1996 (7) TMI 87 - HC - Income Tax

Summary

Issues:
1. Interpretation of provisions of section 115J of the Income-tax Act regarding computation of income chargeable to tax.
2. Whether unabsorbed business loss or unabsorbed depreciation of earlier years should be included in determining book profit under section 115J.
3. Refusal by the Tribunal to refer the case under section 256(1) of the Income-tax Act.

Analysis:
The judgment pertains to an application filed by the Commissioner of Income-tax seeking a direction to the Tribunal to state the case and refer a question regarding the computation of book profit under section 115J of the Income-tax Act. The issue arose when the Assessing Officer deducted business loss for the assessment year 1988-89 to compute the book profit, resulting in a negative figure for the assessee. The Tribunal, in its order, allowed the appeal of the assessee, holding that the loss must include depreciation and unabsorbed depreciation. The Department filed an application under section 256(1) of the Act, which was rejected by the Tribunal, leading to the current application under section 256(2) before the High Court.

The High Court observed that the main controversy revolves around whether unabsorbed business loss or unabsorbed depreciation of earlier years, whichever is less, should be considered for deduction in arriving at the book profit under section 115J. Section 115J mandates the preparation of the profit and loss account in accordance with the Companies Act, 1956, followed by adjustments as per the provisions mentioned in the Explanation (iv) of the Act. The Court held that a referable question of law does arise in this case, necessitating a direction to the Tribunal to state the case and refer the proposed question for consideration.

In conclusion, the High Court allowed the application, directing the Tribunal to refer the question of law regarding the computation of income chargeable to tax under section 115J expeditiously. The parties were left to bear their own costs, with a fixed counsel fee for each side. The Court instructed the immediate transmission of the order to the Tribunal for further action.