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TMI Blog2000 (8) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... ng all the relevant provisions of the Income-tax Act and, on the other hand, should be made in the limited way by restricting only to the additions and deductions as are required to be made in accordance with the Explanation to section 115J(1A) of the Income-tax Act ?" The relevant assessment years are 1989-90 and 1990-91. The assessee is engaged in the manufacture of goods, most of which are exported outside India. According to the assessee, because of the substantial amount of depreciation and investment allowance, the assessee did not have any taxable income for these assessment years on the computation under the provisions of the Act. Therefore, the assessing authority made the assessment under section 115J of the Income-tax Act (hereinafter referred to as "the Act"). According to this section, when the total income is less than 30 per cent. of the book profit, the income will be considered as 30 per cent. of the book profit and the assessee will be assessed accordingly. Under section 115J of the Act, the net profit is to be added to certain amounts which are given under that section. Under section 115J(1A)(iii) of the Act, the amounts as arrived at after increasing the net p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the relevant previous year shall be deemed to be an amount equal to thirty per cent. of such book profit". Sub-section (1A) says that the assessee, for the purposes of this section is directed to prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act. There is an Explanation to section 115J(1A) of the Act, which says thus : "For the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under subsection (1A), as increased by. . . or as reduced by ... Section 115J of the Act, therefore, involves two processes. Firstly, the assessing authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he export out of India of the goods or merchandise to which this section applies, the profits of the business as computed under the head "Profits and gains of business or profession". Under clause (b) where the business carried on by the assessee does not consist exclusively of the export out of India of the goods or merchandise to which this section applies, the amount which bears to the profits of the business (as computed under the head "Profits and gains of business or profession"). Under sub-section (3A) for the purposes of sub-section (1A), profits derived by a supporting manufacturer from the sale of goods or merchandise shall be described. There also what is to be taken into consideration is the profits of the business as computed under the head "Profits and gains of business or profession". Under section 80HHD(3) for the purposes of sub-section (1), profits derived from services provided to foreign tourists shall be, (a) in a case where the business carried on by the assessee consists exclusively of services provided to foreign tourists resulting in receipts in convertible foreign exchange, the profits of the business as computed under the head "Profits and gains of busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which would be required to be set off against the profit of the relevant previous year as if the provisions of clause (b) of the first proviso to sub-section (1) of section 205 of the Companies Act are applicable. Thus, in clause (iv) we can see that the provisions of clause (b) of the first proviso to sub-section (1) of section 205 of the Companies Act are entirely made applicable. Such an intention is not there in clause (iii). Hence, we are of the view that under clause (iii), Explanation, it is not the profit as computed under the head "Profits and gains of business or profession" that is to be applied. According to us, instead of the words "profits and gains of business or profession" occurring in sub-sections (3) and (3A) of section 80HHC or sub-section (3) of section 80HHD, the word profit that is mentioned in section 115J has to be applied. Learned counsel for the Revenue brought to our notice a decision of the Supreme Court in Surana Steels Pvt. Ltd. v. Dy. CIT [1999] 237 ITR 777. That was a case dealing with the interpretation of clause (iv) of Explanation to section 115J of the Act. Clause (iv) states thus : ". . . the amount of the loss or the amount of depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the said Explanation : (a) A new clause (iii) has been inserted in the Explanation to provide that for the purposes of computation of 'book profits', the net profit shall be reduced by the amount of net profits derived from the business of exports or from services provided to foreign tourists by approved hotels and tour operators or by travel agents, which are eligible for deduction under sections 80HHC and 80HHD. For this purpose, the net profit to be excluded shall be computed in the same manner as provided for in subsections (3) and (3A) of section 80HHC or sub-section (3) of section 80HHD, as the case may be. Similarly, in the circular dated February 21, 1994, it is stated as follows : "(i) it should be first decided whether the assessee carries on a business, the profits from which are eligible for deduction under section 80HHC or 80HHD ; (ii) if so, the net profit shown in the profit and loss account of the relevant previous year should be adjusted as per clauses (a) to (f) and (i) and (ii) of the said Explanation ; (iii) if the business exclusively consists of the types of business which are eligible for deduction under section 80HHC/80HHD the whole of such amount ar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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