TMI Blog1993 (12) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... k profits in accordance with the provisions of section 115J(1), in all these cases. The question arises as to what should be the amounts of WDVs to be taken into consideration in the next year and what amounts of unabsorbed loss, unabsorbed depreciation, unabsorbed investment allowance, etc. are also to be carried forward. The Commissioner of Income-tax (Appeals) passed a common order in all these cases basing on his another order in ITA 77/DC. SR-5/CIT(A) III/1990-91, dated 2-9-1991. He examined and discussed in detail both the issues (which are actually intimately linked up with each other) and passed his order as below: (a) With regard to the determination of WDV to be taken for the subsequent year, the Commissioner (Appeals) directed that the opening WDV for the next year is to be taken as the closing WDV of the assets for the immediately preceding year as compared to the year in which the provisions of section 115J were applied and which years are subject-matter of the present appeal. In other words, he has been of the view that inasmuch as no depreciation was actually allowed during the years relevant to the present appeals in view of the assessments having been made under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely deemed to represent the total income of the assessee under section 115J(1) and the assessee is ultimately taxed on that basis. He also drew our attention to the fact that sub-section (2) of section 115J starts with the stronger non obstante clause "Nothing contained in sub-section (1) shall affect..." as against the generally used clause "Notwithstanding anything contained in sub-section (1)". He thus argued that the language used in the said sub-section (2) of section 115J is very simple and clear enough and does not call for any case of ambiguity. According to him, for the purpose of determining the amounts to be carried forward to the subsequent year, by way of business loss, unabsorbed depreciation, etc. it will have to be presumed as if the provisions of sub-section (1) of section 115J did not exist. He also relied on the decision of the Supreme Court in the case of Keshavji Ravji Co. v. CIT [1990] 183 ITR 1 wherein it has been laid down that when the language used in the section is clear, no consideration of equity or anything else is required. He finally argued that on a plain reading of the relevant sub-section, only one view is possible that the business loss, unabso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. In the said written submission he contended that when statutory depreciation is considered for determination of WDV on the basis of interpretation of section 115J(2) only such of those amounts which are not absorbed by current profits can be treated as available to be carried forward as unabsorbed depreciation under section 32(2) in the computation of statutory profits in the subsequent assessment year. He also argued therein that there is no provision in section 155J for giving credit for tax paid on book profits against tax calculated on statutory basis in the subsequent year/years and that the tax amount calculated with reference to the depreciation becomes a dead loss. He has thus come out with the proposition that, in the circumstances, the element of double taxation creeps in which is against the cannons of taxation. He has also argued, in his written submission, that section 115J(2) does not provide that the computation of depreciation under section 32(2) will have to be done as though a normal assessment on statutory basis is made. This particular point has been underlined by the Commissioner (Appeals) also in his impugned order. Shri Indra Kumar has stated thereafter t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally to the question of carry forward of business loss, etc. He states that sub-section (2) of section 115J is an enabling section which permits and does not stand in the way of the carry forward. He furthermore goes on stating that In regard to prior year before the application of section 115J(1), the right of the assessee has been quantified under statutory computation and the said right is further adjusted during the year under consideration depending on the level of loss or claim of investment allowance permissible as per the provisions of the Act. He has finally come out with the proposition that on consideration of equity, the assessees should be allowed the full benefit of carry forward of losses and investment allowance, including the determined loss or investment allowance, if any, for the current year. It is required to be reiterated, in this connection, that the Commissioner (Appeals) has not supported the idea of carry forward of loss, depreciation and investment allowance, etc. for the current year also to the subsequent years. The contention of Shri Indra Kumar in this regard is, therefore, liable to be rejected, at the outset, inasmuch as his client has not come up i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rthermore stated that the object of section 115J is certainly not preponing of tax liability and that this particular measure was adopted by the department for the purpose of mobilisation of resources. He contended that if the interpretation as given by the different counsels be adopted. it must be said that the Government's intention in enacting this section would fail miserably. 10. Sub-section (2) of section 115J reads as below: "Nothing contained in sub-section (1) shall affect the determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years under the provisions of sub-section (2) of section 32 or sub-section (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." A plain reading of this particular sub-section convinces us that in the matter of determination of the amounts in relation to the relevant previous year, i.e., the current year, to be carried forward to the subsequent year by way of business loss, unabsorbed depreciation, unabsorbed investment allowance and unabsorbed 80J(3), the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is an artificial process superimposed on the regular process of determination of the total income of the assessee in the usual manner. By that process, the ordinary process of determination of the total-income of the assessee does not at all get obliterated. Actually, the assessee should have suffered tax on the total income as determined in accordance with the regular provisions of the Act. By virtue of the deeming provisions of section 115J(1) only, the assessee suffers a different amount of tax. 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 clearer in a case where the gross total income of the assessee before allowing current year's and/or brought forward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on was Rs. 100 lakhs, which has been reduced only by allowance of depreciation to the extent of Rs. 100 lakhs. If 30% of the adjusted book value of the assessee be a very low figure, say, for instance, Rs. 1 lakh or Rs. 10 lakhs, then by suffering tax on such low amount of deemed total income, the assessee would unduly get the benefit of non-reduction in the WDVs of its assets to the extent of Rs. 100 lakhs, whereas had 30% of the adjusted book value been just 'nil', the WDV would have been reduced by that amount of Rs. 100 lakhs. It cannot at all be considered that the Legislature wanted such anomalous situation to happen and such undue benefit to accrue to assessees. The main purpose of enacting section 115J is to collect some tax from zero-profit companies and not to allow further benefit of so much so of Rs. 100 lakhs by taxing on a meager income of Rs. 1 lakh or Rs. 10 lakhs, as pointed out by us. The other emphasis laid by Shri Prasad on the expression "in relation to the relevant previous year" is also not of much consequence. There is no doubt about the fact that the amounts of losses, depreciation, etc, to be carried forward to the next year are required to be determined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y reason to consider that any inequity is done to the assessee by denying the benefit of some amounts of the WDV or out of the brought forward losses, depreciation, etc. when such amounts are actually set-off against the gross income of the assessee in the current year calculated in accordance with the regular provisions of the Act. Section 115J(1) is a special provision which demands some more tax from the assessees even if their computation of income as per the provisions of Income-tax Act be 'nil' or less than 30% of the adjusted book profit. If it be held that there is no inequity in extracting this amount of extra tax from the assessees, it cannot at all be said that the provisions of sub-section (2) of section 115J are inequitous in any way. In fact, what the different assessees want by application of the provisions of section 115J(2) is compensation for the extra tax paid under sub-section (1) of section 115J through back-door method. We are afraid this was neither the intention of the Legislature nor can the procedure be considered as an equitable one. As has been pointed by us above, if the interpretation as proposed by the assessees are accepted, in certain cases, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interpretations. Needless to say that the said interpretation would not always be beneficial to all the assessees. The proposition as laid down by the Supreme Court in the case of Vegetable Products Ltd. would not, therefore, hold good. 13. Finally, we appreciate the candidness on the part of Shri K. R. Prasad when he differed from the view of the other counsels that WDVs of carry forward assets will have to be considered to be reduced to the extent to which the assessees suffer by way of the deeming provisions of section 115J and admitted that there is no provision anywhere in section 115J(2) in support of this proposition. We also feel in the same way and we have got no hesitation in differing from the arguments of S/Shri Vijayaraghavan and Parthasarathy in this matter. 14. We also differ with finding of the Commissioner (Appeals) that even the business losses, depreciation, etc. for the current year will also not have to be allowed to be carried forward to the next year. Theoretically we feel that in view of the plain reading of the provisions of section 115J(2) current year's business losses, unabsorbed depreciation, unabsorbed investment allowance, etc. are required to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a further amount by way of interest thereon, there was no warranty on the part of the department to treat the earlier amount considered as interest also as part of tax in a later modification order and to deny interest on that amount. The Commissioner (Appeals) has merely come up with an alternative suggestion that even if the amount be considered as interest on interest, it would still be allowable to the assessee in accordance with the abovementioned decisions of Gujarat High Court and Supreme Court. We are fully in agreement with the decision of the Commissioner (Appeals). There is no justification on the part of the department to deny the benefit of some portion of refund already declared as interest in a later modification order and to deny interest thereon. The Gujarat High Court decision as mentioned above is also acceptable to us. We, therefore, do not find any merit in the departmental ground taken in this regard. The departmental ground on this issue is, therefore, being dismissed. 17. In the result, the departmental appeal in the case of M/s. Widia (India) Ltd. is partly allowed whereas the same in the case of other assessees are allowed. - - TaxTMI - TMITax - In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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