1999 (9) TMI 53 - HC - Income Tax

Summary

Issues Involved:
1. Adjustment and set-off of brought forward losses/allowances.
2. Adjustment of written down value of assets.

Summary:

Issue 1: Adjustment and Set-off of Brought Forward Losses/Allowances

The primary question was whether the amounts of brought forward losses/allowances should be adjusted and set off against the current year's net profit, computed in accordance with the regular method of determination of income u/s 28 to 43 of the Income-tax Act, 1961, for the purpose of carrying forward such losses/allowances to the next year, despite the assessee being charged to tax u/s 115J. The Tribunal held that the total income must first be determined in the regular manner, and if the provisions of section 115J(1) are applicable, the figure of total income is replaced by 30 percent of the adjusted book profits. The resultant amounts of brought forward loss, unabsorbed depreciation, etc., are to be carried forward to the next year. The court agreed with the Tribunal, emphasizing that under section 115J(2), the determination of amounts to be carried forward to subsequent years should be done as if section 115J(1) does not exist.

Issue 2: Adjustment of Written Down Value of Assets

The second issue was whether the written down value of the assets should be adjusted by deducting the amounts of depreciation which would have been allowed in the regular method of assessment u/s 28 to 43 of the Income-tax Act, 1961, without applying the provisions of section 115J(1). The Tribunal held that the written down value must be adjusted by deducting the depreciation that would have been allowed in the regular method of assessment. The court upheld this view, stating that under section 115J(2), the amounts determined for the current year have to be carried forward to the subsequent year, nullifying the effect of section 115J(1).

Conclusion:

The court concluded that the Tribunal was correct in holding that the amounts of brought forward losses/allowances and the written down value of assets should be adjusted and set off in accordance with the regular provisions of the Income-tax Act for the purpose of carrying forward to the next year, without considering the tax charged u/s 115J. The reference was answered in favor of the Revenue and against the assessee.