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TMI Blog1999 (4) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... fits declared by it in its own accounts. Under this new provision, a company will pay tax on at least 30 per cent. of its book profit... This measure will yield a revenue gain of approximately Rs. 75 crores. The Finance Minister introduced an amendment during the passage of the Finance Bill and said : The Finance Bill inserts a new section 115J in the Income-tax Act, 1961, to levy a minimum tax on book profits of certain companies. Representations have been received that in computing book profits for the purpose of determining the minimum tax, losses and unabsorbed depreciation pertaining to earlier years should be allowed to be set off............ This court ascertained the object behind the legislation and held that the provisions of section 205 quoted hereinabove stand bodily lifted and incorporated into the body of section 115J of the Income-tax Act, all that we have to do is to read the provisions plainly and apply the rules of interpretation if any ambiguity survives. Section 205(1), proviso clause (b) of the Companies Act brings out the unabsorbed portion of the amount of depreciation already provided for computing the loss for the year. The words the amount provided for dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earing Parties. JUDGMENT R. C. Lahoti J. 1. This is a batch of eight matters before this court. The routes through which the different matters travelled up to the High Court were different. Some were reference applications under section 256(1) of the Income-tax Act, 1961, and some were writ petitions filed before the High Court. All the matters have stood disposed of consistently with the view taken by the Division Bench of the High Court of Andhra Pradesh in the leading judgment which is reported as V. V. Trans-Investments (P.) Ltd. v. CIT [1994] 207 ITR 508 and also impugned herein. In all the matters the question arising for decision is in substance only one : whether the term "loss" as appearing in section 205(1), first proviso, clause (b), of the Companies Act, 1956, read with section 115J of the Income-tax Act, 1961, means "including depreciation". 2. In order to appreciate the bone of contention it would suffice to state the facts relevant to one of the assessees, namely, V. V. Trans-Investments (P.) Ltd. Hyderabad, a private limited company. The figures of net profit and loss as per the profit and loss account of the company were as follows : Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion or loss whichever is less only in the eventuality when in a given year there is loss as well as depreciation. In such a case, the lesser of the two amounts will be available for deduction as per the provisions of the Income-tax Act. In case there is profit in a year but after adjustment of depreciation it results in loss, no adjustment in the book profit under section 115J can be allowed. 5. The relevant provisions to the extent relevant for the purpose of this order are extracted and reproduced hereunder : INCOME-TAX ACT, 1961 "115J. Special provisions relating to certain companies.-(1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee being a company (other than a company engaged in the business of generation or distribution of electricity), the total income, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1988 (but before the 1st day of April, 1991) (hereafter in this section referred to as the relevant previous year), is less than thirty per cent. of its book profit, the total income of such assessee chargeable to tax for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be declared or paid or against the profits of the company for any previous financial year or years, arrived at in both cases after providing for depreciation in accordance with the provisions of sub-section (2) or against both;" 6. Section 115J was introduced in the assessment year 1988-89 to take care of the phenomenon of prosperous zero tax companies which had continued in spite of the enactment of section 80VVA. These were companies which were paying no income-tax though they had profits and were declaring dividends. A minimum corporate tax was sought to be ensured on prosperous companies. A plain reading of section 1151 shows that if the assessee be a company and its total income determined under the Income-tax Act in respect of a previous year be less than thirty per cent. of its book profit, fictionally it will be deemed that its total income chargeable to tax for the relevant previous year was an amount equal to thirty per cent. of such book profit. The total income of the assessee shall first be computed in accordance with the provisions of the Income-tax Act and if the total income so computed be less than thirty per cent. of the book profit, then the profit and l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdship to companies of new projects which have just begun to make profits and companies which having fallen sick were just turning around the corner. The Finance Minister introduced an amendment during the passage of the Finance Bill and said : "The Finance Bill inserts a new section 115J in the Income-tax Act, 1961, to levy a minimum tax on book profits of certain companies. Representations have been received that in computing book profits for the purpose of determining the minimum tax, losses and unabsorbed depreciation pertaining to earlier years should be allowed to be set off. Otherwise, new projects that have just begun to make profits after some years of losses and sick companies that have just turned the corner, will become subject to minimum tax. There is merit in this suggestion. Under section 205 of the Companies Act, 1956, past losses or unabsorbed depreciation, whichever is less, are allowed to be set off against the book profits of the current year for determining profits for the purpose of declaring dividend. It is proposed to allow the same adjustments in computation of book profits for purposes of the new provision for levy of minimum tax." 10. Mr. Par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inted in it'." : "Even though only particular sections of an earlier Act are incorporated into the later, in construing the incorporated sections it may be at times necessary and permissible to refer to other parts of the earlier statute which are not incorporated. As was stated by Lord Blackburn : 'When a single section of an Act of Parliament is introduced into another Act, I think it must be read in the sense it bore in the original Act from which it was taken, and that consequently it is perfectly legitimate to refer to all the rest of that Act in order to ascertain what the section, meant, though those other sections are not incorporated in the new Act' ". 12. Once we have ascertained the object behind the legislation and held that the provisions of section 205 quoted hereinabove stand bodily lifted and incorporated into the body of section 115J of the Income-tax Act, all that we have to do is to read the provisions plainly and apply the rules of interpretation if any ambiguity survives. Section 205(1), proviso clause (b) of the Companies Act brings out the unabsorbed portion of the amount of depreciation already provided for computing the loss fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount arrived at after taking into account the amount of depreciation and it has to be so read and understood in the context of section 115J of the Income-tax Act, 1961. We do not agree with the view taken by the High Court that in case there is profit in a year but after adjustment of depreciation it results in loss, no adjustment in the book profit under section 115J can be allowed. The view taken by the High Court would partially defeat the object sought to be achieved by section 115J of the Income-tax Act, 1961. We also do not agree with. the High Court saying that having lifted section 205(1), proviso clause (b), from the Companies Act into section 115J of the Income-tax Act, there is no occasion to refer to the Companies Act, 1956, at all. 14. For the foregoing reasons, Civil Appeals Nos. 4471 of 1995, 4472 of 1995 and Civil Appeals Nos. 180-181 (NT) of 1995 filed by (1) Surana Steels Pvt. Ltd., (2) V. V. Trans-Investment (P.) Ltd., Hyderabad, and (3) Binjusaria Metal Box Co, Ltd., Hyderabad, respectively, are allowed. The order under appeal passed by the High Court of Andhra Pradesh is set aside. 15. Civil Appeal No. 7589 (NT) of 1997, is directed against order dated ..... X X X X Extracts X X X X X X X X Extracts X X X X
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