2001 (11) TMI 16 - HC - Income Tax

Carry Forward And Set Off Of Loss, Tax U/s 115J On Book Profit - Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in directing the Assessing Officer to recompute the assessee s total income for the assessment year 1991-92 on the lines urged by the assessee, thereby upholding the assessee s computation of profits available for set off for the assessment year 1990-91 after the deduction of profit taxed under section 115J? , in favour of the Revenue and against the assessee.

Issues Involved:
1. Interpretation of Section 115J(2) of the Income-tax Act, 1961.
2. Effect of Section 115J(1) on the determination of carry forward amounts.
3. Application of the term "affect" in Section 115J(2).
4. Relevance of subsequent legislative amendments and repealed provisions.
5. Tribunal's decision on the recomputation of total income.

Issue-wise Detailed Analysis:

1. Interpretation of Section 115J(2) of the Income-tax Act, 1961:
Section 115J(2) states: "Nothing contained in sub-section (1) shall affect the determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years under the provisions of sub-section (2) of section 32 or sub-section (3) of section 32A or clause (ii) of sub-section (1) of section 72 or section 73 or section 74 or sub-section (3) of section 74A or sub-section (3) of section 80J." This provision clarifies that the determination of carry forward amounts under the mentioned sections is not affected by anything in sub-section (1) of Section 115J.

2. Effect of Section 115J(1) on the Determination of Carry Forward Amounts:
Section 115J(1) imposes a minimum tax on companies by deeming thirty percent of the book profit as total income if the computed total income is less than that threshold. However, Section 115J(2) ensures that the carry forward of losses and other adjustments are computed as if Section 115J(1) was not applicable. This means the normal computation of total income, including set-offs, remains unaffected by the minimum tax provision.

3. Application of the Term "Affect" in Section 115J(2):
The term "affect" in Section 115J(2) is neutral and implies that the determination of carry forward amounts should remain unaffected by Section 115J(1). The court disagreed with the assessee's argument that "affect" should be interpreted as "affect adversely," which would allow the assessee to carry forward losses despite paying tax on deemed income.

4. Relevance of Subsequent Legislative Amendments and Repealed Provisions:
The court examined the introduction of Section 115JAA, which provides for tax credit on deemed income under Section 115JA(1), and noted that it cannot be used to interpret Section 115J(2) retroactively. Similarly, the repealed Section 80VVA, which had different provisions for deductions and carry forwards, cannot be used to infer legislative intent for Section 115J(2). The court emphasized that Parliament deliberately changed the scheme when enacting Section 115J.

5. Tribunal's Decision on the Recomputation of Total Income:
The Tribunal had directed the Assessing Officer to recompute the assessee's total income by allowing the set-off of profits taxed under Section 115J(1). The court found this interpretation incorrect, stating that the payment of tax on thirty percent of the book profit does not entitle the assessee to carry forward losses that were set off in previous years. The Tribunal's decision was thus overturned.

Conclusion:
The court concluded that the determination of carry forward amounts under Section 115J(2) should remain unaffected by the minimum tax provision in Section 115J(1). The Tribunal's direction to recompute the assessee's total income was erroneous. The judgment was in favor of the Revenue and against the assessee.

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