INCOME TAX ACT, 1961

Section 32(2)

Depreciation - Unabsorbed depreciation - Applicability of eight years limit -

In concerned assessment year 2008-09 assessee claimed set-off of depreciation pertaining to assessment years 1997-98 to 1999-2000. AO taking note of amendment made by Finance Act, 1996, with effect from 1-4-1997, to section 32(2) and further amendment made by Finance Act, 2001, with effect from 1-4-2002, held that depreciation for the year under section 32(1) starting from assessment years 1997-98 up-to 2001-02 could be set off firstly against business income and then against income under any other head. However, depreciation for assessment years 1997-98 to assessment year 2001-02 which could not be set-off in this manner, could be carried forward only for a maximum period of eight assessment years from the assessment year immediately succeeding the assessment year for which it was first computed and the same could be set-off only against the income under the head 'Profit and Gains from Business or Profession'. Thus, the depreciation for assessment years 1997-98 to 1999-2000 could be set-off during eight assessment years only which would expire during assessment year 2007-08. The changes were brought in to section 32(2) which is a substantive provision and not a procedural one and therefore, the amendment made by Finance Act, 2001, with effect from 1-4-2002, permitting set-off of depreciation for infinite period was prospective in nature and applicable from assessment year 2002-03 onwards only. Therefore, the adjustment as claimed by the assessee could not be allowed. Accordingly, set-off was denied to assessee. Held: Had the intention of the Legislature been to allow the unabsorbed depreciation allowance worked out in assessment year 1997-98 only for eight subsequent assessment years even after the amendment of section 32(2) by Finance Act, 2001, it would have incorporated a provision to that effect. However, it does not contain any such provision. And once the Circular No. 14 of 2001 clarified that restriction of 8 years for carry forward and set-off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from assessment year 1997-98 upto the assessment year 2001-02 got carried forward to the assessment year 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set-off against the profits and gains of subsequent years, without any limit, whatsoever.

Relied:CIT v. KMC Speciality Hospitals India Ltd. (2021) 130 Taxmann.com 315 (Mad-HC) : 2021 TaxPub(DT) 3932 (Mad-HC), 6-7-2021) and Harvey Heart Hospitals Ltd. v. Asstt. CIT (2021) 127 Taxmann.com 805 (Mad-HC) : 2021 TaxPub(DT) 286 (Mad-HC), 6-1-2021).

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