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TMI Blog1993 (6) TMI 106X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax shall be deemed to be an amount equal to 30% of such " Book Profit ". It is further provided in clause (1A) that every company assessee shall prepare its profit and loss account in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 for the purposes of section 115J. Thereafter, the Explanation below the above clauses defines " Book Profit ". It means the net profit as shown in the profit and loss account prepared under clause (1A), as increased by certain items enumerated from (a) to (ha), and as reduced by certain items enumerated from (i) to (iv). 3. Applying the above provision, the assessee computed the book profit at Nil and declared it in the return of income. However, the Assessing Officer computed 30% of the book profits at Rs. 47,43,691 under the same provisions. This has led to the present dispute before us. 4. The assessee-company was maintaining its books of account from 1st October to 30th September every year and the same previous year was being adopted for filing the returns of income. However, w. e.f. assessment year 1989-90, the Income-tax Act prescribed a uniform previous year for all assessees ending on 31st Mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 115J was concerned, the profit of the assessee was to be taken on the basis of its accounts prepared under the Companies Act, 1956, which means that the assessee could not debit depreciation at a higher rate prescribed by the Income-tax Rules instead of a much lower rate prescribed under the Companies Act. He also observed that the assessee had charged depreciation at the higher rate under the Income-tax Rules solely with the intention of avoiding the implications of section 115J of the Income-tax Act. He, therefore, recast the book profits after taking depreciation as per Companies Act arrived at the above mentioned figure. 8. It was submitted before the CIT (A) that the Assessing Officer was under a wrong impression that the assessee-company had not prepared its profit and loss account in accordance with the provisions of Part II and Part III of Schedule VI of the Companies Act, 1956. It was argued that the rates of depreciation allowance prescribed in Schedule XIV of the Companies Act were not applicable to Part II and Part III of Schedule VI of the Companies Act and were meant only for sections 205 and 350 of the Companies Act, which relate to the declaration of divid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w in appeal before us. 11. The learned counsel for the assessee reiterated the arguments which were made before the CIT (A) and thereafter went further into the rates of depreciation to be adopted under the Companies Act. He invited our attention to Part II of the Schedule VI to the Companies Act and submitted that the rates of depreciation were not prescribed therein at all. All that was provided was that there should be a proper disclosure about the depreciation. Relevant extract of para 3(iv) is given below :--- " 3. The profit and loss account shall set out the various items relating to the Income and expenditure of the company arranged under the most convenient heads ; and in particular shall disclose the following information in respect of the period covered by the account--- (i) ......................... (ii)......................... (iii)........................ (iv) The amount provided for depreciation, renewals or diminution in value of fixed assets. " 12. Our attention was thereafter invited to Schedule XIV of the Companies Act, inserted by the Companies (Amendment) Act, 1988 with retrospective effect from 2-4-1987. It was narrated in the heading itself " s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee thereafter invited attention to the decision of the Special Bench of the Tribunal in the case of Sutlej Cotton Mills Ltd. v. Asstt. CIT [1993] 199 ITR 164 (AT). Although the issue under consideration in that case was not rates of depreciation, there was observations regarding computing of book profits under section 115J at pages 197 to 199. It was held that in a case where the profit and loss account was prepared in accordance with the provisions of Part II and Part III of the Sixth Schedule to the Companies Act, the Assessing Officer will have no power to disturb the book profit except as stated in section 115J. The learned counsel submitted that in the present case also the Assessing Officer had no such power. 16. Lastly, it was submitted that the reliance of the CIT (A) on clause (iv) of Explanation below section 115J was misplaced because the depreciation rate could be objected to, even under section 205 of the Companies Act, if it was lower than the rates prescribed in Schedule XIV, but not if they were higher than those rates, as was the case here. 17. For the above reasons, it was submitted that the rates of depreciation adopted by the assessee should be accepted and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e various assets by the Income-tax Act by virtue of reference thereto to section 350, which in turn was referred to in sub-section 2(1) of this section. In the recent years, the depreciation rates under the Income-tax Act having undergone steep upward revision, companies were not left with sufficient profits, after providing for depreciation, to enable declaration of reasonable dividend by them to their shareholders. This section has, therefore been amended by the Amendment Act of 1988 vide note 26 of Notes on clauses which reads as follows : ' This clause seeks to amend section 205 to provide that, in future, depreciation shall be calculated in accordance with the rates specified in Schedule XIV to the Act, thus delinking depreciation under the Companies Act from that under the Income-tax Act ..... ' The amendment has the effect of delinking the provisions for depreciation required to be made for determining distributable profits for purpose of declaration of dividend vide section 205, as also for determining net profits under section 349 for computing the managerial remuneration. " 21. Thus, it is evident that the changes were intended to govern the computation of profits for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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