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Pr. Commissioner of Income Tax – 2 Versus British Motor Car Co. (1934) Ltd.

2018 (1) TMI 547 - DELHI HIGH COURT

Carry forward depreciation for a number of years - whether the interpretation of Section 32(2) of the Income Tax Act, 1961 (‘the Act’) as amended by Finance Act, 2001, could be given effect to beyond the period of eight years, prior to its commencement? - Held that:- In General Motors India Pvt. Ltd. (2012 (8) TMI 714 - GUJARAT HIGH COURT) the entire history of the legislation was considered by the Gujarat High Court including the reasons for the Finance Act No.2 of 1996, the amendment of 2001-b .....

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in 1996 through Finance Act No.2. As the Gujarat High Court observed, Had the intention of Parliament being really to restrict the benefit (of unlimited carry forward prospectively), there were more decisive ways of doing so-such as, an expressed provision or an exception or proviso etc. The absence of any such legislative devise meant that provisions had to be construed in its own term and not so as to restrict the benefit or advantage, it sought to confirm. The reasoning in Motor & General Fin .....

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1031/2017 2. The question of law urged by the Revenue in the appeal is whether the interpretation of Section 32(2) of the Income Tax Act, 1961 ( the Act ) as amended by Finance Act, 2001, could be given effect to beyond the period of eight years, prior to its commencement? 3. The assessee in this case had carried forward depreciation for a number of years - the earliest of which, was 1998-99. 4. For Assessment Year (A.Y.) 2010-11, the Assessing Officer (AO) disallowed the amounts claimed as dep .....

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ent judgment of the Gujarat High Court in General Motors India Pvt. Ltd. v. DCIT, 354 ITR 244 (Guj). That judgment had been followed by this Court in Motor & General Finance Ltd. v. ITO, 2017 80 Taxxman.com 14 (Delhi). Mr. Zoheb Hossain, learned counsel for the Revenue contends that the decision in Motor & General Finance Ltd (supra) cannot be considered conclusive because it was rendered in the context of validity of a reopening of an assessment under Section 147 of the Act and the Cour .....

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s, as follows:- 32. Depreciation (1) ....... ....... ....... ...... (2) Where, in the assessment of the assessee full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions or sub-section (2) of Section 72 and sub-section (3) of Section 73, the allowance or the part of the allowance to w .....

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ior to that amendment, there was no restriction or cap in the carrying forward of depreciation. In General Motors India Pvt. Ltd. (supra), the entire history of the legislation was considered by the Gujarat High Court including the reasons for the Finance Act No.2 of 1996, the amendment of 2001-brought into force with effect from 01.04.20002 as well as the circular of the Central Board of Direct Taxes (Circular No.14 of 2001). The Gujarat High Court, after considering and noticing these relevant .....

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e, then, the allowance or the part of allowance to which effect has not been given (hereinafter referred to as unabsorbed depreciation allowance), as the case may be,- (i) shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year; (ii) if the unabsorbed depreciation allowance cannot be wholly set off under clause (i), the amount not so set off shall be set off from the income under any other head, if any, asses .....

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tion allowance not so set off shall be carried forward to the following assessment year not being more than eight assessment years immediately succeeding the assessment year for which the aforesaid allowance was first computed: Provided that the time limit of eight assessment years specified in sub-clause (b) shall not apply in case of a company for the assessment year beginning with the assessment year relevant to the previous year in which the said company has become a sick industrial company .....

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provision was introduced by the Finance (No. 2) Act, 1996, and further amended by the Finance Act, 2000. The provision introduced by the Finance (No. 2) Act was clarified by the Finance Minister to be applicable with prospective effect. 36. Section 32(2) of the Act was amended by the Finance Act, 2001, and the provision so amended reads as under: Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being .....

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or that previous year, be deemed to be the allowance of that previous year, and so on for the succeeding previous years. 37. The purpose of this amendment has been clarified by the Central Board of Direct Taxes in Circular No. 14 of 2001 (see [2001] 252 ITR (St.) 65, 90). The relevant portion of the said Circular reads as under: Modification of provisions relating to depreciation 30.1 Under the existing provisions of section 32 of the Income-tax Act, carry forward and set off of unabsorbed depre .....

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ry. 30.3 Under the existing provisions, no deduction for depreciation is allowed on any motor car manufactured outside India unless it is used (i) in the business of running it on hire for tourists, or (ii) outside in the assessee's business or profession in another country. 30.4 The Act has allowed depreciation allowance on all imported motor cars acquired on or after 1st April, 2001. 30.5 These amendments will take effect from the 1st April, 2002, and will, accordingly, apply in relation t .....

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ble to an assessee on the 1st day of April, 2002 (the assessment year 2002-03), will be dealt with in accordance with the provisions of section 32(2) as amended by the Finance Act, 2001, and not by the provisions of section 32(2) as it stood before the said amendment. Had the intention of the Legislature been to allow the unabsorbed depreciation allowance worked out in the assessment year 1997-98 only for eight subsequent assessment years even after the amendment of section 32(2) by the Finance .....

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s to express clearly and the assessee becomes entitled for a benefit within the ambit of the section by the clear words used in the section, the benefit accruing to the assessee cannot be denied. However, Circular No. 14 of 2001 had clarified that under section 32(2), in computing the profits and gains of business or profession for any previous year, deduction of depreciation under section 32 shall be mandatory. Therefore, the provisions of section 32(2) as amended by the Finance Act, 2001, woul .....

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s to which it relates. If such depreciation amount is larger than the amount of the profits of that business, then such excess comes for absorption from the profits and gains from any other business or business, if any, carried on by the assessee. If a balance is left even thereafter, that becomes deductible from out of income from any source under any of the other heads of income during that year. In case there is a still balance left over, it is to be treated as unabsorbed depreciation and it .....

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