Bombay High Court
M/S Ballarpur Industries Ltd.New ... vs Commissioner Of Inome Tax,Nagpur on 7 September, 2017
Bench: Ravi K. Deshpande
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
NAGPUR BENCH, NAGPUR
Income Tax Appeal No.27 of 2003
Along with
Income Tax Appeal No.135 of 2003
Income Tax Appeal No.27 of 2003
M/s. Ballarpur Industries Ltd.,
New Delhi. ... App
ellant
Versus
Commissioner of Income Tax,
Vidarbha, Nagpur. ... Respondent
Income Tax Appeal No.135 of 2003
M/s. Ballarpur Industries Ltd.,
Thapar House,
124, Janpath,
New Delhi. ... Appellant
Versus
The Commissioner of Income-Tax,
Vidarbha,
Ayakar Bhavan,
Civil Lines,
Nagpur. ... Respondent
In both the Income Tax Appeals :
Shri K.P. Dewani, Advocate for Appellant.
Shri S.N. Bhattad, Advocate for Respondent.
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Coram : R.K. Deshpande & Manish Pitale, JJ.
st
Date of Reserving the Judgment : 31 August, 2017
Date of Pronouncing the Judgment : 7th September, 2017
Judgment (Per R.K. Deshpande, J.) :
1. One Modern Stramit (I) Ltd., a sick company, was
closed down by the end of the year 1986. It was referred to the
Board for Industrial and Financial Reconstruction (BIFR) on
30-9-1989 under Section 15 of the Sick Industrial Companies
(Special Provisions) Act, 1985 (SICA). A scheme for
rehabilitation in respect of it, was prepared under Section 19 of
SICA and a proposal for its amalgamation in the
assessee-M/s. Ballarpur Industries Ltd. (BILT) was accepted and
accordingly, the amalgamation took place with effect from
1-4-1991.
2. The statement of unabsorbed business loss,
depreciation, etc., as on 31-3-1991 of the erstwhile Modern
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Stramit (I) Ltd. (amalgamating company) prepared
was as under :
Asstt. Year Business Loss Depreciation Total
1985-86 18,79,504 16,39,602 35,19,106
1986-87 22,53,705 14,09,485 36.63,190
1987-88 - - -
1988-89 33,61,672 20,58,898 54,20,570
1989-90 22,67,739 28,92,151 51,59,890
1990-91 21,93,851 20,72,702 42,66,553
1991-92 21,83,983 10,63,906 32,47,899
1,41,40,464 1,11,36,744 2,52,77,208
Add:
Depn. Claimed
in A.Y. 1987-88
- 12,19,103 12,19,103
totally disallowed.
1,41,40,464 1,23,55,847 2,64,96,311
Admissible losses u/s
72(a) restricted to
the tax relief of
Rs.75.00 lakhs i.e.
equivalent loss.
1,41,40,464 3,52,290 1,44,92,754
Balance inadmissible
u/s 72(A) 0 1,20,03,557 1,20,03,557
The claim of the assessee was for written down value of
Rs.1,20,03,557/- of the assets of the amalgamating company and
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the consequent claim was for depreciation of Rs.27,09,294/- for
the Assessment Year 1992-93. The Assessing Officer allowed the
claim of depreciation to the extent of Rs.3,52,290/- and rest of
the claim for depreciation was rejected by the assessment order
dated 24-2-1995. The Commissioner of Income Tax (Appeals),
Nagpur (CIT) maintained this decision on 26-2-1996 and the
Income Tax Appellate Tribunal, Nagpur Bench also confirmed it
on 30-9-2002. Hence, both these Income Tax Appeals No.27
and 135 of 2003 arise out of the proceedings for the Assessment
Years 1992-93 and 1993-94, against these decisions of the
Tribunal and the authorities below. It is an admitted position
and conceded by the parties that questions (I) to (III) on which
the appeals were admitted are covered in favour of the Revenue
and against the appellant by judgment and order dated 1-8-2017
passed by this Court in I.T.R. No.11 of 2002. Accordingly, we
answer questions (I) to (III) in favour of the Revenue.
3. In these appeals, we are required to decide the following
questions of law framed by this Court on 18-6-2007 :
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"IV) Whether Income Tax Appellate Tribunal erred in
confirming the disallowance of depreciation amounting to
Rs.27,09,294/- in respect of assets of M/s Modern Stramit
(I) Limited, a company amalgamated with the appellant
company in terms of the order of BIFR ?
V) Whether the Income-tax Appellate Tribunal erred
in confirming the disallowance of depreciation on the
value of assets of the amalgamating company not actually
allowed under Section 32 read with Section 43(6) and
Section 72A of the Income-tax Act, 1961 ?
VI) Without prejudice to ground no. (iv) and (v)
above whether the Tribunal erred in not allowing the
benefit of unabsorbed depreciation despite the fact that
provision of section 72A of the Income-tax Act, 1061 read
with Sections 18 and 32(2) of the Sick Industrial
Companies (Special Provision) act, 1985 have been
complied with ?"
4. The denial of benefit of depreciation of Rs.27,09,294/-
is on the basis of the order dated 6-5-1992 passed by BIFR in
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exercise of its jurisdiction under Section 32(2) of SICA read with
Section 72A(2)(ii) of the Income Tax Act, 1961, as it existed on
that date. The relevant portion of the order passed by BIFR on
6-5-1992 is reproduced below :
"BILT would be eligible from 1st April 91 to carry forward
business loss and unabsorbed depreciation of Modern
Stramit (I) Ltd. under the provision of section 72A of the
I.T. Act. The tax benefit under the section, however,
would be to a maximum of Rs.75 lakhs."
The Assessing Officer holds that since the maximum benefit as
far as tax is concerned was specified by BIFR, there was no way
the assessee could get benefit beyond what was the intention of
BIFR. Since the tax benefit had been specified under
Section 72A of the Income Tax Act, the assessee could not go
beyond the purview and claim additional depreciation and on
what had worked out to be inadmissible under Section 72A of
the Income Tax Act read with the terms of the order
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dated 6-5-1992 passed by BIFR. The Assessing Officer, therefore,
disallowed the claim for depreciation of Rs.27,09,294/- and
added it in the income of the assessee for the
Assessment Year 1992-93.
5. The CIT in appeal, referring to the decision of the
Division Bench of this Court in the case of Commissioner of
Income Tax v. Hindustan Petroleum Corporation Ltd., reported in
(1991) 187 ITR 0001, holds that though the appellant in the said
decision was held entitled to enhancement of written down value
of the assets, the said decision cannot be applied to the facts of
the present case, for the reason that it was delivered before
insertion of Section 72A of the Income Tax Act, which now
specifically lays down as to how and in what circumstances the
amalgamated company can avail the benefit of carry forward
business loss and unabsorbed depreciation of the amalgamated
company. The CIT holds that the Assessing Officer has allowed
the carry forward business loss and unabsorbed depreciation of
the amalgamated company to the assessee to the extent of
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Rs.75,00,000/-, and to allow the claim of the assessee for
depreciation on the value of Rs.1,20,03,557/- would be against
the order of BIFR passed under Section 72A(i)(c) of the
Income Tax Act.
6. The Income Tax Appellate Tribunal confirms the
decisions of the authorities below. It holds that the provision of
Section 72A of the Income Tax Act is a special provision dealing
with the issues of carry forward and set off accumulated loss and
unabsorbed depreciation allowance in certain cases of
amalgamation and as per the phraseology used in the said
Section, this provision has overriding effect on any other
provisions of the Act. The Tribunal holds that the maxim
generalia specialibus non derogant is applicable and the said
provision under Section 72A of the Income Tax Act shall override
the provisions of Sections 32(2) and 43(6) of the said Act.
7. In para 51 of the judgment, the Tribunal holds as
under :
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"51. ... Nevertheless, even with the limitation of
Rs.75.00 lakhs in terms of tax relief, the Assessee company
could have absorbed the entire unabsorbed depreciation of
amalgamating company amounting to Rs.1,23,55,847/-
by giving preference to it over the unabsorbed business
loss. However, it chose to exhaust the business loss first
which resulted in a portion of the unabsorbed depreciation
to the extent of Rs.1,20,03,557/-, remaining inadmissible.
In these facts and circumstances, it cannot be said that the
Assessee Company was otherwise entitled for more benefits
without the application of Section 72A and that the
benefits allowed to the Assessee Company as per the BIFR
order issued in accordance with the provisions of
Section 72A has a result of taking away any benefit which
otherwise was available to the Assessee."
8. The Tribunal has thus held that it was permissible for
the assessee-Company to have absorbed the entire unabsorbed
depreciation of amalgamating company amounting to
Rs.1,23,55,847/- by giving preference to it over unabsorbed
business loss. However, it chose to exhaust the business loss
first, which resulted in a portion of the unabsorbed depreciation
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on the value of Rs.1,20,03,557/- remaining inadmissible. It
holds that the assessee was not entitled to more benefits than the
limitation of Rs.75,00,000/- specified in the order
passed by BIFR on 6-5-1992.
9. Shri Dewani, the learned counsel appearing for the
assessee-company, heavily relied upon the decision of the
Division Bench of this Court in the case of Hindustan Petroleum
Corporation Ltd., cited supra, to urge that in terms of
Section 32(2) read with Section 43(6) and the Explanations 2A
and 3 of the Income Tax Act, the assesee-company was entitled
to depreciation of Rs.27,09,294/- on the value of the assets of
Rs.1,23,55,847/- taken over of the amalgamating company.
10. We have gone through the said decision. The
assessment year involved in the said decision was of 1975-76
and the contention raised was that the unabsorbed depreciation
of Rs.21,42,815/- of the amalgamating company be treated
and/or allowed as the depreciation of the current year, as the
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amalgamating company became non-existent, and the
depreciation of these assets was allowable in the hands of the
assessee. The Tribunal did not accept the claim of the assessee
and it was held that the written down value of the assets taken
over by the assessee-company from amalgamating company, was
the actual cost of assets to amalgamating company as reduced
not only by the depreciation actually allowed but also the
depreciation determined but not given effect to.
11. Finding fault with the aforestated view taken by the
Tribunal in the case of Hindustan Petroleum Corporation Ltd.,
cited supra, this Court holds that the legal position about the
unabsorbed depreciation is that it is not carried forward as such
and is added to the depreciation for the following previous year
and deemed to be part of that allowance. However, it is implicit
in the scheme of Section 32(2) that such a thing would happen
only if the assessee continues to carry on its business in the
following year or years. This Court has held that for the
Assessment Year 1975-76, the unabsorbed depreciation could
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not, under Section 32(2), be treated and/or allowed as the
depreciation of the current year of the non-existent
amalgamating company, and that is why the depreciation on
these assets is claimed by and is allowable in the hands of the
assessee only.
12. In our view, the Tribunal and the authorities below have
rightly held that the decision of this Court in Hindustan
Petroleum Corporation Ltd., cited supra, is not applicable in the
present case, for the reason that the said decision was not
dealing with the impact of Section 72A of the Income Tax Act on
the provision of Section 32(2) or 43(6) of the said Act. The
requirements of Section 32(2) read with Section 43(6) of the
Income Tax Act, which permit the amalgamating Company to
claim its unabsorbed depreciation, get eclipsed by the provision
of Section 72(A)(1)(c) of the said Act, which has been given
overriding effect and the power to put such restrictions is
conferred upon BIFR under Section 32(2) of SICA. In the
present case, this power has been exercised by BIFR, putting a
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cap of Rs.75,00,000/- with an object not only to see that there is
a revival of sick industry but also to provide capital incentive to
amalgamated company to claim unabsorbed loss of the
amalgamating company.
13. The object and purpose of introducing Section 72A
under the Income Tax Act is considered by the Division Bench of
Delhi High Court in its judgment in the case of IEL Ltd. v. Union
of India & Ors., reported in (1992) 195 ITR 0232. The relevant
portion of this judgment in para 10 is reproduced below :
"10. ... ... ...
While examining the application under s. 72A, the
purpose and intent of insertion of the section has to be
kept in view. Sec. 72A was enacted with a view to provide
an incentive to robust companies to take over and
amalgamate with the companies which would otherwise
become a burden on the economy. It is no doubt true that
when a declaration under s. 72A is granted, the
amalgamated company does receive benefits, inasmuch as
it is able to take advantage of the unabsorbed depreciation
and accumulated losses. But this is precisely the incentive
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which is given to the healthy companies and, we feel, that
the legislative intent of giving such incentive should not
ordinarily be set at naught. The Specified Authority and
the Central Government should take an overall view of the
matter and come to a pragmatic and practical conclusion
as to whether the conditions specified in s. 72A are
satisfied or not. We may here note that where the
provisions of s. 72A are not misused, there is further
safeguard which are provided in s. 72A of the Act. Once a
declaration under s. 72A has been accorded, then before
getting the benefit under that provision, the amalgamated
company has to fulfill the conditions specified in sub-s. (2)
of s. 72A. One of the important conditions stipulated in
sub-s. (2) of s. 72A is obtaining of a certificate from the
Specified Authority to the effect that adequate steps had
been taken by the amalgamated company for the
rehabilitation or revival of business of the amalgamating
company. In other words, the benefit of s. 72A will not be
obtained if the sole idea of amalgamating was not the
revival of the amalgamating company but was only to
take benefit of the carry forward losses and unabsorbed
depreciation.
The revival of a sick unit or positive efforts in this behalf
are the pre-conditions to the benefits under s. 72A being
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availed of. We, therefore, feel that an application under
s. 72A should be considered most sympathetically from a
businessman's point of view. If a company has become
commercially insolvent or is likely to become commercially
insolvent, then every effort should be made to prevent such
a situation from arising and if an amalgamation takes
place and conditions under sub-s. (1) of s. 72A are
satisfied, then we see no reason as to why a declaration
should not be accorded."
14. The Division Bench of Delhi High Court has held in the
aforesaid decision that once the declaration is granted under
Section 72A of the Income Tax Act, the amalgamated company
thus received the benefit inasmuch as it is able to take advantage
of the unabsorbed depreciation and accumulated losses. Upon
fulfillment of the conditions specified in sub-section (2) of
Section 72A, it holds that the benefit of Section 72A will not be
obtained if the sole idea of amalgamating was not the revival of
the amalgamating company but was only to take benefit of the
carry forward losses and unabsorbed depreciation. This decision
supports the view which we have taken.
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15. We put a specific question to Shri Bhattad, the learned
counsel appearing for the Department, as to whether the
assessee would be entitled to such claim of unabsorbed
depreciation in the absence of the provision of Section 72 of the
Income Tax Act, and his answer is in the affirmative. We also
put a specific question to Shri Dewani, the learned counsel
appearing for the assessee, as to whether the assessee would be
entitled to claim the unabsorbed loss of
Rs.1,41,40,464/- of the amalgamating company during the
Assessment Year 1992-93 in the absence of the provision of
Section 72A of the Income Tax Act, and his answer is in the
negative.
16. Thus, the undisputed position is that in the absence of
the provisions of Section 72A of the Income Tax Act, the assessee
would be entitled to written down value of Rs.1,23,55,847/- of
the assets of the amalgamating company for the Assessment Year
1992-93 and consequently to claim the depreciation of
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Rs.27,09,294/-. In the absence of the provision of Section 72A
of the Income Tax Act, the assessee would not be entitled to
claim unabsorbed loss of Rs.1,41,40,464/- of the amalgamating
company for the Assessment Year 1992-93. The assessee
exercised the discretion of exhausting the business loss first, as a
result of which, the claim for depreciation of Rs.3,52,290/- only
remained admissible.
17. Taking overall view as aforestated, we hold that the
Income Tax Appellate Tribunal did not commit an error in
confirming the disallowance of depreciation amounting to
Rs.27,09,294/- in respect of the assets of M/s. Modern Stramit
(I) Ltd., a Company amalgamated with the appellant-Company,
in terms of the order dated 6-5-1992 passed by BIFR. The
question of law at serial No.(IV) is answered accordingly. The
other questions of law do not survive.
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18. The appeals are dismissed. No costs.
(Manish Pitale, J.) (R.K. Deshpande, J.)
Lanjewar, PS
