2013 (9) TMI 893 - HC - Income Tax

Interpretation of provisions of Section 115-J Minimum alternate tax (MAT) - the stand of the respondent-assessee that they were entitled to carry forward of unabsorbed losses, including investment allowance in view of the fact that income taxable had been computed on book profits under Section 115-J and not under the normal provisions. - Held that - Reliance has been placed upon the judgment in the case of Karnataka Small Scale Industries Development Corporation Limited versus Commissioner of Income Tax, 2002 2002 (12) TMI 4 - SUPREME Court , wherein it has been held that Section 115-J (1) commences with the non-obstante clause and provides for two stage assessment. The first stage requires computation of income under the normal provisions and the second stage requires computation of book profits as per provisions of Section 115-J. In case the income computed under the normal provisions is less than 30% of the book profits, then the assessee s deemed total income chargeable to tax for the relevant previous year would be equal to 30% of the book profits. At the first stage, profits are computed under the normal provisions and deductions allowable under the Act have to be taken into consideration. The deduction, which are allowed, do not get disturbed or obliterated even if the assessee pays tax on the book profits under Section 115-J. Thus, when Section 115-J is invoked and is applied, it does not affect the computation made under the normal provisions. They stand on their own legs and do not get effected. Accordingly, the unabsorbed loses, including investment allowance, which were duly taken into consideration and accounted for while computing tax under the normal provisions, do not get displaced or erased and adjustments made have to be given full effect to In the instant case, investment allowance, etc. which has to be adjusted while computing the deduction under the normal provisions will not be allowed to be carried forward Decided in favor of Revenue.

Summary

Issues:
Interpretation of Section 115-J for computation of income under the Income Tax Act, 1961.

Analysis:
The case involved an appeal by the Revenue under Section 260A of the Income Tax Act, 1961, relating to the Assessment Year 1989-90. The main issue was whether the Tribunal correctly interpreted the provisions of Section 115-J concerning the mode of computation of income. The respondent-assessee, a limited company, had filed its return declaring income under Section 115-J and claimed the right to carry forward losses, including investment allowance. However, the Assessing Officer disagreed, stating that the computation of income under Section 115-J does not affect the determination of the amount to be carried forward under the normal provisions.

The Commissioner of Income Tax (Appeals) supported the Assessing Officer's decision on carry forward of losses but provided some relief on additions made under the normal provisions. The respondent-assessee then appealed to the tribunal, which allowed the appeal based on a previous order for the preceding year. This decision was contrary to the Supreme Court's ruling in Karnataka Small Scale Industries Development Corporation Limited versus Commissioner of Income Tax, which explained the two-stage assessment process under Section 115-J. The Supreme Court held that income computed under normal provisions and book profits under Section 115-J should be considered separately, with deductions under the Act remaining unaffected even if tax is paid on book profits.

Therefore, the tribunal's decision was found to be incorrect, and the question of law was answered in favor of the appellant-Revenue and against the respondent-assessee. The court clarified that investment allowance adjustments made under the normal provisions would not be allowed to be carried forward. The appeal was disposed of with no order as to costs.