TMI Blog1997 (11) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... e unabsorbed depreciation in computing the business income of the assessee ?" The dispute pertains to the assessment year 1975-76, where the assessee claimed that unabsorbed development rebate in respect of earlier years and carried forward to the extent of Rs. 4,52,99,772 (allowed during the assessment year 1968-69) should have been first set off, before calculating and setting off of the carried forward amount of unabsorbed depreciation. The unabsorbed depreciation carried forward in terms of assessment order dated May 12, 1977, relating to the assessment year 1974-75 was to the extent of Rs. 4,79,14,914. The Income-tax Officer, however, did not accept this claim and allowed the unabsorbed depreciation of the earlier years to the extent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on a decision of the Karnataka High Court in Mysore Paper Mills Ltd. v. CIT [1979] 117 ITR 132. Feeling still dissatisfied, the assessee applied for a reference under section 256(1) of the Act and in granting the application, the question set out above has been referred to this court for its opinion. We have heard learned counsel for the parties. Learned counsel for the assessee reiterated the argument that was put forward before the Commissioner of Income-tax (Appeals) and thereafter before the Income-tax Appellate Tribunal. It was contended that carry forward of unabsorbed depreciation is for an unlimited period while the carry forward of unabsorbed development rebate is restricted only to a period of eight years and, for this considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l with it as such subject only to section 72(2) and 72(3) of the Act. It was pointed out that, but for section 32(2) being made subject to sub-section (2) of section 72, by reason of the legal fiction enacted in section 32(2), the entire unabsorbed depreciation allowance would have to be treated as the current year's depreciation and deducted even before the carried forward loss is deducted. The unabsorbed depreciation of an earlier year carried forward must be taken as part of the current year's depreciation allowance and should be set off to the extent possible against the income of the current year. The court held that section 33 which provides for development rebate, is intended to give an incentive to businessmen to invest in new machi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd has to be allowed. Unabsorbed development rebate comes up for consideration only after these two allowances." The Kerala High Court in Calicut Modern Spinning and Weaving Mills Ltd. v. CIT [1985] 153 ITR 810 upon consideration of the decisions cited earlier and that of the Gujarat High Court in CIT v. Gujarat State Warehousing Corporation [1976] 104 ITR 1 has held : "It is only after setting off unabsorbed business loss and also unabsorbed depreciation that the question of unabsorbed development rebate can arise." Against the decision of the Kerala High Court a special leave petition was dismissed by the Supreme Court in Calicut Modern Spinning and Weaving Mills Ltd. v. CIT [1988] 169 ITR (St.) 11. Reference may also be made to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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