Brought forward depreciation loss can be set off only against business income and cannot be set off against income from any other source
Kerala HC in the case of Alapatt Jewellers has held that the depreciation allowance carried forward from earlier years shall be deemed to be a business loss which can be set off only against business income and cannot be set off against income from any other source.
Let us have a short overview of the Key observation in this cas:
1. Assessee in its return of income had claimed unabsorbed depreciation of INR 1.14 crore, out of such claim, only an amount of INR 21.72 lakh were allowed to be set off. Assessee filed an application for rectification claiming full set off of the unabsorbed depreciation had to be granted and the denial of that benefit to the Assessee was illegal. However, the rectification application was rejected.
2. Assessee filed a writ petition before Kerala HC against the above.
3. Counsel appearing for the tax department contended that sec 32 of the Income Tax Act, 1961 (‘Act’) forms part of the provisions that deal with the computation of business income, while sec 32(2) of the Act permit the carry forward of such depreciation allowance where it cannot be fully set off, but the provisions of sec 72 of the Act clearly indicates that even if such depreciation allowance is to be termed a loss as per sec 71 of the Act, the same can be set off only against business income and not against any other head.
4. Kerala HC rejected the writ petition and held that the depreciation allowance carried forward shall be deemed to be a business loss which can be set off only against business income and cannot be set off against income from any other source, basis the below.
5. It is clear from sec 72 of the Act that even if depreciation allowance under sec 32 of the Act which was carried forward in terms of sec 32(2), is deemed to be a business loss for the purposes of Sections 71 and 72, it can be set off only against business income and cannot be set off against income from any other sources.
The copy of the order is as under:
