2003 (1) TMI 233 - AT - Income Tax

Summary

Issues Involved:
Interpretation of the provisions of Section 115J(2) of the Income-tax Act, 1961, specifically regarding the carry forward of unabsorbed investment allowance.

Detailed Analysis:

1. Background and Facts:
For the assessment year 1988-89, the assessee was initially assessed to an income of Rs. 39,39,228 after allowing a deduction for the brought forward unabsorbed investment allowance of Rs. 54,76,236. It was later found that the income assessable under Section 115J was Rs. 47,56,772. Consequently, the assessment was rectified to bring to tax the amount of Rs. 47,56,772. The Assessing Officer (AO) held that, as per Section 115J(2), there was no unabsorbed investment allowance to be carried forward since the entire amount had been adjusted against the income computed under normal provisions. The assessee's contention was that Rs. 8,17,544 of the unabsorbed investment allowance remained unadjusted and should be carried forward.

2. CIT(A) Decision:
The Commissioner of Income-tax (Appeals) [CIT(A)] accepted the assessee's contention and allowed the claim for carrying forward the unabsorbed investment allowance. The Revenue appealed this decision.

3. Revenue's Argument:
The Departmental Representative (DR) cited two decisions favoring the Revenue: the Andhra Pradesh High Court's decision in Suryalatha Spinning Mills Ltd. v. Union of India and the Karnataka High Court's decision in Widia (India) Ltd. v. CIT. The DR argued that the interpretation which furthers legislative intent should be accepted, referencing the Supreme Court's decision in Gurupad Khandappa Magdum v. Hirabai Khandappa Magdum.

4. Assessee's Argument:
The Assessee's Representative (AR) relied on the CIT(A)'s order, contending that Section 115J(2) permits the carry forward of unabsorbed losses, including the unabsorbed investment allowance.

5. Tribunal's Analysis and Decision:
The Tribunal reviewed the legislative intent behind Section 115J(2), supported by Departmental Circular No. 495 dated 22-9-1987, which clarified that Section 115J was not intended to affect the carry forward of unabsorbed losses and other reliefs. The Tribunal found that the entire unabsorbed investment allowance was set off against income computed under normal provisions, leaving no amount to be carried forward under Section 115J.

6. Dissenting Opinion:
One member disagreed, arguing that Section 115J does not restrict the carry forward of unabsorbed investment allowance. The dissenting member emphasized that Section 115J aims to tax companies making profits but avoiding tax, and the income taxed under Section 115J should not affect the carry forward of allowances.

7. Third Member's Opinion:
The Third Member was called upon to resolve the disagreement. The Third Member sided with the view that the entire unabsorbed investment allowance was set off against the income computed under normal provisions, aligning with the Andhra Pradesh High Court's decision in Suryalatha Spinning Mills Ltd. and the Supreme Court's decision in Karnataka Small Scale Industries Development Corpn. Ltd. v. CIT.

8. Final Decision:
In conformity with the majority opinion, the Tribunal allowed the Revenue's appeal, setting aside the CIT(A)'s order and restoring the AO's decision. The Tribunal concluded that the unabsorbed investment allowance was fully adjusted and thus not available to be carried forward.

Conclusion:
The Tribunal's majority opinion, supported by the Third Member, held that under Section 115J, the entire unabsorbed investment allowance brought forward from earlier years was fully set off against the income computed under normal provisions, leaving no amount to be carried forward. The Revenue's appeal was allowed, and the CIT(A)'s decision was overturned.