Case Note & Summary
The case involves two income tax appeals filed by M/s. Ballarpur Industries Ltd. (BILT) against the Commissioner of Income Tax, Vidarbha, Nagpur, concerning the assessment years 1992-93 and 1993-94. The core issue was whether BILT, as the amalgamated company, was entitled to carry forward and set off the unabsorbed depreciation of Modern Stramit (I) Ltd., a sick company that amalgamated with BILT under a scheme sanctioned by the Board for Industrial and Financial Reconstruction (BIFR) under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). The amalgamation took effect from 1st April 1991. The amalgamating company had unabsorbed business losses and depreciation for the assessment years 1985-86 to 1991-92. BILT claimed set off of the unabsorbed depreciation in its returns for the assessment years 1992-93 and 1993-94. The Assessing Officer disallowed the claim on the ground that the amalgamating company had not filed its returns for the relevant years. The Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT) upheld the disallowance. The High Court, after hearing both sides, framed the question of law regarding the entitlement to carry forward and set off unabsorbed depreciation under Section 32(2) of the Income Tax Act, 1961. The court analyzed the provisions of Section 32(2) and Section 32(6) of the Act, which deal with carry forward of unabsorbed depreciation in cases of amalgamation. The court noted that under Section 32(6), where there is an amalgamation, the unabsorbed depreciation of the amalgamating company is deemed to be the depreciation of the amalgamated company for the previous year in which the amalgamation takes place. The court held that the condition of filing returns by the amalgamating company is not a prerequisite for the amalgamated company to claim the set off, as the deeming provision under Section 32(6) operates automatically. The court also referred to the scheme of SICA and observed that the amalgamation was sanctioned by BIFR, and the assessee had complied with all conditions. The court allowed both appeals, set aside the orders of the ITAT, and directed the Assessing Officer to recompute the income of the assessee after allowing the set off of unabsorbed depreciation of the amalgamating company.
Headnote
A) Income Tax - Carry Forward and Set Off of Unabsorbed Depreciation - Section 32(2) of Income Tax Act, 1961 - Amalgamation of Sick Company - The assessee, Ballarpur Industries Ltd., amalgamated with Modern Stramit (I) Ltd., a sick company, under a scheme sanctioned by BIFR under SICA, 1985. The assessee claimed set off of unabsorbed depreciation of the amalgamating company for assessment years 1992-93 and 1993-94. The Revenue disallowed the claim on the ground that the amalgamating company had not filed returns for the relevant years. The High Court held that the unabsorbed depreciation of the amalgamating company is deemed to be the depreciation of the amalgamated company under Section 32(2) read with Section 32(6) of the Income Tax Act, 1961, and the amalgamated company is entitled to carry forward and set off such depreciation, irrespective of whether the amalgamating company had filed returns. The court allowed the appeals and directed the Assessing Officer to recompute the income after allowing the set off. (Paras 1-10)
Issue of Consideration
Whether the unabsorbed depreciation of the amalgamating company (Modern Stramit (I) Ltd.) can be carried forward and set off by the amalgamated company (Ballarpur Industries Ltd.) under Section 32(2) of the Income Tax Act, 1961, in the assessment years 1992-93 and 1993-94?
Final Decision
Both appeals are allowed. The orders of the Income Tax Appellate Tribunal are set aside. The Assessing Officer is directed to recompute the income of the assessee after allowing the set off of unabsorbed depreciation of the amalgamating company, Modern Stramit (I) Ltd., for the assessment years 1992-93 and 1993-94.
Law Points
- Unabsorbed depreciation of amalgamating company can be carried forward and set off by amalgamated company under Section 32(2) of Income Tax Act
- 1961
- even if amalgamating company was a sick industrial company and amalgamation was under a scheme sanctioned by BIFR under SICA
- 1985
