A. Kalyanasundharam, Sr. Vice-President - (1.) THE assessee, a Registered Firm, has filed this appeal against the order of the Commissioner of Income-tax (Appeals)-I, Madurai dated 19th of February, 2004. This Special Bench has been constituted for considering the following question: In view of the provisions of Section 32(2)(iii) whether it is possible to set off the brought forward depreciation loss against capital gains?
(2.) On behalf of the assessee firm, Mr. C.V. Rajan, Senior Advocate along with Shri S.P. Chidambaram appeared and for the Department, Mr. C. Venkateswarlu appeared. The counsel for the assessee and the Departmental Representative placed before us in clear terms the contentions that they both felt are relevant to the issue before us. We appreciate the arguments and contentions placed by both of them as they were eloquent and relevant to the issue before us. Considering the rival submissions, we would be rendering our conclusions along with the reasons therefor in the following paragraphs. The issue that is raised for the consideration of this Special Bench is as a consequence of the amendment to Section 32(2) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') which was effective from 1.4.1997. It is our considered view that it would be relevant to reproduce the said section as it stood prior to the amendment and after the amendment: The provision of Section 32(2) as it stood prior to the amendment by the Finance (No. 2) Act, 1996 as under: (2) Where, in the assessment of the assessee, 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. The provision of Sub-section (2) of Section 32 as amended by the Finance (No. 2) Act, 1996 w.e.f. 1.4.1997 is as under: (2) Where in the assessment of the assessee 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 net worth of such company becomes equal to or exceeds the accumulated losses. Explanation.- For 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 J986)]
(3.) WE bring below in a table form the comparative position that all the provisions of Section 32(2) of the Act as it stood prior to 1.4.1997 and after 1.4.1997 which we believe would give a comprehensive view of the changes: JUDGEMENT_12667_TLIT0_20060.htm ;