2010 (10) TMI 33 - HC - Income Tax

MAT - minimum alternate tax - adjustment to book profit u/s 115JB - Brought forward loss - as on 31.03.2001, there were accumulated losses to the tune of Rs.34,67,03,948 which were brought forward in the relevant Assessment Year, i.e., on 01.04.2001. However, on the close of this Financial Year, i.e., 31.03.2002, there were no accumulated losses as these were reduced to NIL due to the reduction of share capital - AO denied the adjustment on account of brought forward loss for the FY 2001-2002 as same is NIL - Held that - the expression losses brought forward would mean the losses which existed as on the last date of the previous Financial Year and brought forward in the current Financial Year that are to be adjusted, as figure of book profit, is to be reduced thereby

Summary

Issues Involved:
- Interpretation of the Explanation below Section 115JB Clause (iii) of the Income Tax Act.
- Determination of the relevant date for ascertaining the amount of unabsorbed losses brought forward under Section 115JB.

Detailed Analysis:

1. Interpretation of Section 115JB Clause (iii):
The core issue revolves around the interpretation of the Explanation below Section 115JB Clause (iii) of the Income Tax Act, specifically the term "loss brought forward or unabsorbed depreciation, whichever is less as per books of account." The assessee claimed a deduction based on the losses brought forward from the previous financial year, arguing that these should be considered for the current financial year regardless of any subsequent reduction in share capital that wiped out these losses.

2. Relevant Date for Ascertaining Unabsorbed Losses:
The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] held that the relevant date for determining the amount of unabsorbed losses should be the last date of the financial year under assessment (31.03.2002). They argued that since the losses were wiped out during the year due to the reduction in share capital, no losses were available for set-off at the end of the financial year. The AO stated that profits and losses are reckoned at the end of the financial year, not at the beginning. The CIT(A) concurred, emphasizing that the book profit is determined on the last day of the accounting period, and any losses liquidated during the year cannot be set off.

3. Tribunal's Decision:
The Income Tax Appellate Tribunal (ITAT) disagreed with the AO and CIT(A), ruling in favor of the assessee. The Tribunal held that the term "loss brought forward" refers to the losses existing as on the last date of the previous financial year (31.03.2001) and brought forward to the current financial year. The Tribunal emphasized that the statutory language in Clause (iii) of Section 115JB is clear and unambiguous, and it should be interpreted literally. The Tribunal concluded that the assessee is entitled to reduce the book profit by the amount of losses brought forward from the previous financial year, regardless of any subsequent liquidation of those losses.

4. High Court's Analysis:
The High Court upheld the Tribunal's decision, agreeing that the term "loss brought forward" should be interpreted literally, referring to the losses as on the last date of the previous financial year (31.03.2001). The Court reasoned that the statutory language is clear and does not account for any changes during the current financial year. The Court emphasized the principle of literal interpretation, stating that the intention of the legislature is to be judged from the language used in the legislation. The Court cited various precedents to support the principle that fiscal statutes should be construed strictly and given their plain grammatical meaning.

Conclusion:
The High Court concluded that the Tribunal's decision was correct in law, affirming that the assessee is entitled to deduct the losses brought forward from the previous financial year as per the books of account, regardless of any subsequent liquidation of those losses. The appeal was dismissed as devoid of merit.