Delhi High Court

Ito vs Selchem Engineers (P) Ltd. on 16 April, 2004

Equivalent citations: (2004) 84 TTJ Del 101

ORDER

P.M. Jagtap, A.M.

This appeal is preferred by the revenue against the order of learned Commissioner (Appeals)-II, New Delhi, dated 30-9-1999, whereby he allowed the unabsorbed depreciation for the earlier years to be set off against the income of the assessed from house property for the year under consideration, i.e., assessment year 1997-98 as claimed by the assessed.

2. We have heard the arguments of both the sides and also perused the relevant material on record. It is observed that the assessed's claim to set off the unabsorbed depreciation for earlier years against the income from house property for the year under consideration (hereinafter referred to as 'the impugned claim of the assessed') was disallowed by the assesssing officer keeping in view the provisions of section 32(2) as amended by Finance (No. 2) Act, 1996, with effect from 1-4-1997. The learned Commissioner (Appeals), however, allowed this claim of the assessed relying on the speech of the Finance Minister in Parliament while moving the Finance (No. 2) Bill of 1996 assuring that the unabsorbed depreciation as on 1-4-1997, will be allowed to be set off against taxable business profits or income under any other head for assessment year 1997-98 and seven subsequent assessment years. Before us, the learned departmental Representative has mainly relied on the order of the assessing officer and submitted that he was fully justified in disallowing the impugned claim of the assessed as per the provisions of section 32(2) as amended by Finance (No. 2) Act, 1996, with effect from 1-4-1997. The learned counsel for the assessed, on the other hand, has strongly supported the order of learned Commissioner (Appeals) and submitted that he was fully justified in allowing the impugned claim of the assessed relying on Finance Minister's speech which could certainly be taken aid of as held by the Hon'ble Supreme Court in the cue of Kerala State Industrial Development Corporation v. CIT (2003) 259 1TR 51 (SC). He has also relied on Circular No. 762, dated 18-2-1998, issued by CBDT incorporating the assurance given by the Finance Minister in his speech in the Parliament while moving Finance (No. 2) Bill of 1996.

3. After considering the rival submissions and perusing the relevant material on record, it is observed that the impugned claim of the assessed was disallowed by the assessing officer relying mainly on the provisions of section 32(2) as amended by the Finance (No. 2) Act, 1996, with effect from 1-4-1997 and became applicable from assessment year 1997-98, i.e., the year under consideration. It is, therefore, pertinent to refer to the provisions of section 32(2) as existed prior to the amendment made by the Finance (No. 2) Act, 1996, as well as subsequent to such amendment :

Provisions of section 32(2) prior to amendment made by Finance (No. 2) Act, 1996, with effect from 1-4-1997:

"(2) Where, in the assessment of the assessed, full effect cannot be given to any allowance under clause (ii) of 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 of sub-section (2) of section 72 and sub-section (3) of section 73, the allowance or part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years."

Provisions of section 32(2) as amended by Finiance, (No. 2) Act, 1996, we.f. 1-4-1997:

"(2) Where, in the assessment of the assessed full effect cannot be given to any allowance under clause (ii) of 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 being less than the allowance, 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, assessable for that assessment year;

(iii) if the unabsorbed depreciation allowance cannot be wholly set off under clause (i) and clause (ii), the amount of allowance not so set off shall be carried forward to the following assessment year and

(a) it 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;

(b) if the unabsorbed depreciation allowance cannot be wholly so set off, the amount of unabsorbed depreciation 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 business or profession for which the allowance was originally computed continued to be carried on by him in the previous year relevant for that assessment year :

Provided further that the time limit of eight assessment years specified in sub clause (b) shall not apply in the 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 under sub-section (1) of section 17 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and ending with the assessment year relevant to the previous year in which the entire net worth of such company becomes equal to or exceeds the accumulated losses.

ExplanationFor the purposes of this clause, "net worth" shall have the meaning assigned to it in clause (ga) of sub-section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986)".

4. A comparative reading of the aforesaid provisions prior to the amendment as well as subsequent to the amendment clearly shows that not only the benefits available to the assessed as per the pre-amended section 32(2) by way of treatment given to the unabsorbed depreciation of the earlier years as current year's depreciation by deeming fiction were taken away by the amendment made in the said section by Finance (No. 2) Act, 1996, with effect from 1-4-1997, but even the period available to set off such unabsorbed depreciation against the profits of the subsequent years was limited to eight years as against no such limit prescribed in the pre-amended provisions. As a result of this amendment proposed in the Finance (No. 2) Bill, 1996, it was apprehended that the same will cause great hardships to the assesseds. During the course of discussion on General Budget, a number of Members of Parliament expressed their apprehension that this proposed amendment would adversely effect the growth of the industry and in order to allay these fears expressed by the Members of Parliament as well as in the large number of post-Budget memoranda, the Finance Minister assured in his speech on moving the Finance (No. 2) Bill, 1996, that this proposed amendment will have prospective effect inasmuch as the cumulative unabsorbed depreciation brought forward as on 1-4-1997, could still be set off against taxable business profits or income under any other head in assessment year 1997-98 and seven subsequent assessment years. The Finance Minister also made it clear in his speech that the proposed amendment in section 32(2) accordingly will have effect only after eight years and there is no cause for immediate concern about its likely impact on industry. It is thus clear that the effects of the amendment made in section 32(2) by the Finance. (No. 2) Act, 1996, were specifically explained and clarified by the Finance Minister in his Budget Speech and it was assured by him in very clear terms that the depreciation allowed to the assessed up to the assessment year 1996-97 and remained unabsorbed will continue to be set off as per the pre-amended provisions of section 32(2) and it is only the depreciation allowable to the assessed for assessment year 1997-98 onwards which remains unabsorbed will be governed by the amended provisions of section 32(2).

5. In order to further clarify the position on this issue as well as to incorporate the issurance given by the Finance Minister in his speech at the time of moving the Finance (No, 2) Bill, 1996, in the Parliament, the CBDT issued a Circular No. 762, on 18-2-1998, and it is worthwhile to refer to para No. 23.5 of the said circular which, being relevant in the present context, is reproduced hereunder:

"23.5 Sub-s. (2) of section 32, as it existed up to assessment year 1996-97, provided that the unabsorbed depreciation of a year shall be added to the amount of the allowance for depreciation of the following previous year and deemed to be part of that allowance. Therefore, the unabsorbed depreciation allowance, if any, of the assessment year 1996-97 shall be added to the amount of the allowance for depreciation of assessment year 1997-98 and deemed to be part of the allowance for this year. In other words, the unabsorbed depreciation allowance of assessment year 199697 shall be added to the allowance of 1997-98 and will be deemed to be the allowance of that year. The limitation of eight years shall start from the assessment year 1997-98."

6. A perusal of the aforesaid circular issued by the CBDT further makes it clear that the unabsorbed depreciation allowance of assessment year 1996-97 has to be added to the amount of allowance for depreciation of assessment year 1997-98 and the same having been deemed to be considered as the depreciation allowance for assessment year 1997-98, the assessed will be entitled to set off the same against business income or income under any other head for assessment year 1997-98. Under section 119, the CBDT has power, inter alia, to tone down the rigour of the law and ensure a fair enforcement of its provisions by issuing circulars in exercise of its statutory powers under section 119 which are binding on the authorities in the administration of the Act. This power is given to the CBDT for the purpose of just, proper and efficient management of work of assessment and in public interest. It is a beneficial power given to the Board for proper administration of fiscal law so that undue hardship may not be caused to the assessed and the fiscal law may be correctly applied. In the case of UCO bank v. CIT (1999) 237 ITR B89 (SC), the Hon11e Supreme Court has held that circulars issued by the CBDT under section 119 having effect of relaxing rigour of law and providing for uniform application of law consonant with the legislative intention cannot be treated as inconsistent with provisions of statute and the same are binding on the departmental authorities. In the case of Commissioner of Customs, etc. v. Indian Oil Corporation & Arir. (2004) 187 CTR (SC) 297, their Lordships of Hon'ble apex court have again reiterated this position in the context of circular issued under section 151A of the Customs Act which is in para materia with section 119 of the Income Tax Act and further held that when such circular issued by the Board remains in operation, the revenue is bound by it and cannot be allowed to plead that it is not valid or that it is contrary to the terms of the statute. The Hon'ble Apex Court also held that it is not open to the revenue to file an appeal which is contrary to such circular.

7. In the present case, the relief allowed by the learned Commissioner (Appeals) to the assessed in terms of adjustment of unabsorbed depreciation of the earlier years against the income from house property for the year under consideration, i.e., assessment year 1997-98 was based on the assurance given by the Finance Minister in his speech at the time of the relevant Finance Bill and since the same was further fortified by the aforesaid Board's circular incorporating such assurance given by the Finance Minister, we are of the view that it was not open to the revenue to challenge the relief so allowed by the learned Commissioner (Appeals) on the plea that the same is not in consonance with the relevant provisions of law. In that view of the matter, we find no merits in this appeal filed by the revenue and upholding the impugned order of learned Commissioner (Appeals) allowing the claim of the assessed to set off the unabsorbed depreciation of earlier years against the income from house property for the year under consideration, we dismiss the same,

8. As already discussed, the Hon'ble Supreme Court in the case of Commissioner of Customs, etc, v. Indian Oil Corporation (supta) has reiterated the well established position regarding binding nature of the Board circulars while holding that it is not open to the revenue to file an appeal against the order passed in conformity with the Board circular, In the present appeal, the revenue, however, has challenged the order of learned Commissioner (Appeals) which is in conformity with the Board circular as referred to hereinabove and since the assessed has been dragged into these appellate proceedings before the Tribunal despite a direct and explicit circular on the point issued by the Board, we are of the view that it is a fit case to award cost to the assessed by exercising the discretion under section 254(2B) which we quantify in a sum of Rs. 1,0K

9. In the result, the appeal filed by the revenue is dismissed.