1993 (11) TMI 109 - AT - Income Tax

Summary

Issues Involved:
1. Application of Section 115J in determining assessable income.
2. Validity of adjustments made to book profits by the Assessing Officer.
3. Interpretation of the term "loss" in the context of Section 115J.
4. Relevance of the Finance Minister's assurance in Parliament.
5. Claim of privilege by the Revenue regarding departmental notes.

Detailed Analysis:

1. Application of Section 115J in Determining Assessable Income:
The core issue revolves around the application of Section 115J of the Income-tax Act, which mandates that if the total income computed under the Act is less than 30% of the book profit, the total income chargeable to tax shall be deemed to be 30% of the book profit. The Explanation to Section 115J defines "book profit" and outlines specific adjustments. The Finance Minister's speech in the Lok Sabha on 29-4-1989 indicated that losses and unabsorbed depreciation from earlier years should be allowed to be set off when computing book profits for minimum tax purposes. This understanding was pivotal to the Tribunal's decision.

2. Validity of Adjustments Made to Book Profits by the Assessing Officer:
The Assessing Officer had added back provisions for bad and doubtful debts and a provision for shortfall in levy quota to the book profit, determining the adjusted book profit. The CIT (Appeals) accepted the exclusion of these provisions, agreeing with the assessee that they were accrued liabilities. However, the CIT (Appeals) rejected the assessee's contention regarding the set-off of unabsorbed depreciation, interpreting "loss" as exclusive of depreciation. The Tribunal ultimately found that the unabsorbed depreciation should indeed be set off, aligning with the Special Bench's decision in Surana Steels (P.) Ltd. v. Dy. CIT.

3. Interpretation of the Term "Loss" in the Context of Section 115J:
The Tribunal had to interpret whether "loss" in Explanation (iv) to Section 115J referred to net loss after depreciation or gross loss before depreciation. The Special Bench in Surana Steels (P.) Ltd. concluded that "loss" refers to net loss after depreciation, allowing the set-off of unabsorbed depreciation even if there was a profit before such depreciation in earlier years. The Tribunal upheld this interpretation, noting the Finance Minister's intention to align with the Companies Act, which allows set-off of past losses or unabsorbed depreciation, whichever is less.

4. Relevance of the Finance Minister's Assurance in Parliament:
The Tribunal emphasized the Finance Minister's assurance in Parliament, which advocated for allowing the same adjustments for book profits under Section 115J as under the Companies Act. This assurance was crucial in interpreting the legislative intent behind the provision. The Tribunal inferred that the Finance Minister intended to allow the set-off of unabsorbed depreciation, not the entire loss including depreciation, based on the speech and the absence of contrary evidence from the Revenue.

5. Claim of Privilege by the Revenue Regarding Departmental Notes:
The Revenue claimed privilege over the departmental notes prepared for the Finance Minister, arguing that their production would be against public interest. The Tribunal, however, held that such notes were relevant for interpreting Section 115J and understanding the scope of the Finance Minister's assurance. The Tribunal referenced the Supreme Court's stance that interpretation of statutes should consider all logically relevant material. The Tribunal concluded that the Revenue's failure to produce the notes, despite specific opportunities, supported the assessee's interpretation of the provision.

Conclusion:
The Tribunal set aside the orders of the lower authorities and directed the Assessing Officer to refrain from applying Section 115J while recomputing the assessee's income. The Tribunal allowed the appeal, confirming that the unabsorbed depreciation should be set off against the current profit, resulting in a nil adjusted book profit and total income. The Tribunal's decision was grounded in the legislative intent, the Finance Minister's assurance, and established principles of statutory interpretation.