1993 (12) TMI 52 - HC - Income Tax

Summary

Issues Involved:
1. Interpretation of Section 115J of the Income-tax Act.
2. Constitution of the Special Bench of the Income-tax Appellate Tribunal.
3. Violation of principles of natural justice.

Summary:

1. Interpretation of Section 115J of the Income-tax Act:
The core issue was whether the term "loss" in Section 205(1), first proviso, clause (b) of the Companies Act, 1956, read with Section 115J of the Income-tax Act, 1961, includes depreciation. The Tribunal held that "loss" means excluding depreciation, and for arriving at the adjusted book profit, unabsorbed depreciation or business loss, whichever is less, is to be adjusted. The High Court, however, found that this interpretation was incorrect. The Court emphasized that depreciation and loss are distinct concepts under the Income-tax Act. Unabsorbed depreciation can be set off against income under any head, while unabsorbed business loss can only be set off against business income. The Court concluded that for the purpose of Section 115J, "loss" does not include "unabsorbed depreciation."

2. Constitution of the Special Bench of the Income-tax Appellate Tribunal:
The Special Bench was constituted by the President of the Tribunal due to alleged conflicting decisions in V. V. Trans-Investments (P.) Ltd. v. ITO and Buttwelded Tools (P.) Ltd. v. Asst. CIT. The High Court found that the constitution of the Special Bench was arbitrary and unreasonable, as the decision of the Division Bench of the Hyderabad Tribunal should have prevailed over the single-member decision of the Madras Bench. The Court held that the President's decision to constitute the Special Bench was based on non-existing grounds and was contrary to established practice.

3. Violation of Principles of Natural Justice:
The Department argued that there was a violation of natural justice as they were not given a proper opportunity to represent their case. The designated officer fell ill, and the Tribunal refused to grant an adjournment or allow written submissions. The High Court found that the Tribunal's refusal to allow written submissions was unreasonable and arbitrary, and the Department was not given a fair opportunity to present its case. Consequently, the Court held that there was a violation of the principles of natural justice.

The High Court answered the reference in favor of the Department and allowed the writ petitions, setting aside the decision of the Special Bench of the Tribunal.