1991 (4) TMI 179 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of Section 115J of the Income-tax Act, 1961.
2. Adjustment of losses/depreciation under Section 115J.
3. Levy of interest under Section 234B of the Income-tax Act, 1961.

Summary:

1. Applicability of Section 115J of the Income-tax Act, 1961:
The appellant company, a public sector company running several steel plants, was assessed under Section 115J of the Income-tax Act, 1961. Section 115J, inserted by the Finance Act of 1987, mandates that if the income of a company as computed under the Act is less than 30% of its book profits, the total income chargeable to tax shall be deemed to be 30% of such book profits. The Assessing Officer computed the income at Rs. 16,732 lakhs, but after setting off brought forward unabsorbed depreciation, the income was computed at nil, invoking Section 115J.

2. Adjustment of losses/depreciation under Section 115J:
The appellant company claimed entitlement to adjust losses/depreciation from 1960-61 against the current year's income by virtue of Explanation (iv) to Section 115J(1) read with clause (b) of the proviso to Section 205(1) of the Companies Act, 1956. The Assessing Officer, however, disallowed this adjustment, stating that the losses had already been absorbed in previous years. The Tribunal analyzed clause (b) of the First Proviso to Section 205(1) of the Companies Act, 1956, which allows setting off the lesser of the loss or depreciation against the profits of the current year, previous years, or both. The Tribunal concluded that the company must adjust losses against profits of previous years before adjusting against the current year's profits. Since the company had sufficient profits in earlier years to absorb the losses, no further adjustment was permissible.

3. Levy of interest under Section 234B of the Income-tax Act, 1961:
The Tribunal addressed the issue of interest under Section 234B for failure to pay advance tax. It was contended that Section 115J creates a legal fiction for the limited purpose of levy of minimum tax and does not extend to the computation of total income for advance tax purposes. The Tribunal held that the liability under Section 115J arises only after the book profits are determined post the financial year, making it unreasonable to extend this fiction to advance tax payments. Therefore, the Tribunal ruled that the company was not liable to pay interest under Section 234B.

Conclusion:
The Tribunal upheld the applicability of Section 115J and the disallowance of further adjustments of losses/depreciation against the current year's profits. However, it ruled in favor of the appellant regarding the levy of interest under Section 234B, concluding that the company was not liable for such interest. The appeal was partly allowed.