1995 (7) TMI 136 - AT - Income Tax

Summary

Issues Involved:
The judgment involves the computation of set off of previous years' business loss for the assessment year 1991-92 and the interpretation of sections 115J(1) and 115J(2) of the Income Tax Act.

Computation of Set Off of Previous Years' Business Loss:
The assessee filed its return of income for the assessment year 1991-92, declaring a total income of Rs. 2,260 after considering unabsorbed depreciation and business loss carried forward. The Assessing Officer computed the income before set off at Rs. 5,98,239 and allowed set off of business loss and unabsorbed depreciation, resulting in taxable income of Rs. 1,94,963. The issue arose when the Assessing Officer did not accept the assessee's claim regarding the business loss brought forward from the assessment year 1985-86.

The assessee contended that the Assessing Officer's method of computing the set off was incorrect and contrary to the provisions of section 115J(2) of the Act. The contention was that the provisions of section 115J(1) should not affect the set off of earlier years' losses available to the assessee. The learned counsel for the assessee argued that the assessee's working was in line with the Act, emphasizing the importance of correctly interpreting the provisions of section 115J(2) to protect the assessee's rights.

Interpretation of Sections 115J(1) and 115J(2):
The Tribunal analyzed the provisions of sections 115J(1) and 115J(2) in detail. Section 115J was introduced to ensure that 'zero-tax' companies pay some tax by applying a guillotine to the bounties available under the Act. The purpose of section 115J(1) is to tax at least 30% of a company's book profits. However, section 115J(2) clarifies that the application of section 115J(1) should not affect the determination of amounts to be carried forward under other provisions of the Act, such as business losses and investment allowances.

The Tribunal concluded that the provisions of section 115J(2) are meant to safeguard the assessee's rights regarding carry forward and set off of business losses, independent of the limited role of section 115J(1. It was held that the operation of section 115J(2) does not nullify the provisions of section 115J(1). Consequently, the Tribunal ruled in favor of the assessee, directing the Assessing Officer to recompute the total income for the assessment year 1991-92 based on the assessee's contentions.

This judgment clarifies the interplay between sections 115J(1) and 115J(2) of the Income Tax Act, emphasizing the importance of correctly interpreting these provisions to protect the rights of the assessee in relation to carry forward and set off of business losses.