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

1. One Modern Stramit (I) Ltd., a sick company, was closed down by the end of the year 1986. It was referred to the Board for Industrial and Financial Reconstruction (BIFR) onunder Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). A scheme for rehabilitation in respect of it, was prepared under Section 19 of SICA and a proposal for its amalgamation in thes. Ballarpur Industries Ltd. (BILT) was accepted and accordingly, the amalgamation took place with effect from 141991.2.The statement of unabsorbed business loss, depreciation, etc., as on 3131991 of the erstwhile Modern Stramit (I) Ltd. (amalgamating company) prepared was as under:Asstt. YearBusinessDepn. Claimed in A.Y.le losses u/s 72(a) restricted to the tax relief of Rs.75.00 lakhs i.e. equivalent loss.1,41,40,4641,23,55,8472,64,96,3111,41,40,4643,52,2901,44,92,754Balance inadmissible u/sclaim of the assessee was for written down value of Rs.1,20,03,557/of the assets of the amalgamating company and the consequent claim was for depreciation of Rs.27,09,294/for the Assessment YearThe Assessing Officer allowed the claim of depreciation to the extent of Rs.3,52,290/and rest of the claim for depreciation was rejected by the assessment order dated 2421995. The Commissioner of Income Tax (Appeals), Nagpur (CIT) maintained this decision on 2621996 and the Income Tax Appellate Tribunal, Nagpur Bench also confirmed it onHence, both these Income Tax Appeals No.27 and 135 of 2003 arise out of the proceedingsfor the Assessment4, against these decisions of the Tribunal and the authorities below. It is an admitted position and conceded by the parties that questions (I) to (III) on which the appeals were admitted are covered in favour of the Revenue and against the appellant by judgment and order dated 182017 passed by this Court in I.T.R. No.11 of 2002. Accordingly, we answer questions (I) to (III) in favour of the Revenue.The denial of benefit of depreciation of Rs.27,09,294/ is on the basis of the order dated 651992 passed by BIFR in exercise of its jurisdiction under Section 32(2) of SICA read with Section 72A(2)(ii) of the Income Tax Act, 1961, as it existed on that date. The relevant portion of the order passed by BIFR onis reproduced below:BILT would be eligible from 1st April 91 to carry forward business loss and unabsorbed depreciation of Modern Stramit (I) Ltd. under the provision of section 72A of the I.T. Act. The tax benefit under the section, however, would be to a maximum of Rs.75 lakhs.The Assessing Officer holds that since the maximum benefit as far as tax is concerned was specified by BIFR, there was no way the assessee could get benefit beyond what was the intention of BIFR. Since the tax benefit had been specified under Section 72A of the Income Tax Act, the assessee could not go beyond the purview and claim additional depreciation and on what had worked out to be inadmissible under Section 72A of the Income Tax Act read with the terms of the order dated651992 passed byBIFR. The Assessing Officer, therefore, disallowed the claim for depreciation of Rs.27,09,294/and added it in the income of the assesseefor the Assessment. The CIT in appeal, referring to the decision of the Division Bench of this Court in the case of Commissioner of Income Tax v. Hindustan Petroleum Corporation Ltd., reported in (1991) 187 ITR 0001, holds that though the appellant in the said decision was held entitled to enhancement of written down value of the assets, the said decision cannot be applied to the facts of the present case, for the reason that it was delivered before insertion of Section 72A of the Income Tax Act, which now specifically lays down as to how and in what circumstances the amalgamated company can avail the benefit of carry forward business loss and unabsorbed depreciation of the amalgamated company. The CIT holds that the Assessing Officer has allowed the carry forward business loss and unabsorbed depreciation of the amalgamated company to the assessee to the extent ofand to allow the claim of the assessee for depreciation on the value of Rs.1,20,03,557/would be against the order of BIFR passed under Section 72A(i)(c) of the Income Tax Act.6. The Income Tax Appellate Tribunal confirms the decisions of the authorities below. It holds that the provision of Section 72A of the Income Tax Act is a special provision dealing with the issues of carry forward and set off accumulated loss and unabsorbed depreciation allowance in certain cases of amalgamation and as per the phraseology used in the said Section, this provision has overriding effect on any other provisions of the Act. The Tribunal holds that the maxim generalia specialibus non derogant is applicable and the said provision under Section 72A of the Income Tax Act shall override the provisions of Sections 32(2) and 43(6) of the said Act.7.In para 51 of the judgment, the Tribunal holds as under:51.Nevertheless, even with the limitation of Rs.75.00 lakhs in terms of tax relief, the Assessee company could have absorbed the entire unabsorbed depreciation of amalgamating company amounting to Rs.1,23,55,847/by giving preference to it over the unabsorbed business loss. However, it chose to exhaust the business loss first which resulted in a portion of the unabsorbed depreciation to the extent ofremaining inadmissible. In these facts and circumstances, it cannot be said that the Assessee Company was otherwise entitled for more benefits without the application of Section 72A and that the benefits allowed to the Assessee Company as per the BIFR order issued in accordance with the provisions of Section 72A has a result of taking away any benefit which otherwise was available to the Assessee.8. The Tribunal has thus held that it was permissible for theto have absorbed the entire unabsorbed depreciation of amalgamating company amounting to Rs.1,23,55,847/by giving preference to it over unabsorbed business loss. However, it chose to exhaust the business loss first, which resulted in a portion of the unabsorbed depreciation on the value of Rs.1,20,03,557/remaining inadmissible. It holds that the assessee was not entitled to more benefits than the limitation of Rs.75,00,000/specified in the order passed by BIFR on

Reasoning:
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.