1993 (2) TMI 146 - AT - Income Tax

Summary

Issues Involved:
1. Deduction of unabsorbed depreciation u/s 115J of the Income-tax Act, 1961.
2. Interpretation of Section 205(1)(b) of the Companies Act, 1956 in the context of Section 115J.
3. Legislative intent and historical context of Section 115J.

Summary:

Issue 1: Deduction of Unabsorbed Depreciation u/s 115J
The primary issue in these appeals was whether unabsorbed depreciation from previous years could be deducted while computing book profits u/s 115J of the Income-tax Act, 1961. The Assessing Officer had allowed such deductions, but the Commissioner of Income-tax revised the assessments, disallowing the deductions and increasing the taxable income. The Commissioner argued that since there was no loss before depreciation, the assessee was not entitled to any deduction of depreciation.

Issue 2: Interpretation of Section 205(1)(b) of the Companies Act, 1956
The assessees contended that the provisions of Section 205(1)(b) of the Companies Act, 1956, which were incorporated into Section 115J, were not applied correctly. They argued that the term 'loss' should be understood as the net result of operations, allowing for the deduction of unabsorbed depreciation. The Department, however, argued that the term 'loss' should be understood as business loss before depreciation, and hence, no deduction was permissible if there was no such loss.

Issue 3: Legislative Intent and Historical Context of Section 115J
The Tribunal examined the legislative history and intent behind Section 115J. The Finance Minister's Budget Speech for 1987-88 highlighted the need for a minimum corporate tax to ensure that profitable companies pay some tax. Initially, there was no provision for deducting past losses or unabsorbed depreciation. However, based on representations, the Finance Minister included a provision allowing the set-off of past losses or unabsorbed depreciation, whichever was less, in the final version of Section 115J.

The Tribunal also referred to the CBDT Circular No. 495, which explained that the book profit should be computed after deducting the amount of any brought forward losses or unabsorbed depreciation, whichever is less, as per Section 205(1)(b) of the Companies Act.

Conclusion:
The Tribunal concluded that the provisions of Section 115J should be interpreted in light of the legislative intent and the specific inclusion of Section 205(1)(b) of the Companies Act. The deduction of unabsorbed depreciation was permissible, and the Assessing Officer's original computation was correct. The Tribunal allowed the appeals of the assessees, setting aside the revisions made by the Commissioner of Income-tax.