2000 (2) TMI 50 - HC - Income Tax

Summary

Issues Involved:
1. Interpretation of section 115J of the Income-tax Act by the Appellate Tribunal.
2. Justification of the Appellate Tribunal in holding that 'loss' in section 205(1) of the Companies Act means 'including depreciation'.

Analysis:

Issue 1: Interpretation of section 115J of the Income-tax Act
The case involved the computation of book profit under section 115J of the Income-tax Act for the assessment year 1989-90. The assessee, a domestic company engaged in the business of printing newspapers and journals, filed a return showing a loss that included unabsorbed depreciation from earlier years. The Assessing Officer computed the book profit by considering the net profit, investment allowance reserve, and loss as per section 205(1) of the Companies Act. The assessee sought rectification, which was partially accepted by the Assessing Officer. The Commissioner of Income-tax (Appeals) upheld the computation, leading the assessee to appeal before the Tribunal. The Tribunal relied on a previous decision and dismissed the appeal, prompting the reference of questions to the High Court for opinion.

Issue 2: Interpretation of 'loss' in section 205(1) of the Companies Act
The primary contention revolved around whether 'loss' in section 205(1), first proviso, clause (b) of the Companies Act should include 'depreciation'. The High Court analyzed the term 'loss' in the commercial and accounting context, emphasizing that 'loss' typically encompasses 'depreciation'. Referring to legal precedents and legislative interpretation, the Court concluded that 'loss' in the context of the Companies Act should be understood to include 'depreciation'. The Court further highlighted the incorporation of section 205 provisions into section 115J of the Income-tax Act, emphasizing that 'loss' in this context refers to the amount arrived at after considering depreciation in the profit and loss account.

The Court ultimately ruled in favor of the Revenue and against the assessee, affirming that 'loss' in section 205(1) of the Companies Act indeed includes 'depreciation'. This decision rendered the necessity to answer the first question moot, as it was deemed of academic interest in light of the ruling on the second question.