TMI Blog2007 (4) TMI 238X X X X Extracts X X X X X X X X Extracts X X X X ..... Yogesh Putney for the Commissioner. JUDGMENT The judgment of the court was delivered by M. M. Kumar J.— On the application made by the assessee, seeking reference of various questions of law arising out of the order dated December 31, 1996, passed in I. T. A. No. 562/Delhi/92 in respect of the assessment year 1989-90, the Income-tax Appellate Tribunal has referred only the following question of law for the opinion of this court: "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that 'loss' mentioned in clause (b) of the first proviso to sub-section (1) of section 205 of the Companies Act, 1956, read with section 115J of the Income-tax Act, 1961, does not include 'unabsorbed deprec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t process is less than 30 per cent. of the book profit. Section 115J would be invoked if the income determined under the first process is less than 30 per cent. of the book profit. The Explanation to sub-section (1) of section 115J gives the definition of the 'book profit' by incorporating the requirement of section 205 of the Companies Act in the computation of the book profit. Brought forward losses or unabsorbed depreciation, whichever is less, would be reduced in arriving at the book profits. Sub-section (2), however, provides that the application of this provision would not affect the carry forward or unabsorbed depreciation, unabsorbed investment allowance, business losses to the extent not set off and the deduction under section 80J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year, the company makes a profit of Rs. 50,000 (after providing for depreciation). In this case, the company may declare dividend up to Rs. 30,000 i.e., after deducting from profit the amount of the first year's depreciation of Rs. 20,000 only. In other words, the Companies Act seeks to ensure that for the purpose of declaration of dividend, the book profits should be arrived at after taking the lesser of the amounts of brought forwarded loss(es) or depreciation. It would be evident that the Companies Act differentiates the actual loss and the loss after depreciation. In view of this, the appellant's contention that the loss in its case should be taken into consideration after providing for depreciation is not justified. In view of this, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 would 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 view of the hon'ble Supreme Court on the issue reads as under (page 786) : "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt for set off against the profit of the year for which dividend is to be declared. We are of the opinion that the term "loss" as occurring in clause (b) of the proviso to section 205(1) of the Companies Act has to be understood and read as the amount arrived at after taking into account the depreciation. Then alone the formula prescribed in this clause would make sense and it would be consistent with the object sought to be achieved by enacting section 115J of the Income-tax Act, 1961. If "loss" were to be taken as pre-depreciation loss then the resultant computation will not be in conformity with the tenor of the provisions of section 205. The language of clause (b) of the proviso to section 205(1) is clear. It applies to those cases wher ..... X X X X Extracts X X X X X X X X Extracts X X X X
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