switchgear Ltd.[2008 (3) TMI 328 - MADRAS HIGH COURT], Accordingly, we direct the AO to allow set off of the eligible amount of unabsorbed depreciation and unabsorbed business loss against the short-term capital gain. The appeal of the assessee is partly allowed.
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