TMI Blog1996 (5) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... production of articles but only by the lessees in their manufacturing business. The assessee carried the matter in appeal. The CIT(A) upheld the claim of the assessee for investment allowance following the ratio laid down by the ITAT in the case of ITO v. First Leasing Co. of India Ltd. [1985] 13 ITD 234 (Mad.) and directed the ITO to grant the said allowance subject to the fulfilment of the other conditions prescribed in section 32A of the Income-tax Act. The Revenue is in appeal. 3. Shri S.V. Subramanian, Standing-counsel, submitted that the decision of the Tribunal in the case of First Leasing Co. of India Ltd. has since been approved by the jurisdictional High Court, though, however, the Revenue has not accepted the verdict against it. Shri Gopal, the learned counsel for the assessee, submitted that the Tribunal is bound by the decision of the jurisdictional High Court rendered on an identical issue. He also placed reliance on the decision of the Karnataka High Court in the case of CIT v. Shaan Finance (P.) Ltd. [1993] 199 ITR 409/67 Taxman 213. Having regard to the submissions made before us, we uphold the order of the CIT(A) for the reason that he has only followed the rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 98 had been claimed and allowed as revenue expenditure under section 37(1) of the Income-tax Act in a revised return which was filed by the assessee on 31-12-1992. This revised return was also a loss return which was filed after the time limit prescribed under section 80 of the Income-tax Act. Therefore, he was of the view that the Assessing Officer should not have entertained the additional claim for deduction of debenture issue expenses in the order cited supra which had ultimately resulted in ehancement of loss later on in the guise of a revised return. Therefore, he held that the assessment order suffered from prejudice and hence he set aside the same to enable the Assessing Officer to correct the two errors mentioned above. The assessee is in appeal before us. 5. One of the issues in this appeal is about the quantification of depreciation to be allowed in the assessment year 1991-92. The definition of "actual cost of an asset" is to be found in section 43(1) and that of "Written Down Value" in section 43(6). The latter defines it to mean (a) in the case of assets acquired in the previous year the actual cost to the assessee, (b) in the case of assets acquired before the prev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 987 and it is the former WDV which is relevant for computation of depreciation for the assessment year 1991-92 onwards. The assessee's case is that its WDV as at the beginning of the previous year ended 31-12-1987 remained unaffected through the assessment years 1988-89 to 1990-91. This was on account of the operation of the provisions of section 115J as a result of which the revenue had not in fact allowed depreciation as per Income-tax Rules in arriving at the total income which was charged to tax on the basis of 30% of the book profits under the provisions of section 115J. Thus the issue before us is really what is the WDV of the assets as at the beginning of the previous year 1990-91 (relevant to assessment year 1991-92) on which depreciation is to be allowed. 6. Shri V.D. Gopal contends that as per the Circular issued by the C.B.D.T. (168 ITR St. 10), section 115J was brought to the statute book to ensure that companies, which make huge profits and declare dividends but admit losses only for purposes of income-tax assessment by taking advantage of various incentives granted by the Government, are made to pay tax on some basis that is on the basis of 30% of the book profits. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s necessary because : (a) as 30% of the book profits was treated as income chargeable to tax under sub-section (1) of section 115J, and (b) as the income chargeable to tax would always mean or represent or refer to excess of income over unabsorbed depreciation, unabsorbed business loss, unabsorbed investment allowance etc. etc. It could be argued that the assessee had lost its right to carry forward such unabsorbed items. Thus, sub-section (2) of section 115J has a very limited purpose to serve and the purpose was to protect the assessee against the denial of benefit of carry forward and set off of unabsorbed items of depreciation, business loss, investment allowance etc. etc. That does not mean that the amount of depreciation in relation to the relevant previous years (pertaining to the assessment years 1988-89, 1989-90 and 1990-91) had been quantified and allowed in determining the total income chargeable to tax under section 115J(1). Therefore, Shri Gopal vehemently contended that nothing had been allowed by way of depreciation in the relevant previous years, so as to reduce the WDV of the assets for and from the assessment years 1988-89 to 1990-91. He urged that the Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s totally absent. In other words, the Legislature has not chosen to create a fiction in the nature of section 10A(4) or section 10B(7) when it enacted section 115J. This legislative non-interference in respect of section 115J will lead to the only inference that it did not want to interfere with the claim of depreciation so far as section 115J was concerned. 9. Alternatively Shri Gopal contended that to the extent to which the assessee has been subjected to tax on deemed total income calculated at 30% of the book profits under the provisions of section 115J(1), there has been no adjustment of depreciation which was computed in accordance with the normal provisions of the Act (i.e., depreciation calculated at the rates admissible under the I.T. Rules). The non obstante clause found in section 115J(1) does not have the effect of either taking away the vested right to carry forward the past losses and other allowances such as depreciation etc. once and for all. Such a drastic result should not be allowed to flow from the use of the non obstante clause if it is read in the context of the provision and consistent with the scheme of the enactment. Therefore, it has to be held that depr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of the I.T. Act (-)73335 1496640 (-)553576 ------------------ ----------------- ---------------- Therefore, depreciation not allowed 960638 250333 3747643 ------------------ ----------------- ---------------- C. Third argument: Depreciation as per I.T. Rules Rs. Rs. Rs. (I.T. Depreciation) 4181597 6557323 5994255 Less: Depreciation debited in the book (Book Depreciation) 919128 1823992 2710843 ----------------- ------------------ ----------------- Balance not allowed 3262469 4733331 3283412 ----------------- ------------------ ----------------- Referring to the third illustration, Shri Gopal submitted that the balance amount given in the illustration should be actually more as only 30% of the Book Depreciation has in fact entered the deemed total income. 12. Shri S.V. Subramanian, the learned Sr. Standing Counsel for the assessee contended that none of the propositions advanced by the other side is sustainable in law or on facts. Section 115J is a purposive section to levy tax on zero tax companies in the circumstances specified therein. As a measure of equity this section was inducted into the Statute. Under the first limb of section 115J(1) to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ook profits and income computed in accordance with the normal provisions of the I.T. Act. He submitted that the assessee would want the Tribunal to believe that to the extent of this difference quantified in a sum of Rs. 91,60,638, Rs. 2,50,339 and Rs.37,47,643 respectively for the assessment years 1988-89, 1989-90 and 1990-91 depreciation had not been allowed to the assessee. This amounts to going back on the computation not authorised under any of the provisions of the Income-tax Act and therefore, such a plea should not be accepted. He referred to the third contention of the assessee namely that no depreciation had been allowed to it to the extent of difference between the amount of depreciation as per Income-tax Rules and the amount of depreciation debited in the books of account and submitted that these arguments are also to be rejected, because the adoption of 30% of the book profits as income chargeable to tax was only by means of a fiction for the limited purpose of levying tax and that fiction cannot nullify the effect of the computation of income under the normal provisions of the Act. Viewed in this background there should not be any difficulty in understanding the sco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Asstt. CIT in [IT Appeal No. 2905 (Mad.) of 1993 dated 25-7-1995.] Paper Book No. III contains depreciation table, extra depreciation/allowance, table of return of income, illustration I and II, original return of income (Assessment year 1991-92) and revised return of income for the assessment year 1991-92. Paper Book No. IV contains the written submissions. Yet there is one sheet of paper detailing the depreciation as per account books and depreciation as per I.T. Rules. We have gone through the materials submitted before us. There can be no quarrel over the proposition advanced by the learned Sr. Standing Counsel that none of the provisions of the statute can be viewed as a surplusage. There can be no two views on the proposition that the statute must be read as a whole in order to cull out the intention of the Legislature in the case of ambiguity and the purpose of interpretation is to harmonise the different provisions of the statute with the object of the statute kept in view. In the backdrop of these accepted principles, we proceed to examine the issue before us. 15. Section 115J was inserted by Finance Act, 1987 w.e.f. 1-4-1988. It was withdrawn from the Statute Book b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subject to certain adjustments for increase and decrease. But the learned Standing Counsel would like to read section 115J(1) in the following vein : " increase the total income computed under the other provisions of the Income-tax Act by an amount equal to the difference between the amount of total income thus computed and 30% of the book profit. " In effect he contends that under section 115J(1) an addition is to be made to the total income which was computed under the normal provisions of the Income-tax Act such that that total income is deemed to be equal to 30% of the book profits. We do not accept the view advanced by the Revenue. In our considered opinion there is nothing in the language of section 115J(1) to support the method or manner of ascertainment of deemed total income as canvassed by the learned Standing Counsel. The mere fact that arithmetically the end-product will result in the same amount of deemed total income cannot be the ground for reading the section in a manner different from the language employed in that section. There can be no room for intendment when the language is plain and clear. In our opinion, the amount of total income computed under the nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osses and allowances will have to be done in the normal way as if no order under section 115J(1) was passed.... The effect of not considering the provisions of section 115J(1) would be to go back to the determination of the total income by allowing the current depreciation as well as setting off the unabsorbed depreciation etc. of the earlier years brought forward to the current year. After the set off, the resultant figures only are required to be carried forward to the next year. This is the plain interpretation of the language used in section 115J(2) and there does not seem to be any ambiguity therein. When, however, it has clearly been mentioned in section 115J(2) that nothing contained in sub-section (1) shall affect the determination of amounts etc. it would amount to actual allowance of depreciation and other allowances against the gross income of the assessee in the computation of total income according to the regular process. The assessment of the total income in this process has necessarily got to be done and is also done and the only modifying step is that instead of working out tax on the said total income-tax is worked out on a different amount. This will be cleare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal, while emphasising that the provisions of section 115J(1) should be held to be non-existing in so far as determination of carry forward of unabsorbed items is concerned, had ultimately taken recourse to the first limb of section 115J(1), namely the computation of total income in accordance with the other provisions of the Income-tax Act in quantifying the amount of depreciation to be allowed and carried forward. To our mind it seems that the prohibition (assuming it to be a prohibition) contained in sub-section (2) of section 115J would apply in equal force both to the first limb of section 115J(1) namely computation of total income in accordance with the other provisions of the Act and the second limb of section 115J(1) namely computation of 30% of the book profits read with the Explanation thereto. The prohibition is total and it cannot be viewed peacemeal. Hence, with very great respect we are unable to follow the ratio laid down by the Bangalore Bench of the Tribunal on the question of quantum of depreciation actually allowed during the years under appeal. 17A. In our opinion, the scope and ambit of section 115J(2) is only to protect the right of the assessee to h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year where in the past no depreciation was computed, or actually allowed or carried forward for no fault of the assessee, the WDV may also under section 43(6)(v) be the actual cost of the assets to the assessee'. Applying the ratio laid down by the Supreme Court we have no hesitation in holding that it is only the amount of depreciation actually debited in the books of account that had in fact been allowed in the assessment for the assessment years 1988-89 to 1990-91 and not any other sum. 19. This our view is in accord with the definition of 'total income' as found in section 2(45) of the I.T. Act : " Sec. 2(45): 'total income' means the total amount of income referred to in section 5, computed in the manner laid down in this Act. " The expression "computed in the manner laid down in this Act" will take in its sweep not merely other provisions of the Act by which total income is normally computed in respect of the years in which section 115J is not applicable but also the provisions of section 115J(1) itself in the years to which such provisions (115J) were applicable. Admittedly in the case before us it was only 30% of the book profit that was treated as total income charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Counsel. On the other hand, the view we have taken on the quantum of depreciation will harmonise all the relevant provisions. If the Legislature wanted that the assessee should lose every deduction or benefit once the total income is ascertained in terms of section 115J(1), it would have clearly made its intention manifest in no uncertain terms. For example, under section 10A of the Income-tax Act profits and gains from industrial undertakings in free trade zones are not to be included in the total income of the assessee for a specific period. In such a case the assessee could put forward the claim that nothing was allowed to him by way of depreciation on the assets used in the business of industrial undertaking in the free trade zones for the impugned period of five years and thus claim depreciation in a higher amount in respect of the assets owned and used by it in the year succeeding to the last of the relevant assessment year on the WDV of the assets as at the beginning of the first assessment year in which the assessee started manufacture or production of article or thing. Being aware of such a contention, the Legislature has specifically enacted sub-section (2) under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the first contention of Shri Gopal that nothing had been allowed to him by way of depreciation for and from the previous years 1987 to 1989-90 and therefore the WDV of the assets as at the beginning of the previous year 1991-92 remains the same as at the beginning of previous year ended 31-12-1987. 23. Shri Gopal's second alternate contention is that to the extent of the difference between the total income chargeable to tax at 30% of the book profits and the income computed in accordance with the normal provisions of the Income-tax Act, no depreciation had in fact been allowed in the assessment. This argument is illustrated at para-11, item B. He relies on the decision of the Calcutta Bench of the Tribunal in the case of Singh Alloys Steel Ltd. In our considered opinion, the facts of the case before the Calcutta Bench are different from the facts of the case before us. In that case the assessee had unabsorbed depreciation and losses pertaining to the assessment years 1983-84, 1986-87 and 1987-88 in a sum of Rs. 29,28,146 which were brought forward to the assessment year 1989-90 and the question was whether in a computation of total income chargeable to tax under section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd set off under sub-section (1) of section 72 or sub-section (2) of section 73 or sub-section (1) or (3) of section 84 or sub-section (3) of section 74A. Obviously in the case of the assessee the loss was introduced in the case of original return as well as the revised return only by its claim for deduction of depreciation in the manner it liked. The loss was not due to business loss in contradistinction to depreciation loss. In both the events, that is when the assessee filed its original return or when it filed its revised return, there was income from business and not loss from business. In the first event it was Rs. 1,77,82,762 and in the second event it was Rs. 1,18,73,863 (both positive figures). The difference was only due to the claim for debenture expenses in a sum of Rs. 59,08,898 and even after admitting this claim the resultant figure of business income was only a positive figure but not a negative figure. Therefore, the provisions of section 80 is not applicable to the facts of the assessee's case. It is not the case of the CIT that the assessee is not eligible to claim the sum of Rs. 59,08,898 as revenue expenses. His case was only that such a claim should not have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and, therefore, the WDV of the asset would be far less than that claimed by the assessee. In this view of the matter, he did not accede to the request of the assessee for higher amount of depreciation for the assessment year 1992-93. The CIT(A) in keeping with his earlier orders upheld the view of the Assessing Officer. The assessee is in second appeal. The question of depreciation that should be considered as having been allowed to the assessee has been discussed threadbare and determined by us in the appeal of the assessee for the assessment year 1991-92 in ITA No. 156(Mds)/95. Accordingly, we direct the Assessing Officer to recompute the WDV of the assets giving effect to our findings in the assessment year 1991-92 and grant depreciation to the assessee on the basis of the WDV thus arrived at. In other words, the appeal of the assessee is partly allowed. 29. Another issue in this appeal is about the rate of depreciation admissible to the assessee on the motor lorries owned by it but leased to the truck operators. The assessee's claim was at the rate of 40% on the leased out assets. The Assessing Officer held that the assessee was only a lessor and the assets used only by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 32 or in the rules thereunder that the assets owned by the lessor should be used by the lessor himself on hire. In the case of ITO v. First Leasing Co. of India Ltd. (13 ITD 234) the Tribunal for reasons stated in its order had upheld the claim of the leasing company for higher rate of depreciation on the assets owned by it and leased out to different persons. The decision of the Tribunal has since been upheld by the Madras High Court in CIT v. First Leasing Co. of India Ltd. (216 ITR 455). For all these reasons we set aside the order of the CIT(A) and uphold the claim of the assessee for higher rate of depreciation. 33. ITA No. 2100 (Mds)/95 --- This is an appeal arising from an order made under section 154 of the I.T. Act in relation to the assessment year 1993-94. The rectification arose for the assessment year 1993-94 as a result of the order passed by the CIT under section 263 of the I.T. Act in relation to the assessment year 1991-92. The learned CIT disallowed the amount of depreciation originally allowed in the assessment for the assessment year 1991-92. That order had come in appeal before us ITA No. 156 (Mds)/95. We had granted relief to the assessee in relation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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