5 Section 32(2) – Unabsorbed depreciation – Law applicable – Effect of amendment to section 32(2) by Finance Act, 2001 – Removal of restriction of eight years for carry forward and set off – Unabsorbed depreciation or part thereof not claimed till relevant year – Carry forward and set off permitted

The relevant period is the
A. Y. 2010-11. The assessee had the accumulated carried forward depreciation
u/s. 32(2) of the Income-tax Act, 1961 starting from the A. Y. 1998-99. In the
A. Y. 2010-11, the assessee claimed set off of the carried forward
depreciation. The Assessing Officer disallowed the claim in respect of amounts
carried forward from the years prior to A. Y. 2002-03 on the ground that the
amendment to section 32(2) of the Act, which removed of eight years limit, was
prospective and effective only from 01/04/2002.

The Commissioner (Appeals)
reversed the order and his decision was upheld by the Tribunal.

In
appeal by the Revenue, on the question whether section 32(2) as amended by the
Finance Act, 2001, w.e.f. 01/04/2002 could be given effect beyond the period of
eight years prior to its commencement, the Delhi High Court upheld the decision
of the Tribunal and held as under:

“i)   The rationale for the amendment of section
32(2) the restriction against set off and carry forward limited to eight years,
beyond which the benefit could not be claimed under the provisions of the 1961
Act, was for the reasons deemed appropriate by Parliament.

ii)    The limit was imposed in the year 1996
through the Finance (No. 2) Act, 1996. Had the intention of Parliament been
really to restrict the benefit, of unlimited carry forward prospectively, there
were more decisive ways of doing so, such as, an express provision or an
exception or proviso. The absence of any such legislative device meant that the
provision had to be construed in its own terms and not so as to restrict the
benefit or advantage it sought to conform. No question of law arose.”