TMI Blog1999 (11) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... be carried forward like unabsorbed depreciation, unabsorbed investment allowance and business loss from an assessment year to which the provisions of section 115J are applied should be those which were available to the assessee as at the commencement of the previous year relevant to the said assessment year unaltered by the making of an assessment under section 115J for that assessment year ? (4) Whether, on the facts and in the circumstances of the case, the carried forward amounts like unabsorbed depreciation, investment allowance and business loss should be reckoned as if a regular assessment is made under section 143(3)/144 of the Act for the year in question and only such sums as emerge after the making of such a notional assessment for that year could be carried forward ? (5) Whether, on the facts and in the circumstances of the case, the written down value as at the commencement of the relevant previous year in respect of the assets then inexistence for the current assessment year should remain the same for the immediately succeeding assessment year unaltered by any notional assessment that might be made for the purpose of examining the applicability of section 115J ? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of unabsorbed items were those which were in existence at the commencement of the accounting year. Similarly, written down value for the subsequent year has to be adopted at the value as at the commencement of the accounting year in respect of the assets in existence at that point of time. The Commissioner (Appeals) did not approve of any adjustments in respect of the sum of Rs. 83,61,301. He upheld the levy of interest under sections 234B and 234C. Both the assessee and the Department appealed. The Tribunal, following the decision of the Andhra Pradesh High Court in W. P. No. 5408 of 1993, dated December 31, 1993 (reported as V. V. Trans-Investments (P.) Ltd. v. CIT [1994] 207 ITR 508), and disagreeing with the decision of the Special Bench of the Tribunal reported in Surana Steels Pvt. Ltd. v. Dy. CIT [1993] 201 ITR (AT) 1 (Hyd) held that the expression "loss" under section 205 of the Companies Act must be interpreted so as to exclude depreciation. The Tribunal also held that interest under sections 234B and 234C can be charged. The departmental appeal was allowed to the extent that the word "loss" excludes depreciation. So far as question No. 1 is concerned, the controversy is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... volume 1, where in it is observed as below : "No company is required to pay advance tax on the basis of this section. The charge under this section is on the basis of the book profit shown by the accounts of the previous year, which are prepared only after the year is over, whereas advance tax, by definition, is to be paid before the close of the previous year. Further, the expressions 'total income' and 'cur rent income' used in sections 207 to 212 refer to 'income' and 'total income' as defined in sections 2(24) and 2(45), respectively ; they are concepts which indicate the income and the total incomes computed under different heads specified in the Act. By contrast, section 115J purports to tax an amount which has never been computed in the manner laid down in the Act at all. The legal fiction in this section, by which the total income is deemed to be thirty per cent. of the book profit, applies only for the purpose of this section ; a legal fiction can operate only within the field of a definite purpose for which it is created." It is submitted that the deemed income cannot be considered to be income as defined under section 2(24) of the Act and that the Explanation to sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total income of such assessee chargeable to tax shall be deemed to be an amount equal to thirty per cent. 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 11 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. This amendment will take effect from 1st April, 1988, and will, accordingly, apply in relation to the assessment year 1988-89 and subsequent years." Section 234B casts the liability for payment of interest for default in payment of advance tax if the assessee is liable to pay advance tax under section 208 and has failed to pay such tax or, where the advance tax paid by such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the profit as computed under the Income-tax Act has to be prepared and thereafter the book profit as contemplated by the provisions of section 115J are to be determined and then the tax is to be levied. The liability of the assessee for payment of tax under section 115J arises if the total income as computed under the provisions of the Act is less than 30 per cent. of its book profits. This exercise for determining the total income in accordance with the provisions of the Act and that of book profit can be only after the end of the relevant assessment year. It is only the deemed income for which the provisions of section 115J have been incorporated. When a deeming fiction is brought under the statute it is to be carried to its logical conclusion but without creating further deeming fiction so as to include other provisions of the Act which are not specifically made applicable. Since the entire exercise of computing the income or that of book profit could be only at the end of the financial year, the provisions of sections 207, 208, 209 or 210 cannot be made applicable, until and unless the accounts are audited and the balance-sheet is prepared even the assessee may not know wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In respect of question No. 7, it was observed in ITRC Nos. 144-145 of 1995 and connected cases disposed of on September 29, 1999 (Widia (India) Ltd. v. CIT [2000] 242 ITR 678 (Kar)), that : "According to accounting principles, depreciation is money spent and is an expenditure as held in Indian Leaf Tobacco Development Co. Ltd. v. CIT [1982] 137 ITR 827 (Cal). Section 32 is in respect of depreciation and section 32A is for investment allowance. Section 72 is for cash losses, etc., and section 80 refers to conditions under which losses cannot be carried forward which draws a distinction between cash loss, depreciation, investment allowance, speculation losses, etc. It is only for the purpose of carry forward and set-off of loss, such a distinction has been drawn. Under section 115J, the method of computing the total income is with reference to the provisions of section 205(1)(b) of the Companies Act and since that provision overrides any other provision. Therefore, the commercial concept as contemplated by the Companies Act has to prevail over a concept referred to in the Income-tax Act. Under section 211(2) of the Companies Act, every profit and loss account of a company shall g ..... X X X X Extracts X X X X X X X X Extracts X X X X
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