TMI Blog2007 (9) TMI 443X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment year for which it is related i.e. assessment year 1988-89 and the investment allowance cannot be carried forward for set off for assessment year 1997-98, even though the amalgamation of AKSF with the assessee was effective from 1-4-1991 i.e. relevant to assessment year 1992-93. 4. The brief facts borne out from the record in this regard are that the assessee has claimed set off of unabsorbed investment allowance/depreciation of Rs. 7,97,26,616. The Assessing Officer held that the unabsorbed investment allowance of Rs. 1,38,56,714 related to assessment year 1988-89 of A.K Structural Form Ltd. (hereinafter referred to as AKSF ) which was amalgamated with the assessee in assessment year 1992-93 could be carried forward and set off for a period of 8 years from the assessment year 1988-89 and, therefore, it lapsed in assessment year 1996-97. The Assessing Officer after setting off brought forward unabsorbed depreciation/investment allowance against the income for assessment year 1996-97 and out of balance unabsorbed depreciation/investment allowance, deducted Rs. 1,38,56,714 to arrive at the unabsorbed depreciation/investment allowance for set off in assessment year 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion has taken place. 7. Now the assessee has preferred an appeal before the Tribunal and reiterated its contention. During the course of hearing, the Ld. Counsel for the assessee, Shri P.J. Pardiwala has invited our attention that section 32 of the Sick Industrial Companies Act, 1985 (SICA) has an overriding effect on any other law except the provisions of the Foreign Exchange Regulation Act, and the Urban Land Ceiling and Regulation Act. Section 32(2) also speaks about the effect of provisions of section 72A of the Income-tax Act in the light of a scheme under the SICA for amalgamation of Sick Industrial companies with another company. The Ld. Counsel further invited our attention to the declaration issued under section 72A(1) of the Income-tax Act, the order of the BIFR and the sanctioned rehabilitation- cum -amalgamation scheme. In the order of the BIFR and the sanctioned scheme carry forward accumulated losses including investment allow-ance and unabsorbed depreciation of AKSF are estimated at Rs. 1,026.90 lakhs on 31-3-1991. The estimated tax set off of on this count, at current rate under section 72(A) worked out to Rs. 531.42 lakhs. The Ld. Counsel for the assessee has f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther invited our attention to the sanctioned scheme with the submissions that clause ( i ) Part B talks about the tax benefit under section 72A. It does not talk about the carry forward of the unabsorbed investment allowance as per section 32A(6) of the Income-tax Act. Meaning thereby in the entire scheme, the order of the BIFR and declaration under section 72A, a reference was made with regard to provisions of section 72A relating to carry forward of unabsorbed accumulated loss and unabsorbed depre-ciation. The word investment allowances was used at some places in the body of the scheme but it does not mean that the investment allowances has to carry forward in the same manner as in the case of accumulated loss and unabsorbed depreciation. 9. Having heard the rival submissions and from the careful perusal of the record, we find that the A.K. Structural Form Ltd. (AKSK) was amalgamated with the assessee-company with the prior approval of BIFR and scheme for rehabilitation- cum -amalgamation was also sanctioned by the BIFR. Consequent thereto declaration under section 72A(1) of the Income-tax Act was issued by the BIFR. Through this declaration, it has been declared that notwith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arry forward and set off of accumulated loss and unabsorbed deprecia-tion allowance in amalgamation and de-mergers. Before dealing with this section, we feel it proper to extract it as under : "72A. Provisions relating to carry forward and set off of accumulated loss and unabsorbed depreciation allowance in certain cases of amalgamation. (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 Gazette, specify, to ensure that the benefit under this section is restricted to amalgamations which would facilitate the rehabilitation or revival of the business of the amalgamating company, then, the Central Government may make a declaration to that effect, and, thereupon, n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a company fulfilling the conditions laid down in clause ( xiii ) of section 47 or a proprietary concern is succeeded by a company fulfilling the conditions laid down in clause ( xiv ) of section 47, then, notwithstanding anything contained in any other provisions of this Act, the accumulated loss and the unabsorbed depreciation of the predecessor firm or the proprietary concern, as the case may be, shall be deemed to be the loss or allowance for depreciation of the successor company for the previous year in which business reorganisation was effected and other provisions of this Act relating to set off and carry forward of loss and allowance for depreciation shall apply accordingly : Provided that if any of the conditions laid down in the proviso to clause ( xiii ) or the proviso to clause ( xiv ) to section 47 are not complied with, the set off of loss or allowance of depreciation made in any previous year in the hands of the successor company, shall be deemed to be the income of the company chargeable to tax in the year in which such conditions are not complied with. (5) For the purposes of sub-section (4) ( a )"accumulated loss" means so much of the loss of the predec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciation shall apply accordingly, notwithstanding anything contained in any provisions of the Act. This section was amended by the Finance Act, 1978 with effect from 1-4-1978 and again by 1998 with effect from 1-4-1999. This section deals with the carry forward and set off of the accumulated loss and unabsorbed depreciation allowance. It has no relevance with unabsorbed investment allowance. 13. As per section 72 of the Act, so much of the business loss of a year as cannot be set off against the other income of the assessee for that year can be carried forward and set off by him against the profit of the following year from any business carried on by him. If the loss cannot be wholly so set off, the amount not so set off can be carried forward to the next following year and so on, upto a maximum of eight assessment years immediately succeeding the assessment year for which the loss was first computed. The benefit of carry forward and set off business loss, is, however, not available unless the business in which the loss was originally sustained is continued to be carried on by the assessee. Further, only the assessee who incurred the loss has the right to carry forward the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for this purpose being computed after deduction of the allowances under section 33 and section 33A, but without making any deduction under sub-section (1) of this section or any deduction under Chapter VI-A] is Nil or is less than the full amount of the investment allowance ( i ) the sum to be allowed by way of investment allowance for that assessment year under sub-section (1) shall be only such amount as is sufficient to reduce the said total income to Nil; and ( ii ) the amount of the investment allowance to the extent to which it has not been allowed as aforesaid, shall be carried forward to the following assessment year, and the investment allowance to be allowed for the following assessment year shall be such amount as is sufficient to reduce the total income of the assessee assessable for that assessment year, computed in the manner aforesaid, to nil, and the balance of the investment allowance, if any, still outstanding shall be carried forward to the following assessment year and so on, so, however, that no portion of the investment allowance shall be carried forward for more than eight assessment years immediately succeeding the assessment year relevant to the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this section, be allowed a deduction, in respect of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed or, if the ship, aircraft, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, of a sum by way of investment allowance equal to twenty five per cent of the actual cost of the ship, aircraft, machinery or plant to the assessee : [ Provided that in respect of a ship or an aircraft or machinery or plant specified in sub-section (8B), this sub-section shall have effect as if for the words "twenty five per cent", the words "twenty per cent" had been substituted:] Provided (further) that no deduction shall be allowed under this section in respect of ( a )any machinery or plant installed in any office premises or any residential accommodation, including any accommodation in the nature of a guest house; ( b )any office appliances or road transport vehicles; ( c )any ship, machinery or plant in respect of which the deduction by way of development rebate is allowable under section 33; and ( d )any machinery or plant, the whole of the actual cost of which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditions mentioned in sub-section (4) in respect of the reserve created by the amalgamating company and in respect of the period within which such ship, aircraft, machinery or plant shall not be sold or otherwise transferred and in default of any of these conditions, the provisions of sub-section (4A) of section 155 shall apply to the amalgamated company as they would have applied to the amalgamating company had it committed the default; and ( b )the balance of investment allowance, if any, still outstanding to the amalgamating company in respect of such ship, aircraft, machinery or plant, shall be allowed to the amalgamated company in accordance with the provisions of sub-section (3), so, however, that the total period for which the balance of investment allowance shall be carried forward in the assessments of the amalgamating company and the amalgamated company shall not exceed the period of eight years specified in sub-section (3) and the amalgamated company shall be treated as the assessee in respect of such ship, aircraft, machinery or plant for the purposes of this section." 18. Having gone through both the provisions of sections 72A and 32A, of the Act we are of the vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first time in the assessment year 1988-89 and it could be carry forward and set off for a period of 8 years i.e. up to assessment year 1996-97. The AKSF was amalgamated with the assessee-company in the assessment year 1992-93 and the assessee claimed its carry forward for a period 8 years from the year of amalgamation i.e. assessment year 1992-93. The revenue has disallowed the claim of the assessee on the ground that the carry forward of unabsorbed investment allowances and set off is allowable only up to the assessment year 1996-97 and since the impugned assessment year is 1997-98 which is beyond the period of 8 years, assessee cannot claim a carry forward of unabsorbed investment allowance and its set off. In the light of the foregoing discussion, we are of the view that the revenue s stand is correct and assessee is not entitled for set off of unabsorbed investment allowance for the impugned assessment year as it falls beyond the period of 8 years. Accordingly assessee fails on this ground. 20. Ground No. 2 relating to deduction of 90 per cent of receipts like interest received, labour charges, commission etc. from the business profits as contemplated in Explanation ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad Office and non-manufacturing units/branches to manufacturing units/branches on the basis of ( a ) total turnover basis and ( b ) turnover and capital employed (for financial and other charges) basis and reckoned the eligible deduction based on latter basis. The CIT(A) re-examined the claim of the assessee. But he was not convinced with the contentions of the assessee and has observed that the reasoning advanced by the assessee is not valid and will give rise to distorted allocation. Head Office and non-manufacturing units are necessarily less capital intensive than the manufacturing units. Moreover, it cannot be a general proposition that financial charges have only been incurred with respect of capital expenditure. Financial charges can also be incurred in the day-to-day working of the units and the Head Office, to finance purchase of raw materials or to finance advances to suppliers or other parties. The ld. CIT(A) has also observed that the assessee has advanced a substantial amount to a subsidiary concern i.e. M/s. Premier Lighting Indus. Pvt. Ltd. and Rs. 96,12,334 was outstanding from the said party as on 31-3-1997. He accordingly observed that the funds, for which the f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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