1992 (3) TMI 133 - AT - Income Tax

Summary

Issues Involved:
1. Computation of book profit u/s 115J of the Income-tax Act, 1961.
2. Interpretation of "loss" and "depreciation" under section 205(1)(b) of the Companies Act, 1956.
3. Admission of additional ground regarding the power of the ITO u/s 143(1) to compute book profit u/s 115J.

Summary:

Computation of Book Profit u/s 115J:
The appellant, a private limited company, contested the computation of book profit u/s 115J for the assessment year 1989-90. The Income-tax Officer (ITO) computed the book profit as Rs. 8,51,380, being 30% of the current year's profit of Rs. 28,37,947, without allowing the set-off of unabsorbed depreciation from earlier years. The appellant argued that the loss of Rs. 31,94,136, which is the unabsorbed depreciation, should be deducted from the current year's profit before arriving at the book profit u/s 115J, read with section 205(1)(b) of the Companies Act, 1956. The ITO and the CIT (Appeals) rejected this contention, leading to the appeal.

Interpretation of "Loss" and "Depreciation":
The appellant contended that the term "loss" in section 205(1)(b) of the Companies Act includes unabsorbed depreciation and should be set off against the current year's profit for computing book profit u/s 115J. The Tribunal disagreed, stating that section 115J and section 205(1)(b) use distinct terms "loss" and "depreciation," and these should not be conflated. The Tribunal emphasized that the legislative intent behind section 115J was to ensure that profitable companies pay a minimum tax and that the terms should be interpreted strictly within the context of the legal fiction created by section 115J. The Tribunal upheld the CIT (Appeals)'s interpretation that only business loss or unabsorbed depreciation, whichever is less, should be set off, and not the entire unabsorbed depreciation as claimed by the appellant.

Admission of Additional Ground:
The appellant raised an additional ground questioning the ITO's power u/s 143(1) to compute book profit u/s 115J. The Tribunal declined to admit this additional ground, noting that it was academic since the assessment had already been selected for scrutiny and completed. The Tribunal also pointed out that this issue was not raised before the ITO or the CIT (Appeals) and did not arise out of the order of the first appellate authority.

Conclusion:
The appeal was dismissed, and the order of the CIT (Appeals) was upheld, confirming the computation of book profit u/s 115J without allowing the set-off of unabsorbed depreciation from earlier years. The Tribunal emphasized the distinct treatment of "loss" and "depreciation" under the relevant sections and the legislative intent behind section 115J to ensure minimum tax payment by profitable companies.