1997 (9) TMI 91 - HC - Income Tax

Summary

Issues Involved:
The interpretation of the term 'loss' in section 205(1), first proviso, clause (b) of the Companies Act, 1956, in relation to section 115J of the Income-tax Act, 1961.

Issue 1:
The Tribunal's interpretation of the term 'loss' in section 205(1), first proviso, clause (b) of the Companies Act, 1956, read with section 115J of the Income-tax Act, 1961, excluding depreciation.

The assessee, engaged in oil extraction, claimed under section 115J(1A) that loss (including depreciation) and depreciation, whichever is less, should be deducted from the current year's book profit. The Assessing Officer and the Commissioner of Income-tax (Appeals) interpreted 'loss' as excluding depreciation. The Tribunal, relying on a previous judgment, upheld this interpretation, leading to the reference to the High Court.

Issue 2:
The correctness of the Tribunal's interpretation of the term 'loss' in section 115J of the Income-tax Act.

The Tribunal's reliance on the decision of the Andhra Pradesh High Court in V. V. Trans-Investments (P.) Ltd. v. CIT [1994] 207 ITR 508 to deny the assessee's claim of Rs. 18,15,787. The Tribunal followed the High Court's decision, prompting the reference to the High Court for clarification.

Issue 3:
The binding nature of the judgment of the Andhra Pradesh High Court in V. V. Trans-Investments (P.) Ltd. v. CIT [1994] 207 ITR 508 on the Income-tax Appellate Tribunal, Nagpur.

The High Court analyzed the relevant provisions of section 115J(1) and section 205(1) of the Companies Act. It concluded that the loss or depreciation, whichever is less, should be set off against the profits of the company, as per the statutory incorporation of clause (b) of the first proviso to section 205(1) of the Companies Act into the Income-tax Act. The Court emphasized that the loss and depreciation must be worked out under the Companies Act provisions, not the Income-tax Act, based on the borrowed enactment principle. Therefore, the High Court answered the questions in favor of the Revenue and against the assessee, affirming the Tribunal's decision.

This judgment clarifies the interpretation of the term 'loss' in the context of tax laws and sets a precedent for similar cases involving the calculation of profits and deductions for companies.