TMI Blog2009 (3) TMI 246X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital gains arising from the transfer of short-term capital assets. Though the assessee computed the short-term capital gains on sale of these assets, it deducted the cost of asset from the value of sale consideration. The AO was of the view that only WDV can be deducted as per the provisions of s. 50 and accordingly substituted the WDV to the original cost and completed the assessment. 2.1 Though the assessee started business activity during the year relevant for asst. yr. 1985-86, it started filing its return of income only from asst. yr. 1995-96. However, the assessee had been charging depreciation on the assets in the books of account maintained by it from the asst. yr. 1985-86 onwards. While filing the return of income for the first time for asst. yr. 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 under s. 50 of the Act, the assessee has sought deduction of original cost instead of the WDV. 3. The reasons adduced by the assessee for seeking deduction of 'cost of asset' are narrated hereafter. As per s. 43(6) of the Act, which defines the term 'WDV', only "deprec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for any of the years prior to asst. yr. 1995-96 and so those years' losses are not available for set off. For the subsequent years i.e., from asst. yr. 1995-96 onwards, where returns have been filed, the firm could carry forward the losses and unabsorbed depreciation but the same cannot be set off against short-term capital gains." Accordingly, he dismissed the appeal of the assessee. Aggrieved, the assessee is in appeal before us. 4. Though the assessee has raised as many as five grounds, they give rise to only following two issues: (a) Whether, in the facts and circumstances of the case, the depreciation can be said to have been 'actually allowed' in earlier years? (b) Whether unabsorbed depreciation/unabsorbed eligible business loss can be set off against short-term capital gain computed under s. 50 of the Act? 5. With regard to the first question, learned Authorised Representative placed his reliance on the decision of Hon'ble Supreme Court in the case of CIT vs. Mahendra Mills (2000) 159 CTR (SC) 381 : (2000) 243 ITR 56 (SC), wherein the Hon'ble apex Court held that the words "actually allowed" does not mean "notionally allowed". The apex Court further held that if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s held that Expln. 5 will have only prospective operation. 5.3 The Hon'ble Supreme Court in the case of Gold Coin Health Food (P) Ltd. has reversed its own decision in the case of Virtual Soft Systems Ltd. vs. CIT (2007) 207 CTR (SC) 733 : (2007) 289 ITR 83 (SC). While arriving at this decision, Hon'ble apex Court considered the principles of statutory interpretation. The relevant observations are extracted below: "As noted by this Court in CIT vs. Podar Cement (P) Ltd. (1997) 141 CTR (SC) 67 : (1997) 5 SCC 482 the circumstances under which the amendment was brought in existence and the consequences of the amendment will have to be taken care of while deciding the issue as to whether the amendment was clarificatory or substantive in nature and, whether it will have retrospective effect or it was not so. In 'Principles of Statutory Interpretation', 11th Edn. 2008, Justice G.P. Singh has stated the position regarding retrospective operation of statutes as follows: 'The presumption against retrospective operation is not applicable to declaratory statutes. As stated in Craies and approved by the Supreme Court: For modern purposes a declaratory Act may be defined as an Act to re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deemed to be prospective only-'nova constitutio futuris formam imponere debet non praeteritis'-a new law ought to regulate what is to follow, not the past. It is not necessary that an express provision be made to make a statute retrospective and the presumption against retrospectivity may be rebutted by necessary implication especially in a case where the new law is made to cure an acknowledged evil for the benefit of the community as a whole. 14. The presumption against retrospective operation is not applicable to declaratory statutes. In determining, therefore, the nature of the Act, regard must be had to the substance rather than to the form. If a new Act is 'to explain' an earlier Act, it would be without object unless construed retrospectively. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well-settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended.... An amending Act may be purely declaratory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trary to the legislative intention." The Hon'ble Madras High Court has also observed on the similar lines. However as pointed by learned Departmental Representative, though the amendments were made to Expln. 4 to s. 271 by the Finance Act, 2002 w.e.f. 1st April, 2003, the Hon'ble Supreme Court has held that these amendment is clarificatory and not substantive. In that case, it will have retrospective operation. 5.5 Now let us consider whether the Expln. 5 to s. 32, inserted by Finance Act, 2001 is clarificatory or substantive in nature. The notes on clauses relating to the Finance Bill, 2001 explains the amendment made to s. 32 as under: "Clause 21 seeks to amend s. 32 of the IT Act relating to depreciation. Sub-cl. (a) seeks to insert a new Expln. 5 in cl. (ii) of sub-s. (1) of the said section so as to clarify that the provisions of sub-s. (1) of s. 32 shall apply whether or not the assessee has claimed the deduction for depreciation in computing his total income. Sub-cl. (b) seeks to substitute sub-s. (2) so as to provide that where full effect cannot be given to the depreciation allowance in any previous year owning to there being no profits or gains chargeable for that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce the apex Court confined itself to the provisions of s. 32 and other sections that were applicable to asst. yr. 1974-75. (c) Sec. 32, as it stood at the relevant point of time read as under: 32(1). In respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, the following deductions shall, subject to the provisions of s. 34, be allowed:.... (ii) in the case of buildings, machinery, plant or furniture, other than ships covered by cl. (i), such percentage on the WDV thereof as may in any case or class of cases be prescribed. (d) The Hon'ble apex Court gave importance to the words "subject to the provisions of s. 34" which was available then in s. 32. Sec. 34, which was omitted w.e.f. 1st April, 1988 read as under: "34. (1) The deductions referred to in sub-s. (1) or sub-s. (1A) of s. 32 shall be allowed only if the prescribed particulars have been furnished." (e) The particulars to be given were prescribed in r. 5AA. The said rule was inserted from 1st April, 1981 and was omitted from 2nd April, 1987. (f) The apex Court also considered the circular of the Central Board of Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erm "WDV" reads as under: "WDV means- (a) in the case of assets acquired in the previous year, the actual cost to the assessee; (b) in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Act or under the...." The term "actually allowed" still exists under the statute. The above analysis of provisions of IT Act makes it clear that the intention of the Parliament has always been that the allowance of depreciation is mandatory. When the Courts interpreted the term "WDV" by giving importance to s. 34 referred to in s. 32, it is evident that the Parliament has omitted s. 34 and made consequential amendment in s. 32 through Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 to make its intentions clear. When the Hon'ble apex Court upheld the view that the depreciation claim is optional by its order dt. 15th March, 2000, it was felt that further clarification is necessary in this matter and accordingly Expln. 5 to s. 32 was inserted by Finance Act, 2001 to make the intention very clear that the depreciation claim is mandatory. 5.8 The learned Authorised Representative contend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT vs. S S. Power Switchgear Ltd. (2008) 218 CTR (Mad) 701. However, learned Departmental Representative stood by the order of learned CIT(A) in this regard. 6.1 As contended by the learned Authorised Representative, 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 of the Act. Otherwise, such gain is normally treated as part of business receipt only. The Hon'ble Madhya Pradesh High Court in the case of Shrikishan Chandmal 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. has also approved the decision of Hon'ble Madhya Pradesh High Court cited above. In view of the propositions laid down in the above cited case law, 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 under s. 50 of the Act. Hence we find merit in the contention of the learned Authorised Representative. In any cas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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