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TMI Blog1991 (8) TMI 166X X X X Extracts X X X X X X X X Extracts X X X X ..... as per books being lesser than depn. as per Annexure-II Rs. 31,658 ------------------------- Rs. 85,614 or Rs. 85,610 ------------------------- Net income at 30%... Rs. 25,680. Income-tax thereon at 55%... Rs. 14,124." " Annexure-II Losses as per Balance-sheet Business loss Depreciation Total Rs. Rs. RS. 31-12-1986 31,658 44,622 76,280 31-12-1985 -- 33,217 33,217 31-12-1984 -- 32,963 32,963 31-12-1983 -- 33,677 33,677 " Aggrieved by the said levy of tax under section 115J, the assessee carried the matter in appeal before the CIT(Appeals). 3. Before the CIT (Appeals) the assessee's counsel contended that the Assessing Officer erred in determining the income at Rs. 25,680 for computing the tax payable under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordance with the provisions of sub-section 2 or against both. By virtue of this clause namely Explanation 2 a deeming provision has been enacted. In other words, book profit has to be reduced by the amount of loss of by the amount of depreciation which would be computed as per the provisions of clause (b) of proviso to sub-section (1) of section 205. The depreciation amount is Rs. 33,205 whereas the business loss is Rs. 31,658. The Asstt. Commissioner has taken the figure of Rs. 31,658 and deducted the same from the net profit as per P L account. Since the wording used is ' or ', the Asstt. Commissioner is free to deduct the loss or depreciation. In my opinion, he strictly acted in accordance with the provisions contained in the Act. I do n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial years, the amount of the loss or the amount which is equal to the amount provided for depreciation in those previous years, whichever is less, has to be set off against the profits of the company for the current year. The Assessing Officer has noted that for the year ending 31-12-1986 the depreciation claimed by the assessee in the profit and loss account amounted to Rs. 44,622 and that the business loss amounted to Rs. 31,658. He took the lesser amount of these two figures namely Rs. 31,658 and deducted the same from the net profit as per profit and loss account of Rs. 1,17,272 and arrived at the income of Rs. 85,610 for the purposes of section 115J. But the Assessing Officer should have taken, in each year, least of the figures ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) of section 205 of the Companies Act, 1956 are applicable. 7. According to clause (b) of the first proviso to section 205(1) of the Companies Act, 1956, the amount of the loss or an amount which is equal to the amount provided for depreciation, whichever is less, shall be set off against the profits of the company for the year for which dividend is proposed to be declared or paid. [Emphasis supplied]. The bone of contention between the assessee and the Revenue is what interpretation is to be given to the word ' loss ' occurring in clause (b) of the first proviso to section 205(1) of the Companies Act, 1956. According to the Assessing Officer, the loss means business loss excluding depreciation. In other words, business loss (excluding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Account for the year to be reduced from the book profits as per section 115J Rs. Rs. Rs. 31-12-1983 47,746 45,984 45,984 31-12-1984 32,964 45,450 32,964 31-12-1985 33,217 45,005 33,217 31-12-1986 76,280 44,622 44,622 From the working given by the assessee's counsel, it will be seep that the net loss as per profit and loss account is after taking into consideration the debit given in the profit and loss account for depreciation. In other words, it amounts to saying as loss including depreciation. For e.g., in the year ended on 31-12-1983 the loss before considering depreciation amounted to Rs. 1,762. Depreciation o f Rs. 45,984 was debited in the profit and loss account. Thus the net loss as per the profit and loss account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, declaration of dividend should not be allowed. Otherwise the prior approval of the Central Government is necessary for declaration of dividend. When such is the situation, if loss is to be considered excluding depreciation such intention cannot be fulfilled. This will be clear from the facts of the case before me in the years ending on 31-12-1983, 31-12-1984 and 31-12-1985. In the year ended 31-12-1983, loss excluding depreciation is only Rs. 1,762 while depreciation is Rs. 45,984. If deduction is given only for Rs. 1,762 being loss, depreciation remains left to be provided for. Similarly in the years ending on 31-12-1984 and 31-12-1985 depreciation remain left to be provided for because there are smaller profits without considering depr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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