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TMI Blog1999 (9) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee was charged to tax in this year in accordance with-the provisions of section 115J only ?" The facts of the case, are, that the assessee-company was charged to income-tax on the basis of the computation made under section 115J. It was claimed before the taxation authorities that, as it had been assessed to a total income as computed under section 115J, all the other allowances like depreciation, investment allowance, etc., should be deemed not to have been allowed at all inasmuch as the income had been determined without reference to any of the provisions of the Income-tax Act, but by taking into consideration only the book profits computed in accordance with Parts II and III of Schedule VI to the Companies Act. It was further contended that, once the total income had been determined under section 115J, the other allowances could not be deemed to have been allowed so as to reduce the income to nil. The amounts of unabsorbed losses, depreciation, investment allowance, etc., as brought forward from earlier years should also be carried forward without any change on the ground that no computation of total income of the assessee in the regular manner was done for this year. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of sections 28 to 43 of the Income-tax Act, 1961, without applying the provisions of section 115J(1), and the resultant amounts of written down value will only have to be carried forward to the next year?" In I.T.R.C. No. 144 of 1995, the following questions have been referred: "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amounts of business loss, unabsorbed depreciation, unabsorbed investment allowance, etc., as at the beginning of the accounting year are required to be adjusted and set off to the extent such brought forward business loss, unabsorbed depreciation, etc., would have been adjusted and set off had the assessee been assessed to tax in the regular way in accordance with the provisions of sections 28 to 43 of the Income-tax Act, 1961, and not by way of application of the provisions of section 115J(1) and that the resultant amounts of losses, unabsorbed depreciation, unabsorbed investment allowance, etc., only will be required to be carried forward to the next year? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the written down value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the book profit, the total income of such assessee chargeable to tax shall be deemed to be an amount equal to 30 percent of such book profit. The total income has to be computed under different heads and each head has got its own special provisions for allowing deductions against the receipts. Under section 115J, instead of resorting to various heads of income and following the procedure laid down in various sections, a ready method of computation of income is provided and, therefore, section 115J is a mere computation machinery provision and nothing more. The profit and loss account of a company may include items of income which would be chargeable under various heads. But for section 115J income under those heads would have been computed in the special manner provided under the Act. The income computed under section 115J cannot be traced or relatable to a particular head of income and, as such, various provisions like sections 72, 73 and 74, etc., cannot be invoked in the absence of computation of income under different heads. Even the capital gains cannot be taxed under the said section. Section 115J does not provide for passing of an order of assessment. The assessment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation to some extent while applying section 115J. Since no assessment under the normal computation of income is made, the computation made under section 115J has to be overlooked. It is submitted that, if the total income normally computed is a negative figure, and there is no assessable income and the assessee is called upon to pay a tax on deemed income, he cannot further be penalised by denying the benefit of carry forward depreciation/loss, etc., and also the reduction in the written down value through a notional process. Section 32(2) provides for carry forward of depreciation where full effect cannot be given, owing to there being no profits or gains chargeable for that previous year and, therefore, carry forward under section 32(2) is permissible if and only if effect cannot be given to depreciation allowable under section 32(2) by reason of non-availability of profits. Under section 72(1) the carry forward of loss is permitted where the loss cannot be wholly set off against any other income or where there is no income. Under section 115J there is income, because, the loss is not set off. Under section 43(6), written down value which is the basis for allowance of depr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered. If section 115J(2) was not there, the determination of the current year's depreciation could not have been carried forward to a subsequent year, because, its non-absorption is not on account of paucity of profits. 30 percent may be adequate to absorb such entire depreciation and it could have been argued that the current year's depreciation under section 32(2) for the reason that it cannot be carried forward. Similar is the position in respect of the provisions of sections 72(2) and 80J(3) as the income in many cases could be income derived from business or income from the industrial undertaking. Set off under section 72 is not against the income under the head "Business" but against the profits and gains of any business and, therefore, the income under section 115J, though, it cannot be described as profits and gains of any business, and, as such, set off under section 72(1) is possible, but the position is stated to be similar to section 80J(3). It is submitted that the loss is inclusive of depreciation as held in Garden Silk Weaving's case [1991] 189 ITR 512, wherein, it was observed by the Supreme Court that, unabsorbed depreciation is indeed a part of the "l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reunder: "Under the proposed amendments, in the case of any company, whose total income as computed under the other provisions of the Income-tax Act in respect of any previous year is less than thirty percent of its book profit, the total income of such assessee chargeable to tax shall be deemed to be an amount equal to thirty percent of such book profit. For the purposes of the aforesaid provision, 'book profit' means the net profit as shown in the profit and loss account for the relevant previous year prepared in accordance with the provisions of Parts II and III of the Sixth Schedule to the Companies Act, 1956, subject to certain adjustments. It has also been provided that the aforesaid provision shall not affect the determination of the amounts to be carried forward to the subsequent year or years under the provisions of sub-section (2) of section 32, or subsection (3) of section 32A or clause (ii), of sub-section (1) of section 72 or section 73 or section 74 or sub-section (3) of section 74A or sub-section (3) of section 80J." Sub-section (1) starts with a non-obstante clause. So far as the other provisions of the Income-tax Act are concerned, in respect of assessees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he profit and loss account has to be prepared in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956. The amounts as specified in the Explanation therein have to be added to the net profit as shown in the profit and loss account to arrive at the book profit. Thus, it is the computation of total income in accordance with the normal provisions of the Income-tax Act and thereafter, it has to be determined in accordance with the provision of section 115J and the higher of the two is ultimately deemed to be representing the total income. For computing the income under section 115J(1), a specific provision has been made in respect of the carry forward of an unabsorbed depreciation, etc., under section 115J(2), according to which, it has to be presumed as if the provision of section 115J do not exist. The business loss, unabsorbed depreciation for the current year is required to be computed by taking into consideration the brought forward loss of the earlier year and setting off against the income of the assessee, if any, for the assessment year, and thereafter, the balance amount is carried forward to the next year. Under section 115J(2), the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the interpretation of clause (iv) under the Explanation to section 115J." The term "loss" was interpreted as under: "The term 'loss' as occurring in clause (b) of the proviso to section 205(1) of the Companies Act has to be understood and read as the amount arrived at after taking into account the depreciation. Then alone the formula prescribed in this clause would make sense and it would be consistent with the object sought to be achieved by enacting section 115J of the Income-tax Act, 1961. If 'loss' were to be taken as pre-depreciation loss then the resultant computation will not be in conformity with the tenor of the provisions of section 205. The language of clause (b) of the proviso to section 205(1) is clear. It applies to those cases where the depreciation has been provided in accordance with the provisions of sub-section (1) of section 205. The depreciation is provided for in the profit and loss account. The loss is arrived at after taking into account the depreciation provided. It is therefore clear that the word 'loss' as used in the proviso clause (b) to section 205(1) signifies the amount arrived at after taking into account the amount of depreciation and it ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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