1995 (5) TMI 52 - AT - Income Tax

Assessing Officer Business Loss Carry Forward Deeming Provisions Investment Allowance Total Income Unabsorbed Depreciation

Summary

Issues Involved:
1. Applicability of Section 115J of the Income-tax Act.
2. Impact of Section 115J on the assessee's right to carry forward and set off losses and allowances.

Detailed Analysis:

1. Applicability of Section 115J of the Income-tax Act:
The primary issue revolves around the applicability of Section 115J for the assessment years 1989-90 and 1990-91, and its impact on the assessment year 1991-92. Section 115J was introduced to ensure that companies with substantial book profits pay a minimum tax, by deeming their total income to be 30% of their book profits if the computed income was less than this threshold.

2. Impact of Section 115J on the Assessee's Right to Carry Forward and Set Off Losses and Allowances:
The assessee contended that despite the application of Section 115J, the right to carry forward and set off unabsorbed losses and allowances from previous years should remain intact. The Income-tax Officer (ITO) and the appellate authority rejected this claim, arguing that the application of Section 115J implied that all past losses and allowances were deemed to have been adjusted.

Arguments by the Assessee:
- The assessee argued that Section 115J created a limited fiction for determining the total income of a company, but did not extend to nullifying the right to carry forward unabsorbed losses and allowances.
- It was emphasized that the right to carry forward these amounts was a vested right, which could only be taken away by explicit statutory provisions.
- The assessee highlighted that Section 115J(2) preserved the right to carry forward unabsorbed depreciation, investment allowance, and business loss to subsequent years, even when Section 115J was applied.

Arguments by the Revenue:
- The revenue's stance was that the fiction created by Section 115J should be comprehensive, implying that all past losses and allowances were deemed to have been adjusted once the income was determined under this section.
- It was argued that the non obstante clause in Section 115J(1) overrode other provisions of the Act, including those related to the carry forward of losses and allowances.

Tribunal's Analysis and Judgment:
- The Tribunal sided with the assessee, stating that Section 115J(2) explicitly preserved the right to carry forward unabsorbed depreciation, investment allowance, and business loss, even when Section 115J(1) was applied.
- The Tribunal noted that the non obstante clause in Section 115J(1) was limited to determining the total income for tax purposes and did not extend to nullifying the carry forward provisions.
- The Tribunal emphasized that legal fictions should not be extended beyond their purpose, and cited several judicial precedents to support this view.
- It was concluded that the assessee's right to carry forward unabsorbed losses and allowances from years where Section 115J was not applicable remained intact.

Conclusion:
The Tribunal directed the ITO to allow the set off of unabsorbed losses and allowances as claimed by the assessee, subject to correction of any arithmetical mistakes. The appeal was allowed in favor of the assessee, reinforcing the principle that statutory provisions should not be interpreted to unjustly deprive a taxpayer of vested rights without clear legislative intent.