9911796707
TMI Blog1997 (10) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the prior period expenditure should not be excluded from the computation of book profits under s. 115J within the meaning of net profit given in the Explanation below s. 115J(1A) of the IT Act, 1961?" 2. The brief facts giving rise to this reference are that the assessee is a private limited company engaged in the manufacturing of oil from oil-seeds, etc. A return showing nil income was filed on 26th Dec., 1989. The AO while computing the income, proceeded to determine the same under the provisions of s. 115J of the IT Act, 1961. On examination of the accounts of the company, it reveals that it has charged arrears of depreciation at Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Thereafter, the Revenue approached the Tribunal for referring the questions of law before this Court and, accordingly, the aforesaid questions of law have been referred for answer of this Court. 3. We have heard learned counsel for the parties and perused the records. Shri Abhay Sapre, learned counsel for the Revenue, has submitted that the whole idea behind enacting the provision of s. 115J of the IT Act was to check the tendency on the part of the company to show nil book profit; therefore, the said section was added so as to check this tendency on the part of the company to work out nil profit. The whole new scheme was enacted so that the company should work out their book profit in the manner provided under s. 115J of the IT Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich have been worked out as given in cls. (i) to (iv). Clause (iv) says that the amount of the loss or the amount of depreciation which would be required to be set off against the profit of the relevant previous year as if the provisions of cl. (b) of the first proviso to sub-s. (1) of s. 205 of the Companies Act, 1956, are applicable. By virtue of cl. (iv), the provisions of the Companies Act stand incorporated under the IT Act. This statutory incorporation means that so far as loss or depreciation is concerned, which is to be given a set off against the profit and loss of the relevant previous year has to be in the manner provided under s. 205(1), cl. (b) of the first proviso, of the Companies Act. Sec. 205(1), cl. (b) of the first provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that if the company has incurred any loss in any previous financial year or years, which falls or fall after the commencement of the Companies (Amendment) Act, 1960, then, the amount of the loss or an amount which is equal to the amount provided for depreciation for that year or those years 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 or against the profits of the company for any previous financial year or years, arrived at in both the cases after providing for depreciation in accordance with the provisions of sub-s. (2) or against both. Sub-s. (2) of s. 205 lays down how the depreciation is to be worked out. 4. For the purpose of working out th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lays emphasis on current depreciation and past depreciation. As it is obvious that without considering arrear depreciation, no company can declare dividend, the depreciation is, in our opinion, an essential charge to be set off against the profits before declaring dividend as no dividend can be declared out of capital under the Companies Act, 1956. It is notable that the provisions of s. 115J(1A) which provides for adjustment out of book profit do not provide for exclusion of arrear depreciation provided under the Companies Act. The AO has nowhere given a finding that the assessee is not entitled to extra shift allowance. Therefore, the extra shift allowance has to be taken into consideration. Therefore, the provision made by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rst proviso of the Companies Act which clearly provides that before declaring or paying dividend for any financial year provide for such depreciation out of the profits of that financial year or out of the profits of any other previous financial year or years to be worked out. But there is no such intention reflected in cl. (b) of the first proviso to sub-s. (1) of s. 205 of the Companies Act. It does not say so in so many words that all the previous years' loss has to be given credit. That appears to be so for the simple reason that if that is permitted then no useful purpose would be served by incorporating s. 115J of the IT Act. The idea behind s. 115J was only to check the tactics adopted by the assessee to work out zero profit of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
