TMI Blog2004 (9) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax Act for the assessment year 1991-92 declaring their income as "nil", which was arrived at after adjusting the carry forward investment allowance relating to the earlier years. The assessee-company claimed that the carry forward investment allowance may be absorbed in priority over the carry forward depreciation. However, the assessing authority, while passing the assessment order dated February 15, 1993, relating to the assessment year 1991-92, refused to accept the contention of the assessee and deducted the unabsorbed depreciation for the earlier years first, which reduced the taxable income to "nil". In his assessment order dated February 15, 1993, relating to the assessment year 1991-92, the assessing authority observed as follows: "The assessee has claimed priority for carry forward of investment allowance over carry forward depreciation. The assessee's claim is untenable under the provisions of the Act as unabsorbed depreciation gets precedence over unabsorbed investment allowance and hence the assessee's claim is not acceded." The said order of assessment dated February 15, 1993, relating to the assessment year 1991-92, was, on appeal, confirmed by the Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the circumstances of the case, the Tribunal having found that the assessee had not made a claim for set off of the unabsorbed depreciation, it is open to the assessing authority to set off the unabsorbed depreciation in computing the income for the year 1991-92, even without a claim from the assessee? (d) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in directing the allowance of the unabsorbed depreciation relating to the previous year before the allowance of unabsorbed investment allowance carried forward from the previous years holding that the assessee is not entitled to the allowance of the unabsorbed investment allowance before allowance of the unabsorbed depreciation in computing the income for the assessment year 1991-92.?" T.C. (A) No. 41 of 2002: (a) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in holding that the unabsorbed depreciation should be allowed before the allowance of the unabsorbed investment allowance in computing income of the assessee for the assessment year 1992-93? (b) Whether, on the facts and in the circumstances of the case, the Income-tax Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -operative Marketing Society Ltd. [1989] 176 ITR 117 and Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188, 197, even though the decisions of the High Courts are otherwise as held in,- (i) Shree Ramesh Cotton Mills Ltd. v. CIT [1979] 116 ITR 366 of the Calcutta High Court; (ii) Monogram Mills Co. Ltd. v. CIT [1982] 135 ITR 122 of the Gujarat High Court; (iii) CIT v. Coromandel Steels Ltd. [1981] 130 ITR 856 of the Madras High Court; (iv) Calicut Modern Spinning and Weaving Mills Ltd. v. CIT [1985] 153 ITR 810 of the Kerala High Court; and (v) Mysore Paper Mills Ltd. v. CIT [1979] 117 ITR 132 of the Karnataka High Court. Per contra, Mrs. Pushya Sitharaman, learned senior counsel appearing for the Income-tax Department, contended that the law is well settled on the point that any unabsorbed depreciation allowance should be allowed before the unabsorbed investment allowance, irrespective of the facts, (i) whether the assessee claimed unabsorbed depreciation or not, and (ii) even assuming the order of priority should go, only the unabsorbed depreciation allowance should be allowed, as against the unabsorbed investment allowance, placing reliance on the Division Bench decisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation and unabsorbed investment allowance. It is true that in the decision of the apex court in Mahendra Mills' case 14 [2000] 243 ITR 56 referred to above, it is held that the income under the head "Profits and gains of business or profession" is taxable to income-tax under section 28 and the income under section 29 is to be computed in accordance with the provisions contained in sections 30 to 43A. It is for the assessee to see that the claim of depreciation is to his advantage or otherwise. If he does not wish to avail of that benefit for some reason or other, the benefit cannot be forced upon him. In Mahendra Mills' case [2000] 243 ITR 56 (SC), it was also held that the Assessing Officer cannot grant depreciation allowance when the same is not claimed by the assessee. Following the ratio laid down by the apex court in Mahendra Mills' case [2000] 243 ITR 56, the Punjab and Haryana High Court in Ram Nath Jindal v. CIT [2001] 252 ITR 590, held that the Assessing Officer could not grant the depreciation allowance when it is not claimed by the assessee as there is no provision by which depreciation could be fictionally deemed to have been claimed and granted. It is thus held b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riority should be given to unabsorbed depreciation allowance as against unabsorbed investment allowance. The claim of the assessee based on liberal construction was also rejected in the said decision. The Gujarat High Court in Monogram Mills' case [1982] 135 ITR 122, apart from placing reliance of the various opinions of the authorities viz., Kanga and Palkhivala's The law and Practice of Income-tax, 7th edition, Vol. I, at page 402, A.N. Aiyar's Income-tax Act, 1961, 2nd edition, at page 824, Iyengar on Income-tax, 6th edition., Vol. I at page 837, Chaturvedi Pithisaria's Income-tax Law, 2nd edition, at page 1128, and V.S. Sundaram's The Law of Income-tax in India, has clearly held that both, by way of process of interpretation and looking to the rationale, viz., preventing erosion of the capital base of the assessee's business, the order of priority, viz., that the unabsorbed depreciation allowance gets priority over the unabsorbed investment allowance, is a correct order even as per the scheme of the Act. The relevant portion of the judgment in Monogram Mills' case [1982] 135 ITR 122 (Guj) reads as follows: "The scheme of priority as between the carried forward business lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... am's the Law of Income Tax in India, 9th edition, page 465, the question of priority has been considered and it has been pointed out that there can be no question of priority as between current year's depreciation allowance and development rebate. Total income has first to be arrived at before considering development rebate. Unabsorbed depreciation of earlier years is treated as additional depreciation of later years under section 32(2). Therefore, when section 33(2) talks of the total income being computed, without making any allowance under sub-section (1), i.e., for the deduction of the rebate, but after making all other deductions, it follows that unabsorbed depreciation of earlier years will have first to be deducted before development rebate is deducted. The absence of a provision, as in sections 72(2) and 73(3), may, therefore, deprive assessees of a part of the rebate owing to the eight years limit. But cases are unlikely to occur in practice having regard to business conditions of these days. Mr. Patel is right when he says that the view that such cases of development rebate of earlier years being not available to the assessees concerned owing to the lapse of eight ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epreciation of the earlier year, the depreciation of the current year shall have to be deducted and then after setting off of the loss, the unabsorbed depredation, which is also treated as the current year's depreciation, shall be adjusted. Therefore, the carried forward unabsorbed depreciation of the earlier year has to be taken as a part of the current year's depreciation allowance and to be set off, to the extent possible, against income of the current year. There is no specific provision in the Act to specify the order of priority for allowing unabsorbed depreciation of the earlier years in the subsequent years, vis-a-vis carried forward unabsorbed development rebate. This is because development rebate is not a traditional loss or expenditure in the ordinary sense of the term. It is intended to give an incentive to business to investment in machinery or in modernisation of plant and equipment. It is available to an assessee on fulfilment of certain conditions specified in the Act and in the event of non-availability of sufficient profit to enable allowance of the same in the year of acquisition, a provision has been made for carry forward of the same for a period of eight years ..... X X X X Extracts X X X X X X X X Extracts X X X X
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