1998 (1) TMI 101 - AT - Income Tax

Summary

Issues Involved:
1. Quantum of depreciation for calculating 'book profit' under section 115J of the Income Tax Act.
2. Method of depreciation calculation as per Companies Act vs. Income Tax Act.
3. Interpretation of section 115J and relevant provisions of the Companies Act.

Detailed Analysis:

Issue 1: Quantum of Depreciation for Calculating 'Book Profit' under Section 115J of the Income Tax Act

The main issue contested was the quantum of depreciation to be considered for 'book profit' as per section 115J of the Income Tax Act. The assessee-company followed the straight-line method for depreciation under the Companies Act but adopted the written-down value (w.d.v.) method for Income Tax purposes, resulting in a higher depreciation rate of 33.33% under the I.T. Act. This led to no taxable income as per section 115J.

Issue 2: Method of Depreciation Calculation as per Companies Act vs. Income Tax Act

The Assessing Officer (AO) rejected the assessee's method of maintaining two sets of accounts - one for the Companies Act and another for the Income Tax Act. The AO insisted that the accounts for I.T. purposes should align with those prepared under the Companies Act. The Commissioner (Appeals) upheld this view, stating that the 'profit' in section 115J should be computed as per the books of account under the Companies Act, not the I.T. Act.

Issue 3: Interpretation of Section 115J and Relevant Provisions of the Companies Act

The assessee argued that under section 115J(1A), they were entitled to prepare the Profit and Loss Account as per Parts II and III of Schedule VI of the Companies Act, independent of the method used for declaring dividends. They cited section 115JA, which was introduced later and explicitly required depreciation to be calculated using the same method for 'book profit' as for corporate accounting, a proviso absent in section 115J. The Tribunal noted that sections 205 and 350 of the Companies Act allowed the assessee to choose between straight-line and w.d.v. methods, supporting the assessee's discretion in choosing the method for I.T. purposes.

The Tribunal recognized divergent opinions from different Benches: the Bombay Bench allowed different depreciation rates for 'book profit' under section 115J, while the Pune Bench did not. The Tribunal emphasized a fresh interpretation, noting that section 115J did not explicitly mandate the same method for corporate and I.T. purposes.

Conclusion:

The Tribunal concluded that section 115J allowed the assessee to prepare the Profit and Loss Account specifically for I.T. purposes using permissible methods under Parts II and III of Schedule VI of the Companies Act. It highlighted that the absence of specific provisos in section 115J (present in section 115JA) indicated legislative intent allowing flexibility in choosing the depreciation method. The Tribunal directed the AO to recompute the tax liability under section 115J, acknowledging the assessee's consistent use of the w.d.v. method for I.T. purposes.

Other Grounds:

The assessee did not press other grounds during the hearing, as they had obtained suitable relief. Consequently, these grounds were dismissed as not pressed.

Result:

The appeal filed by the assessee was partly allowed.