We are pleased to
release a Tax Alert which summarizes a recent ruling of the Supreme Court (SC)
in the case of Seshasayee Paper & Boards Ltd. (Taxpayer) on the issue of
whether, in the assessments pertaining to years prior to amendment in
assessment year (AY) 2002-03, the Taxpayer could claim only current
depreciation, while refraining from claiming unabsorbed depreciation.
The SC ruled that once depreciation is claimed, the Taxpayer would not have an option to set off depreciation of the current year, ignoring unabsorbed carried forward depreciation since, by virtue of legal fiction created by the provisions of the Indian Tax Laws (ITL), unabsorbed depreciation forms part of the current year’s depreciation.
This SC ruling has relevance for the period up to AY2002-03 during which depreciation claim was optional. There has been a change in the law in relation to grant of depreciation from AY 2002-03, whereby the statute has made the depreciation allowance mandatory, even if no claim is made by the taxpayer.
The present SC ruling highlights the fact that, in the pre-amendment era, depreciation claim can be regarded as optional only in those cases where no depreciation claim at all has been made by the taxpayer. If the taxpayer had made a claim of depreciation, the entire amount would be required to be set off before unabsorbed investment allowance could be claimed for set off. The taxpayer cannot blow hot and cold at the same time.
This controversy may not exist in relation to investment allowance reintroduced in the recent past in the ITL, as unabsorbed investment allowance would become a part of business loss computation and, in terms of the ITL provisions; unabsorbed business loss has precedence over unabsorbed depreciation allowance.
The SC ruled that once depreciation is claimed, the Taxpayer would not have an option to set off depreciation of the current year, ignoring unabsorbed carried forward depreciation since, by virtue of legal fiction created by the provisions of the Indian Tax Laws (ITL), unabsorbed depreciation forms part of the current year’s depreciation.
This SC ruling has relevance for the period up to AY2002-03 during which depreciation claim was optional. There has been a change in the law in relation to grant of depreciation from AY 2002-03, whereby the statute has made the depreciation allowance mandatory, even if no claim is made by the taxpayer.
The present SC ruling highlights the fact that, in the pre-amendment era, depreciation claim can be regarded as optional only in those cases where no depreciation claim at all has been made by the taxpayer. If the taxpayer had made a claim of depreciation, the entire amount would be required to be set off before unabsorbed investment allowance could be claimed for set off. The taxpayer cannot blow hot and cold at the same time.
This controversy may not exist in relation to investment allowance reintroduced in the recent past in the ITL, as unabsorbed investment allowance would become a part of business loss computation and, in terms of the ITL provisions; unabsorbed business loss has precedence over unabsorbed depreciation allowance.
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