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TMI Blog2010 (10) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... ome. This return was filed on 30.10.2002 along with statutory Audit Report and audited balance sheet and profit and loss account. The return was also accompanied by a report in Form No.29 B dated 22.10.2002 from an Accountant, certifying the book profits to be "NIL" in terms of Minimum Alternate Tax (MAT) provisions of Section 115JB of the Act. This return was selected for scrutiny and notice under Sections 143(2) and 142(1) was served upon the assessee. Revised return of income was filed on 31.03.2004 again declaring a "NIL" taxable income and "NIL" book profits for the purposes of Section 115JB of the Act, with certain modifications. 3. While computing book profits for the purpose of Section 115JB, the Assessing Officer (AO), inter alia, noticed that the assessee had claimed a deduction of Rs.11,14,64,874 from the net profits as adjusted. This claim of deduction was made on the strength of the provisions of Clause (iii) provided in Explanation (1) to sub-Section 2 of Section 115JB of the Act. Section 115JB of the Act, which is a MAT provision, creates special provisions for payment of tax for certain companies. In nutshell, it provides for payment of minimum tax by certai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iminution in the value of any asset,...................... If any amount referred to in clauses (a) to (i) is debited to the profit and loss account, and as reduced by, - (i) the amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April, 1997 otherwise than by way of a debit to the profit and loss account), if any such amount is credited to the profit and loss account: Provided that where this section is applicable to an assessee in any previous year, the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation or Explanation below the second proviso to section 115JA, as the case may be; or (ii) the amount of income to which any of the provisions of [section 10 (other than the provisions contained in clause (38) thereof)] or section 11 or section 12 apply, if any such amount is credited to the profit and loss account; or (iia) the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given) reported NIL accumulated losses. 7. The position which emerges from the aforesaid is that 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. 8. In the Assessment Year under consideration, i.e., 2002-03 (corresponding to Financial Year 2001-02), the assessee had earned a net profit of Rs.7,97,45,509.88. After making necessary adjustments, as per the provisions of Section 115JB of the Act, the book profit was arrived at Rs.9,30,21,510. The assessee wanted this to be reduced by accumulated losses of Rs.34,67,03,948 which according to assessee, was brought forward from the earlier years comprising of brought-forward losses and unabsorbed depreciation. According to the assessee, even if during the Financial Years, these losses were eliminated because of the reduction in the share capital, that was of no consequence, as the accumulated losses as on 31.03.2001 were to be taken into consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erit. 3.7 Intention of the Legislature has been stressed upon by the assessee company to justify its claim of set off. In this context, it is to be stated that the intention of the legislature requires to be probed where there are ambiguities in the legislation. So far as Section 115JB is concerned, it is a stand-alone extra ordinary provision whose unambiguous object is to levy tax at a specified percentage of the "Book Profits" which is net profit as per profit and loss account prepared in accordance with the provisions of Part II and III of Schedule VI of the Companies Act, as adjusted vide Explanation (a) to (f) and (i) to (vii). The item of immediate relevance is Explanation (III) which mandates reduction of the net profit as increased by Explanation (a) to (f), by "the amount of loss brought forward or unabsorbed depreciation which ever is less as per books of accounts". This enactment is without any ambiguity and, therefore, the words used must be given their plain grammatical meaning. The relevant words are "as per books of accounts", which means only the accumulated losses as per books of accounts will be set off and not the brought forward losses and unabsorbed depreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d losses, since the losses had been liquidated during the course of the year and nothing was left over, being available for set-off. Accordingly, the disallowance is sustained." 11. The Income Tax Appellate Tribunal (hereinafter referred to as "the Tribunal") in its impugned decision while overturning the opinion of the AO, has preferred to accept the contention of the assessee, holding the view 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. In this behalf, the Tribunal took the following view: "...Therefore, the profit shown in the Profit and Loss Account will be the starting figure for making adjustments as mentioned in the Explanation to section 115JB. This Explanation, on the facts of this case, inter-alia provides the reduction of book profits by the brought forward business losses as per books. The term "loss brought forward" can only mean the loss on the last day of the immediately preceding year and nothing else. If any adjustment is made in the afor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consequence, since such brought forward losses as determined are to be reduced under Explanation to Clause (iii) of Section 115JB (2) of the Act from the book profit as reflected in the profit and loss account prepared. He supplemented this argument by submitting that the figure of book profits is one as is declared as per profit and loss account. From the said book profit, the assessee is to set off the amount of loss brought forward. The concept of "brought forward losses" is well established and is that such losses, as have been brought forward from the preceding year. The profit and loss account is not prepared by including brought forward losses, but such losses are carried to the balance sheet. Therefore, both conceptually and statutorily, mere look at the statutory provisions would show that from the book profit as computed the brought forward loss is to be set off. There is no further requirement that if such brought forward loss has been liquidated, income for a MAT company would not be eligible to such a deduction as was represented by brought forward loss. 14. Ms. Suruchi Aggarwal, on the other hand, argued on the lines of approach adopted by the AO and the CITA( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med up by the Supreme Court in the case of Commissioner of Customs and Central Excise Vs. Hongo India (P) Ltd. in the following words: "2. At the cost of some repetition, we may notice that the provisions of Sections 23 and 24 of the Act have been enacted by the Legislature with certain objects in mind. The intention of the Legislature is an important factor in relation to interpretation of statutes. The statue law and the case law go side by side and quite often the relationship between them is supplementary. In other words, interpretation is guided by the spirit of the enactment. Interpretation can be literal or functional. Literal interpretation would not look beyond litera gegis, while functional interpretation may make some deviation to the letter of the law. Unless, the law is logically defective and suffers from conceptual and inherent ambiguity, it should be given its literal meaning. Where the law suffers from ambiguity, it is said interpretation must depend upon the text and context. They are the basis of the interpretation. One may well say that if the text is the texture, context is what gives it colour. Neither can be ignored. Both are important. That interpretation i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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