Case: M/S. Ballarpur Industries Limited Vs. Commissioner of Income Tax, Vidarbha, Nagpur

for the reason that the said decision was not dealing with the impact of Section 72A of the Income Tax Act on the provision of Section 32(2) or 43(6) of the said Act. The requirements of Section 32(2) read with Section 43(6) of the Income Tax Act, which permit the amalgamating Company to claim its unabsorbed depreciation, get eclipsed by the provision of Section 72(A)(1)(c) of the said Act, which has been given overriding effect and the power to put such restrictions is conferred upon BIFR under Section 32(2) of SICA. In the present case, this power has been exercised by BIFR, putting a cap of Rs.75,00,000/- with an object not only to see that there is a revival of sick industry but also to provide capital incentive to amalgamated company to claim unabsorbed loss of the amalgamating company.13. The object and purpose of introducing Section 72A under the Income Tax Act is considered by the Division Bench of Delhi High Court in its judgment in the case of IEL Ltd. v. Union of India & Ors., reported in (1992) 195 ITR 0232. The relevant portion of this judgment in para 10 is reproduced below:10. ... While examining the application under s. 72A, the purpose and intent of insertion of the section has to be kept in view. Sec. 72A was enacted with a view to provide an incentive to robust companies to take over and amalgamate with the companies which would otherwise become a burden on the economy. It is no doubt true that when a declaration under s. 72A is granted, the amalgamated company does receive benefits, inasmuch as it is able to take advantage of the unabsorbed depreciation and accumulated losses. But this is precisely the incentive which is given to the healthy companies and, we feel, that the legislative intent of giving such incentive should not ordinarily be set at naught. The Specified Authority and the Central Government should take an overall view of the matter and come to a pragmatic and practical conclusion as to whether the conditions specified in s. 72A are satisfied or not. We may here note that where the provisions of s. 72A are not misused, there is further safeguard which are provided in s. 72A of the Act. Once a declaration under s. 72A has been accorded, then before getting the benefit under that provision, the amalgamated company has to fulfill the conditions specified in subs. (2) of s. 72A. One of the important conditions stipulated in subs. (2) of s. 72A is obtaining of a certificate from the Specified Authority to the effect that adequate steps had been taken by the amalgamated company for the rehabilitation or revival of business of the amalgamating company. In other words, the benefit of s. 72A will not be obtained if the sole idea of amalgamating was not the revival of the amalgamating company but was only to take benefit of the carry forward losses and unabsorbed depreciation. The revival of a sick unit or positive efforts in this behalf are the preconditions to the benefits under s. 72A being availed of. We, therefore, feel that an application under s. 72A should be considered most sympathetically from a businessmans point of view. If a company has become commercially insolvent or is likely to become commercially insolvent, then every effort should be made to prevent such a situation from arising and if an amalgamation takes place and conditions under subs. (1) of s. 72A are satisfied, then we see no reason as to why a declaration should not be accorded.14. The Division Bench of Delhi High Court has held in the aforesaid decision that once the declaration is granted under Section 72A of the Income Tax Act, the amalgamated company thus received the benefit inasmuch as it is able to take advantage of the unabsorbed depreciation and accumulated losses. Upon fulfillment of the conditions specified in subsection (2) of Section 72A, it holds that the benefit of Section 72A will not be obtained if the sole idea of amalgamating was not the revival of the amalgamating company but was only to take benefit of the carry forward losses and unabsorbed depreciation. This decision supports the view which we have taken.15. We put a specific question to Shri Bhattad, the learned counsel appearing for the Department, as to whether the assessee would be entitled to such claim of unabsorbed depreciation in the absence of the provision of Section 72 of the Income Tax Act, and his answer is in the affirmative. We also put a specific question to Shri Dewani, the learned counsel appearing for the assessee, as to whether the assessee would be entitled to claim the unabsorbed loss of Rs.1,41,40,464/- of the amalgamating company during the Assessment Year 1992-93 in the absence of the provision of Section 72A of the Income Tax Act, and his answer is in the negative.16. Thus, the undisputed position is that in the absence of the provisions of Section 72A of the Income Tax Act, the assessee would be entitled to written down value of Rs.1,23,55,847/- of the assets of the amalgamating company for the Assessment Year 1992-93 and consequently to claim the depreciation of Rs.27,09,294/-. In the absence of the provision of Section 72A of the Income Tax Act, the assessee would not be entitled to claim unabsorbed loss of Rs.1,41,40,464/- of the amalgamating company for the Assessment Year 1992-93. The assessee exercised the discretion of exhausting the business loss first, as a result of which, the claim for depreciation of Rs.3,52,290/- only remained admissible.17. Taking overall view as aforestated, we hold that the Income Tax Appellate Tribunal did not commit an error in confirming the disallowance of depreciation amounting to Rs.27,09,294/- in respect of the assets of M/s. Modern Stramit (I) Ltd., a Company amalgamated with the appellant-Company, in terms of the order dated 6-5-1992 passed by BIFR. The question of law at serial No.(IV) is answered accordingly. The other questions of law do not survive.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]12. In our view, the Tribunal and the authorities below have rightly held that the decision of this Court in Hindustan Petroleum Corporation Ltd., cited supra, is not applicable in the present case, for the reason that the said decision was not dealing with the impact of Section 72A of the Income Tax Act on the provision of Section 32(2) or 43(6) of the said Act. The requirements of Section 32(2) read with Section 43(6) of the Income Tax Act, which permit the amalgamating Company to claim its unabsorbed depreciation, get eclipsed by the provision of Section 72(A)(1)(c) of the said Act, which has been given overriding effect and the power to put such restrictions is conferred upon BIFR under Section 32(2) of SICA. In the present case, this power has been exercised by BIFR, putting a cap of Rs.75,00,000/with an object not only to see that there is a revival of sick industry but also to provide capital incentive to amalgamated company to claim unabsorbed loss of the amalgamating company.The Division Bench of Delhi High Court has held in the aforesaid decision that once the declaration is granted under Section 72A of the Income Tax Act, the amalgamated company thus received the benefit inasmuch as it is able to take advantage of the unabsorbed depreciation and accumulated losses. Upon fulfillment of the conditions specified in subsection (2) of Section 72A, it holds that the benefit of Section 72A will not be obtained if the sole idea of amalgamating was not the revival of the amalgamating company but was only to take benefit of the carry forward losses and unabsorbed depreciation. This decision supports the view which we have taken.15. We put a specific question to Shri Bhattad, the learned counsel appearing for the Department, as to whether the assessee would be entitled to such claim of unabsorbed depreciation in the absence of the provision of Section 72 of the Income Tax Act, and his answer is in the affirmative. We also put a specific question to Shri Dewani, the learned counsel appearing for the assessee, as to whether the assessee would be entitled to claim the unabsorbed loss of Rs.1,41,40,464/of the amalgamating company during the Assessment Yearin the absence of the provision of Section 72A of the Income Tax Act, and his answer is in the negative.16. Thus, the undisputed position is that in the absence of the provisions of Section 72A of the Income Tax Act, the assessee would be entitled to written down value of Rs.1,23,55,847/of the assets of the amalgamating companyfor the Assessment3 and consequently to claim the depreciation of Rs.In the absence of the provision of Section 72A of the Income Tax Act, the assessee would not be entitled to claim unabsorbed loss of Rs.1,41,40,464/of the amalgamating companyfor the Assessment. The assessee exercised the discretion of exhausting the business loss first, as a result of which, the claim for depreciation of Rs.3,52,290/only remained admissible.17. Taking overall view as aforestated, we hold that the Income Tax Appellate Tribunal did not commit an error in confirming the disallowance of depreciation amounting to Rs.27,09,294/in respect of the assets of M/s. Modern Stramit (I) Ltd., a Company amalgamated with thein terms of the order dated651992 passed byBIFR. The question of law at serial No.(IV) is answered accordingly. The other questions of law do not survive.