2014 (10) TMI 745 - HC - Income Tax

Computation of MAT - Entitlement for unabsorbed depreciation - Unabsorbed business loss - Whether the Tribunal is right in holding that loss in explanation (iv) to section 115J means net loss after deduction of depreciation and that the assessee was entitled to deduction of unabsorbed depreciation Held that - Following the decision in Surana Steels (P) Ltd. vs. Deputy Commissioner of Income-Tax 1999 (4) TMI 5 - SUPREME Court - a plain reading of Section 115J shows that if the assessee be a company and its total income determined under the Income-tax Act in respect of a previous year be less than thirty per cent of its book profit, fictionally it will be deemed that its total income chargeable to tax for the relevant previous year was an amount equal to thirty per cent of such book profit - The depreciation is provided for in the Profit and Loss Account - The loss is arrived at after taking into account the depreciation provided - the word loss as used in proviso clause (b) to Section 205 (1) signifies the amount arrived at after taking into account the amount of depreciation and it has to be so read and understood in the context of Section 115J of the Income-tax Act, 1961 - the term loss as occurring in clause (b) of the proviso to Section 205 (1) of the Companies Act has to be understood and read as the amount arrived at after taking into account the depreciation and that If loss were to be taken as pre-depreciation loss then the resultant computation will not be in conformity with the tenor of the provisions of Section 205 the order of the Tribunal is upheld Decided against revenue.

Summary

Issues:
1. Interpretation of "loss" in explanation (iv) to section 115J of the Income Tax Act, 1961.
2. Consideration of specific words in section 115J(1A) for unabsorbed business loss and unabsorbed depreciation.

Issue 1: Interpretation of "loss" in explanation (iv) to section 115J:
The High Court considered the questions referred by the Income Tax Appellate Tribunal regarding the interpretation of "loss" in explanation (iv) to section 115J of the Income Tax Act, 1961. The assessee contended that there was no need to mention "loss" or depreciation if "loss" already included depreciation. The CIT (Appeals) held that while adjusting carried forward loss for computation of book profits under section 115J, it should be considered before depreciation. The Tribunal allowed the appeal, leading to the framing of questions of law and reference to the High Court. The Court relied on the decision in Surana Steels (P) Ltd. vs. Deputy Commissioner of Income-Tax, where it was clarified that "loss" should be understood as the amount after taking into account depreciation. The Court upheld the Tribunal's order, emphasizing that interpreting "loss" as pre-depreciation loss would not align with the provisions of the Act. Therefore, the questions were answered in favor of the assessee based on established legal principles.

Issue 2: Consideration of specific words in section 115J(1A):
The second issue involved whether the Appellate Tribunal should have considered the specific words used in section 115J(1A) for unabsorbed business loss and unabsorbed depreciation. The Court's analysis primarily focused on the interpretation of "loss" in the context of depreciation and its impact on the computation of book profits under section 115J. By referencing the decision in Surana Steels (P) Ltd., the Court clarified that the term "loss" should be understood post-depreciation to maintain consistency with the legislative intent behind section 115J. The Court's decision to uphold the Tribunal's order was guided by the understanding that interpreting "loss" as pre-depreciation loss would not serve the purpose of ensuring a minimum corporate tax on prosperous companies. Therefore, the Court's ruling favored the assessee, emphasizing the importance of interpreting statutory provisions in alignment with the overall legislative objective.

In conclusion, the High Court's judgment addressed the issues related to the interpretation of "loss" in explanation (iv) to section 115J and the consideration of specific words in section 115J(1A) in a detailed manner. By relying on established legal principles and precedents, the Court provided a comprehensive analysis to resolve the questions referred by the Income Tax Appellate Tribunal, ultimately ruling in favor of the assessee based on the interpretation of "loss" in the context of depreciation for the computation of book profits under section 115J of the Income Tax Act, 1961.