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Issues involved:
The judgment involves the interpretation of provisions of section 115J of the Income-tax Act, 1961, regarding the deduction of taxed income from the income computed for setting off earlier years' depreciation and losses. Issue 1: Deduction of Taxed Income The assessee, a private limited company engaged in tea manufacturing, filed its return for the assessment year 1988-89 showing income at Rs. 2,55,866 with a brought forward loss of Rs. 4,87,417. The Assessing Officer applied section 115J, deeming Rs. 74,450 as total income chargeable to tax. The Tribunal held that deduction of taxed income is not permissible under sub-section (2) of section 115J. The assessee contended that the taxed amount cannot be deducted from the brought forward losses. The Tribunal rejected the claim, citing legislative domain exclusivity. However, the High Court held that the taxed amount cannot be adjusted against carried forward losses, as sub-section (2) does not provide for such interpretation. Issue 2: Legislative Intent of Section 115J Section 115J was introduced to address "zero tax companies" exploiting deductions to avoid tax. Sub-section (1) deems 30% of book profit as total income for taxation. The High Court clarified that while sub-section (1) is not challenged, sub-section (2) does not explicitly mandate adjustment of deemed income against carried forward losses. Using a hypothetical example, the Court illustrated that taxed income should not automatically adjust against losses, as it would adversely impact the assessee. The Court emphasized that sub-section (2) does not support the Revenue's interpretation, ruling in favor of the assessee. Conclusion: The High Court ruled in favor of the assessee, stating that the taxed amount of Rs. 74,450 cannot be adjusted against carried forward losses, as sub-section (2) of section 115J does not provide for such adjustment.
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