1996 (2) TMI 48 - HC - Income Tax

Article 14 Of The Constitution, Assessment Year, Income Tax, Special Provision For Taxation, Total Income

Summary

Issues Involved:
1. Constitutional validity of Section 115J of the Income-tax Act, 1961.
2. Interpretation and application of sub-section (2) of Section 115J.
3. Alleged discrimination under Articles 14 and 19(1)(g) of the Constitution of India.
4. Alleged double taxation due to the operation of Section 115J.

Detailed Analysis:

1. Constitutional Validity of Section 115J:
The main issue in these writ petitions is the constitutional validity of Section 115J of the Income-tax Act, 1961. The petitioners argue that Section 115J is unconstitutional and violates Articles 14 and 19(1)(g) of the Constitution of India. The petitioners contend that Section 115J, which was introduced by the Finance Act, 1987, imposes a tax based on "book profits," leading to an unfair tax burden on companies.

2. Interpretation and Application of Sub-section (2) of Section 115J:
The petitioners argue that the unabsorbed losses and unadjusted allowances should be allowed to be carried forward when notional income is taxed under Section 115J(1). They claim that failing to allow this carry forward would result in double taxation. The Revenue counters that Section 115J(2) is a saving provision and does not affect the determination of amounts to be carried forward under other sections of the Act. The court examines the provisions of Section 115J and concludes that sub-section (2) of Section 115J is a saving provision that ensures the determination of amounts to be carried forward is unaffected by sub-section (1). The court finds no illegality in the interpretation provided by the Board's Circular No. 495, dated September 22, 1987.

3. Alleged Discrimination under Articles 14 and 19(1)(g) of the Constitution of India:
The petitioners argue that Section 115J discriminates against companies by imposing a tax on book profits, which is not applicable to other units of taxation. The court refers to the Supreme Court's rulings in Jain Brothers v. Union of India and ITO v. N. Takin Roy Rymbai, which state that the Legislature has wide discretion in classification for taxation purposes. The court concludes that the classification of companies for the purpose of Section 115J does not violate Articles 14 or 19(1)(g) of the Constitution. The court also refers to the Division Bench of the Delhi High Court in National Thermal Power Corpn. Ltd. v. Union of India, which held that Section 115J is not violative of Article 14 or 19(1) of the Constitution.

4. Alleged Double Taxation:
The petitioners argue that Section 115J results in double taxation by taxing notional income and not allowing the carry forward of unabsorbed losses and unadjusted allowances. The court finds no merit in this contention, stating that the right to carry forward losses and allowances is preserved by sub-section (2) of Section 115J. The court also notes that double taxation per se does not render a provision invalid, as established in Jain Brothers v. Union of India.

Conclusion:
The court dismisses the writ petitions, upholding the constitutional validity of Section 115J of the Income-tax Act, 1961. The court finds that the provisions of Section 115J(1) and (2) are clear and do not violate Articles 14 and 19(1)(g) of the Constitution. The court also concludes that there is no double taxation resulting from the operation of Section 115J. The petitions are dismissed without any order as to costs.