TMI Blog1999 (4) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... h is reported as V. V. Trans-Investments (P.) Ltd. v. CIT [1994] 207 ITR 508 and also impugned herein. In all the matters the question arising for decision is in substance only one : whether the term "loss" as appearing in section 205(1), first proviso, clause (b), of the Companies Act, 1956, read with section 115J of the Income-tax Act, 1961, means "including depreciation". In order to appreciate the bone of contention it would suffice to state the facts relevant to one of the assessees, namely, V. V. Trans-Investments (P.) Ltd. Hyderabad, a private limited company. The figures of net profit and loss as per the profit and loss account of the company were as follows : Assessment year Profit/loss Depreciation debited to profit and loss account Rs Rs. 1987-88 (+)3,087 67,75,759 1988-89 (+)35,79,997 (profit before depreciation) (-)31,95,762 (loss after depreciation) 1989-90 (+) 28,37,947 3,534 The assessee-company had filed its return of income disclosing "nil" income after setting off a part of arrears of depreciation agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant for the purpose of this order are extracted and reproduced hereunder : INCOME-TAX ACT, 1961 "115J. Special provisions relating to certain companies.-(1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee being a company (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. (1A) Every assessee, being a company, shall, for the purposes of this section, 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, 1956 (1 of 1956). Explanation.- For the purposes of this section, "book profit" means the net profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich were paying no income-tax though they had profits and were declaring dividends. A minimum corporate tax was sought to be ensured on prosperous companies. A plain reading of section 1151 shows that if the assessee be a company and its total income determined under the Income-tax Act in respect of a previous year be less than thirty per cent. of its book profit, fictionally it will be deemed that its total income chargeable to tax for the relevant previous year was an amount equal to thirty per cent. of such book profit. The total income of the assessee shall first be computed in accordance with the provisions of the Income-tax Act and if the total income so computed be less than thirty per cent. of the book profit, then the profit and loss account of the company for the relevant previous year shall have to be prepared under sub-section (1A) of section 115J in accordance with Parts 11 and III of Schedule VI to the Companies Act. The book profit so arrived at under the Companies Act shall be suitably a juste so as to satisfy the requirements of the Explanation. We are in this case concerned with the interpretation of clause (iv) under the Explanation to section 115J. Mr. Parasar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmining the minimum tax, losses and unabsorbed depreciation pertaining to earlier years should be allowed to be set off. Otherwise, new projects that have just begun to make profits after some years of losses and sick companies that have just turned the corner, will become subject to minimum tax. There is merit in this suggestion. Under section 205 of the Companies Act, 1956, past losses or unabsorbed depreciation, whichever is less, are allowed to be set off against the book profits of the current year for determining profits for the purpose of declaring dividend. It is proposed to allow the same adjustments in computation of book profits for purposes of the new provision for levy of minimum tax." Mr. Parasaran also referred to a passage from A. Ramaiya's Companies Act (14th edition 1988, at page 1498), wherein the learned author has referred to the established corporate practice and opined that the word "loss" in proviso (b) to section 205(1) would include "depreciation". In accounting parlance and in commercial sense, the word "loss" is always taken as including "depreciation". If depreciation were to be excluded the Legislature would have used the term "cash loss". A comparis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meant, though those other sections are not incorporated in the new Act' ". Once we have ascertained the object behind the legislation and held that the provisions of section 205 quoted hereinabove stand bodily lifted and incorporated into the body of section 115J of the Income-tax Act, all that we have to do is to read the provisions plainly and apply the rules of interpretation if any ambiguity survives. Section 205(1), proviso clause (b) of the Companies Act brings out the unabsorbed portion of the amount of depreciation already provided for computing the loss for the year. The words "the amount provided for depreciation" and "arrived at in both cases after providing for depreciation" make it abundantly clear that in this clause "loss" refers to the amount of loss arrived at after taking into account the amount of depreciation provided in the profit and loss account. The significance of the formula prescribed in clause (b) of the proviso to section 205(1) of the Companies Act can well be demonstrated by two examples as given hereunder : Example Amount of profit/loss (Rs.) Amount of depreciation provided (Rs.) Loss for the year after taking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 205(1), proviso clause (b), from the Companies Act into section 115J of the Income-tax Act, there is no occasion to refer to the Companies Act, 1956, at all. For the foregoing reasons, Civil Appeals Nos. 4471 of 1995, 4472 of 1995 and Civil Appeals Nos. 180-181 (NT) of 1995 filed by (1) Surana Steels Pvt. Ltd., (2) V. V. Trans-Investment (P.) Ltd., Hyderabad, and (3) Binjusaria Metal Box Co, Ltd., Hyderabad, respectively, are allowed. The order under appeal passed by the High Court of Andhra Pradesh is set aside. Civil Appeal No. 7589 (NT) of 1997, is directed against order dated July 31, 1996, passed by the High Court rejecting the application under section 256(2) of the Income-tax Act, 1961, filed by the assessee seeking a reference on similar questions of law and upholding rejection of similar application under section 256(1) by the Tribunal. The High Court and the Tribunal both have opined that no referable question of law arose. The appeal stands allowed and the questions sought to be referred by the assessee stand answered in accordance with the view taken by us hereinabove. Civil Appeal No. 1663 of 1997, Special Leave Petition (C) Nos. 12388 of 1997 and 13429 of 1997, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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