TMI Blog1988 (2) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... ear. The total amount which has been claimed for carry forward and set off of losses and unabsorbed depreciation was Rs. 1,58,57,904. The ITO referred to the provisions of s. 72A, which is a special provisions relating to carry forward and set off of accumulated loss and unabsorbed depreciation allowance in certain cases of amalgamation. For the purpose of carry forward and set off of accumulated losses and depreciation certain conditions have been laid down and only if they are satisfied such carry forward is permissible. The provisions of s. 72A sub-s. (1) and sub-s. (2) are as under: "72A.(1) where there has been an amalgamation of a company owning an industrial undertaking or a ship with another company and the Central Government, on the recommendation of the specified authority, is satisfied that the following conditions are fulfilled, namely: (a) the amalgamating company was not, immediately before such amalgamation, financially viable by reason of its liabilities, losses and other relevant factors; (b) the amalgamation was in the public interest; and (c) Such other conditions as the Central Government may, by notification in the Official Gazatte, specify, to ensure tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied, it would make (unless there is any material change in the relevant facts) a recommendation to the Central Government under sub-s. (1). Explanation: In this section, (a) "accumulated loss" means so much of the loss of the amalgamating company under the head "Profits and gains of business or profession" (not being a loss sustained in a speculation business) which the amalgamating company would have been entitled to carry forward and set off under the provisions of s. 72 if the amalgamation had not been effected; (b) "specified authority" means such authority as the Central Government may, by notification in Official Gazette, specify for the purposes of this section: (c) "unabsorbed depreciation" means so much of the allowance for depreciation of the amalgamating company which remains to be allowed and which would have been allowed to the amalgamating company under the provisions of this Act if the amalgamation had not been effected". The IAC (Asst.,) noted that under sub-s. (2) of s. 72A the accumulated loss can be set off and carried forward if the amalgamated company furnishes alongwith its return of income for the relevant assessment year, a certificate from specif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the Ministry of Finance, Department of Revenue had issued a declaration under s. 72A(1) of the IT Act as follows. F. No. 308/15/82-ITAII Government ofIndia Ministry of Finance, (Department of Revenue) New Delhi,the 15th Oct., 1982. Subject: Declaration under s. 72A(1) the IT Act, 1961 Amalgamation of Mrs. Aravalli svachalit Vahan Ltd., with Kalvinator of India Limited. On receipt of recommendation of the Specified Authority recommending approval under s. 72A(1) of the IT Act, 1961 of the Amalgamation of M/s. Mrs. Aravalli Sachalit Vahan Ltd., with Kalvinator of India Limited effected on 1st July, 1980 it is hereby declared that the conditions mentioned in cls. (a), (b) and (c) of sub-s. 1 of the section have been fulfilled and notwithstanding anything mentioned in any other provision of IT Act, 1961, the accumulated loss and the unabsorbed depreciation of the amalgamating company shall be deemed to be the loss or, as the case may be, allowance for depreciation of the amalgamated company for the previous year in which the amalgamation was effected and the other provisions of IT Act, 1961 relating to set off and carry forward of loss and allowance for the deprecia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be set off in a year prior to the year when such adequate steps are taken. The CIT(A) referred to the decisions of the Delhi High Court as well as the Supreme Court in the case of Mahindra and Mahindra Ltd. vs. Union of India (1983) 36 CTR (Del) 153 : (1983) 141 ITR 174 (Del) and CIT vs. Mahindra and Mahindra (1983) 36 CTR (SC) 300 : (1983) 144 ITR 225 (SC). The CIT(A) further observed that carry forward loss and unabsorbed depreciation will no doubt be deemed as the loss and depreciation, respectively, of the year of amalgamation but the set off will be in the year in which adequate steps have considerably been taken by the assessee. According to the CIT(A) any of the interpretation would defeat the purpose of this concession. The CIT(A), therefore, directed that the unabsorbed loss and depreciation should be set off only in the year 1984-85 and not in this year. 5. The learned counsel for the assessee submitted that the interpretation placed by the learned CIT(A) on the provisions of s. 72A is not correct and creates and incongruous position. He pointed out that the current year's losses of the amalgamating company have already been adjusted in year's profit. However, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation. It is not held by the CIT(A) that in the present case the loss has not to be set off or the unabsorbed depreciation had not to be adjusted towards the profits of the assessee-company. The question is the assessment year against whose profits the unabsorbed losses have to be set off. In our view, the sub-s. (1) of s. 72A clearly provides that the accumulated loss and the unabsorbed depreciation of the amalgamating company shall be deemed to be the loss or allowance for depreciation of the amalgamated company for the previous year in which amalgamation was effected. This process mainly depends on the declaration made by the Central Government as contemplated in sub-s. (1) and the other condition which is placed in the statute for this purpose is contained in sub-s. (2). These conditions are that during the previous year relevant to the assessment year for which set off or allowance is claimed the business of the amalgamating company is carried on by the amalgamated company without any modification or reorganisation or with such modification or reorganisation as may be approved by the Central Government to enable the amalgamated company to carry on such business more economical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Industrial Development in a certificate dt.,22nd Sept., 1983has noted that the company has taken adequate steps in the year relevant to the asst., yr. 1984-85. Even then we are of the view that under the law the set off has to be allowed in the year of amalgamation which is the current year. The plea of the assessee is, therefore, accepted and the order of the CIT(A) is reversed on this issue. 8. Ground No. 2 has not been pressed before us. The same is rejected. 9. In the same way ground No. 4 is also not pressed. It is also rejected. 10. Ground No.3 states that the CIT(A) erred on facts and in law in not allowing weighted deduction under s. 36(1)(iia) in respect of contribution to provident fund and contribution to ESI. Under the provisions of s. 36(1)(iia) the assessee had claimed weighted deduction on Rs. 2,45,378 being one third of the salary and wages paid to physically handicapped employees. The CIT(A) accepted the plea of the assessee, but he observed that the actual deductions will be restricted in that figure of salary which comes within the definition in Expln., 1 to s. 36(1)(iia). Under the a Explanation, salary includes the pay, allowance, bonus or commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decisions, the CIT(A) held that the assessee's plea for adjustment of this interest against the capital expenditure could not be accepted and interest income as such was to be brought to tax as income from other sources. 12. The learned counsel for the assessee submitted that the huge expenditure was incurred because of the heavy over-subscription of the issue by the brief period the amount was kept in bank and interest was earned and certain other expenses were incurred on the issue. It was submitted that as far as the company was concerned the interest earned and the expenditure incurred were part of the same activity and this interest should not be separately taxed but should be adjusted towards the huge expenditure incurred by the assessee for the issue of shares. 13. Having considered the facts and the submission of the learned counsel, we are of the view that there cannot be any dispute that the expenditure incurred for raising capital has to be treated as capital expenditure and it cannot be allowed as revenue expenditure. Once it is held that the nature of expenditure is capital the question of adjusting any taxable income against such capital expenditure should not ari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered by Shri Bhandari for consultation as well and the assessing Officer should work out the disallowance accordingly. 16. The last ground relates to the determination of the basis for allowing depreciation and investment allowance and for that purpose it is stated that the CIT(A) erred in reducing Rs. 26,25,245 received from Insurance company to arrive at the actual cost of machinery for purposes of depreciation as well as investment allowance. The relevant facts for understanding this ground are that there was a fire in workshop in Sept., 1978 and as a result of this, certain properties and machines were damaged. On6th Sept., 1978the assessee-company lodged a claim with the insurers, namely, the National Insurance Company. The assessee's claim was first estimated at Rs. 20 lacs on broad basis. The insurance company was obliged to reinstate and replace the property damaged or destroyed. If the insurer does it the salvage is transferred to it and becomes the property of the insurance company. The appellant incurred a total expenditure of Rs. 31,35,867 for reinstating or replacing the destroyed machinery. At the time of the settlement of the claim the old plant and machinery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alvage was taken by estimating and while the assessee-company would get depreciation only on the written down value of these assets, the CIT(A) has directed the whole of this amount to be deducted from the value of the new machinery, thus affecting the depreciation and investment allowance due to the assessee company. 18. The learned Departmental Representative relied on the order of the CIT(A) and submitted that Rs. 26,25,249 was to be paid by the Insurance company towards the reinstatement of the machinery. However, the old machinery which was partly damaged was to be taken over by the Insurance company. In lieu of this the salvage value was adjusted and the machinery remained with the assessee. He, therefore, submitted the Insurance company should be taken to have paid Rs. 26,25,249 and the amount of Rs. 7,26,769 should not be deducted from ascertaining the money paid by the Insurance company. The salvage value was determined by agreement between the parties at 24 per cent. 19. After considering the facts we uphold the order of the CIT(A) on this issue and accept the contention of the Revenue as given above. This ground is, therefore, rejected. 20. The appeal is allowed in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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