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Set off Against Salary

Shafaf (Chartered Accountant) (193 Points)

07 January 2010

Can we set off unabsorbed depreciation against salary income....? Any latest case law is threre....?

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34 Replies

Amir (Learner) (4016 Points)
Replied 07 January 2010

DEAR SHAFAF,

It cannot be setoff..

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Shafaf (Chartered Accountant) (193 Points)
Replied 07 January 2010

But act says Depreciation can set off any head of income ...i think their is no specification for salary

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FATEMA (CHARTERED ACCOUNTANT) (719 Points)
Replied 07 January 2010

Dear Shafaf,

Unabsorbed depreciation is not deductible from income chargeable under the head "income from salaries"

Shafaf (Chartered Accountant) (193 Points)
Replied 07 January 2010

Pls tell Under which section ?

MR. R....halpfull hand is back (.) (297 Points)
Replied 07 January 2010

Unabsorbed depreciation is can't set off from income chargeable under the head "income from salaries"

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Rupesh Maheshwari (ACA, Dip. IFR (ACCA)) (6166 Points)
Replied 07 January 2010

no u cannot sett off unabsorbed depn against salary

Shafaf (Chartered Accountant) (193 Points)
Replied 07 January 2010

But there is a case law...pls clarify ....

Interhead set off of depreciation loss against salary income

Provisions of Sec 32(2) governs interhead set off, carry forward and set off of depreciation

In CIT vs Jaipuria China Clay Mines (P) Ltd [(1966) 59 ITR 555(SC)] Supreme Court decided as follows:

“Depreciation (unabsorbed) ® Carry forward and set off ® Unabsorbed depreciation allowance (i.e., not actually allowed due to profit, being less than the depreciation allowance) ® To be deducted from the total income along with the current year’s depreciation ® Depreciation could be set off against income other than business income. Words “no profits or gains chargeable for that year “are not confined to profits and gains derived from the business whose income is being computed under s.10 (2) IT Act, 1922 [corresponding to S.32 (2) of the new IT Act, 1961] - Sec 24(2) IT Act, 1922 [corresponding to S.72 of the new IT Act, 1961] only deals with losses other than the losses due to depreciation”

Further consequent to the interpretations of sec 32(2) by Supreme Court in above cases, Sec 32(2) was amended with changed provisions of interhead set off, carry forward and set off to nullify the effect of judgment. [Finance (No 2) Act 1996 w.e.f 1.4.1997]. However, another amendment was done and the old provisions were restored (Finance Act 2001 w.e.f. 1.4.2002). Thus, on a bare reading of the above referred cases along with the amendments referred above, it will be clear that interhead set off, carry forward and set off of depreciation allowance is governed by 32(2).

The Finance Act 2004 inserted subsection 2A in Sec 71 and as per the amendment; business loss cannot be setoff against income from salary. However, as discussed above, interhead setoff of depreciation allowance is governed by section 32(2). Therefore, the amendment of section 71 has no effect on the interhead set off of depreciation allowance.

MR. R....halpfull hand is back (.) (297 Points)
Replied 07 January 2010

sec 32

in singhania see para no.109.9

ok...

Shafaf (Chartered Accountant) (193 Points)
Replied 07 January 2010

can u explain that ? PLs

sriram (CA) (281 Points)
Replied 07 January 2010

Hi Shafaf,

Unabsorbed deprecaition cant be setoff against Salary in come by the prov of setoff & Carry forward

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manish (Article Assitant) (358 Points)
Replied 07 January 2010

Yes it can be set off from salary head, unabsorbed depreciation can be set off by any head. the section by which it can be set off is Section 32(2).

Section 32(2) "In which The unabsorbed Depreciation can be carried forward for any number of assesment year and set off against income under any other head."

1 Like

CA Amit Kumar (C.A., CWA Final) (251 Points)
Replied 07 January 2010

Hi Shafaf

While dealing with unabosrbed dep, one should kept in mind the following points:

1. Dep allowance of the PY is first deductible from income chargeable under the head PGBP.

2. If Dep allowance is not fully deductible under the head PGBP because of absence or inadeqaucey of profit, it is deductible from income (OTHER THAN INCOME FROM SALARY) chargeable under other haeds of the income for the same AY.

3. If Dep allowance is still unabsorbed, it can be carried forward to the subsequent AY,

THEREFORE UNABSORBED DEP CAN NOT BE SET OFF FROM SALARY

VIMAL (ASSISTANT MANAGER FINANCE) (58 Points)
Replied 07 January 2010

very nice

SUNIL SINGH (ACCOUNTANTS AND INCOMETAX WORKS) (142 Points)
Replied 07 January 2010

Unabsorbed depreciation is can't set off from income chargeable under the head "income from salaries"

Unabsorbed depreciation settoff income from salary head only upto A.Y. 2004-05 & after a.y. 2004-05 Unabsorbed depreciation not settoff "income from salary " and setoff only other than salary.