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M/s Sundaram Finance Ltd. Versus The Deputy Commissioner of Income Tax

2016 (4) TMI 261 - MADRAS HIGH COURT

Unabsorbed investment allowance - whether had to be deducted from profits for the purpose of computing and allowing deduction under Section 32-AB - whether Tribunal was right in not appreciating that deduction under Section 32-AB had to be allowed before set off under Section 72 and hence before deducting unabsorbed investment allowance from the earlier years ? - Held that:- On the first question it is seen from para 4 of the order of the Tribunal that the Tribunal was persuaded to take a view i .....

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ofits and gains of business" in terms of Section 28, the same cannot lead to a different interpretation to the plain language of the provisions. - The Assessing Officer went purely by logic, on the basis of the decision of the Supreme Court in Cambay Electric Supply v. CIT [ 1978 (4) TMI 1 - SUPREME Court], to hold that unabsorbed depreciation etc., provided in earlier Sections have to be set off before making a deduction under the latter Sections. Since the carry forward of investment allow .....

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he amendment made under Finance Act, 1987 to Section 32AB. - Decided in favour of assessee. - Tax Case (Appeal) No. 213 of 2015 - Dated:- 28-3-2016 - V. Ramasubramanian And K. K. Sasidharan, JJ. For the Appellant : Mr. R. Vijayaraghavan For the Respondent : Mrs.Hema Muralikrishnan, Jr.Standing Counsel JUDGMENT V. Ramasubramanian, J. This appeal is by the Assessee, under Section 260-A of Income Tax Act 1961, raising the following substantial questions of law:- (1) Whether on the facts and circums .....

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van, learned counsel for the Assessee and Mrs.Hema Muralikrishnan, learned Junior Standing Counsel for the Department. 3. The appellant is a non-banking finance company. Their assessment for the Assessment Year 1988-89 was reopened under Section 147 of the Act by issuing a notice under Section 148 of the Act, on 27.9.1991. The appellant filed a Return of Income admitting the same total income as declared in the Original Return. 4. In the Original Assessment, the Assessing Officer allowed deducti .....

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e carry forward of investment allowance for the earlier year was set off as per Section 32-A(3)(ii) of the Act and not under Section 72 of the Act. 6. The Assessing Officer also took the view that the depreciation written back to the extent of ₹ 3,59,74,762/- would form part of the book profits of the relevant previous year. 7. The assessee filed an appeal raising several issues. But the appeal was confined only to four issues namely (i) Whether the depreciation written back would form par .....

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of the assessee on the first question relating to the depreciation written back, on the ground that the issue is covered by Circular No.550 dated 1.1.1990 and that therefore, the Assessing Officer should verify the claim with reference to the Board Circular and allow relief. But the first Appellate Authority held against the assessee, the second question relating to deduction under Section 32-AB on the ground that if there is no positive income under the head income from business, there cannot b .....

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off of carried forward unabsorbed investment allowance. 10. But the Tribunal, by an order dated 13.7.2005 held that the total income for the purpose of deduction under Section 32-AB has to be computed as per the provisions of Sections 28 to 32-A and that therefore, the investment allowance carried forward has to be set off for the purpose of computing total income. Holding further that once the carry forward investment allowance was set off admittedly, the assessee has no positive income for the .....

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thereafter, the eligible allowances and deductions as enumerated in Sections 29 to 43-C have to be allowed. Section 32-AB itself, according to the learned counsel envisages set off of the relief under the Section against "profits and gains of business" prior to setting off of carried forward business losses or unabsorbed depreciation under Section 72. 12. In support of the said contentions, the learned counsel relied upon a decision of this Court in Seshasayee Paper and Boards Limited .....

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of a business for the current year, depreciation for the current year must be deducted first before deducting the unabsorbed carried forward business losses of earlier years, this Court answered the question against the assessee. But while doing so, this Court quoted with approval the order of priority enumerated by the High Court of Gujarat in Monogram Mills Company Limited v. CIT [135 ITR 122]. 13. In Monogram Mills case, the Gujarat High Court held that the scheme of priority would be as fol .....

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ity of setting off the carried forward business or unabsorbed allowances against the total income should be in the following order of preference: Firstly, current year's depreciation and amortised scientific expenditure have to be deducted (ss 32 & 35) Then, carried forward business loss (only from business income, under certain conditions) s.72(1); Then, unabsorbed depreciation and amortised scientific expenditure of earlier years (ss 32 (2) and 35(4); Then, unabsorbed development rebat .....

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n" under Chapter IV which deals with "Computation of Total Income". Section 28 of the Act lists out the different types of income that are chargeable to income tax under the head "Profits and gains of business or profession". Section 29 lays down that the income referred to in Section 28 should be computed in accordance with the provisions contained in Sections 30 to 43-D. 17. A close look at Sections 28 and 29 would show that all types of income need not necessarily be .....

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o tax under the head "Profits and gains of business or profession". But these provisions do not deal with the question of set off or carry forward. Issues relating to set off or carry forward and set off are dealt with in Chapter VI. 19. Under Section 72 (1), the assessee is allowed to carry forward to the following assessment year and get set off against the profits and gains of business assessable for that assessment year, (i) any loss that could not be set off against income under a .....

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irst be given to the provisions of Section 72. Under sub-section (2) of Section 32, as it stood at the relevant point of time, the following rules were provided: (i) If full effect cannot be given to any allowance covered by the section, in any previous year owing to there being no profits or gains chargeable for that previous year or owing to the profits and gains being less than the allowance, then the allowance to which effect has not been given may be set off against the profits and gains as .....

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cess can be repeated successively for a period not more than 8 assessment years. 21. Keeping the above in mind, if we come back to Section 32-AB it could be seen that under the Finance Act, 1987, this Section was amended. We are taking particular note of this amendment, in view of the fact that in the case on hand we are concerned with the assessment year 1988-89. The Explanatory note on the provisions of the Finance Act, 1987 contained in Circular No.495 dated 22.9.1987 states that under the Fi .....

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deduction being allowed before the loss, if any, brought forward from earlier years is set off under Section 72. Therefore, it is clear that any deduction under Section 32AB has to be allowed before a set off is made under Section 72 in respect of the loss brought forward from the earlier years. Hence, the second question of law, is even as per the plain language of Section 32AB(1), as amended by Finance Act, 1987, has to be answered in favour of the assessee. 23. On the first question it is se .....

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