TMI Blog1997 (4) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... e total income in an ad hoc and artificial manner, the other provisions of the Act like sections 32,71 and 72 stand suspended. Under section 115J, 30 per cent of the book profit had been subjected to tax for assessment years 1988-89, 1989-90 and 1990-91 even though there was no taxable income as per the provisions of the Income-tax Act. That notwithstanding there being no taxable income-tax was levied, giving the go by to the normal provisions of the Act. That depreciation had not been factually allowed for the above three earlier years since what had been taxed is notional income. That, since, depreciation had not been actually allowed or considered while levying tax on book profit under section 115J, the assessee has to be allowed depreciation in 1991-92 on the WDV of assets as on 1-10-1986 as increased by all subsequent additions during the next three years, and the claim of the assessee, according to the ld. counsel is supported by the Supreme Court's decision in the case of Madeva Upendra Sinai v. Union of India [1975] 98 ITR 209 at page 209. The ld. counsel argued that the CIT(Appeals) should have appreciated that the definition of the terms 'written down value' under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts Ltd., relied on by the assessee's counsel. In this case the Tribunal came to the conclusion that the amount of total income, computed under the normal provisions, yields to an amount equal to 30 per cent of the book profits, if such 30 per cent of the book profits is higher than the amount of total income initially computed. In other words, the Tribunal considered that the first limb of section 115J(1) yields to its second limb in the specified circumstances and, therefore, the total income computed under the normal provisions can no longer survive once deemed total income is ascertained for purpose of tax. 5. In the case of Pennar Steels Ltd. v. Dy. CIT [1997] 60 ITD 1, A Bench of the Tribunal, Hyderabad considered the same issue held as under : "Under section 115J, if the income computed under the normal provisions is found to be less than 30 per cent of the profit disclosed in assessee's profit and loss account, then alone the latter is to be deemed as its total income. There is no provision to go back to compute the total income and reduce the said 30 per cent of book profit from any income before depreciation and then consider the allowability of depreciation. On the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concept than 'charged to tax' and includes the latter in its ambit. Therefore, there was no merit in assessee's appeal and, accordingly, it was to be dismissed." 6. In the case of Suryalatha Spg. Mills Ltd. v. Union of India [1997] 223 ITR 713/93 Taxman 310 (AP) the provisions of section 115J were thoroughly considered by the Andhra Pradesh High Court. Their Lordships held as under : --- "The object of insertion of section 115J of the Income-tax Act, 1961, was to ensure levy of minimum tax on what are known as "prosperous zero tax companies". Under the scheme of the section, which is a self contained provision, where the total income of companies as computed under the provisions of the Income-tax Act, in respect of the previous year relevant to the assessment year after April 1, 1988, is less than 30 per cent of their book profits, the total income of such companies chargeable to income-tax for the relevant previous year is treated as income equal to 30 per cent of such book profits and is taxed accordingly. It also provides for certain adjustments by way of adding amounts and granting deductions for computing the chargeable income under section 115J(1). Sub-section (2) provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... J. There would be no scope for the revenue to contend that in view of the provision of sub-section (1), the unabsorbed depreciation allowance, unadjusted loss or deficiency, etc., as the case may be, can no longer be carried forward to the subsequent year or years. On the determination of the taxable income, under the relevant provisions of the Act, whatever amounts remain to be carried forward under the regular computation, either by way of unabsorbed losses or unadjusted allowances have to be carried forward to the next year ignoring the fact that a notional income is made taxable under sub-section (1) of section 115J. Section 115J of the Income-tax Act, 1961, is not violative of articles 14 and 19(1) of the Constitution. National Thermal Power Corporation Ltd. v. Union of India [1991] 192 ITR 187 (Delhi) followed. Section 115J does not result in double taxation. What is being taxed is income determined on the basis prescribed under the said provision and there is no provision to re-tax the same income. The right to carry forward losses and unadjusted allowances is kept intact by sub-section (2) of section 115J; merely, because a sum equal to the income determined as taxabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said 30 per cent of book profit from any income before depreciation and then consider the allowability of depreciation. 9. It is clear from the decision of the Hon'ble Andhra Pradesh High Court in the case of Suryalatha Spg. Mills Ltd. and the decision of the Hyderabad Bench A of the Tribunal in the case of Pennar Steel Ltd. , that the provisions of section 115J creates a legal fiction. Where in the case of a company total income computed under the Income-tax Act is less than 30 per cent of the book profit, the total income of such assessee chargeable to tax shall be deemed to be, an amount equal to 30 per cent of such book profit. This legal fiction has been created only for the purpose of charging income-tax on the 30 per cent of the book profit. The legal fiction should be limited to the purpose for which it is created. It should not be extended beyond the purpose for which it was created. It, therefore, cannot be presumed that income computed under the normal provisions of the Act under section 143(3) will yield to 30 per cent of the book profit for all the purposes. It cannot be presumed that by application of provisions of section 115J(1) of the act all other provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e local laws shall be taken into account in computing the written down value. The second proviso to that clause provided that where in respect of any period, no depreciation was actually allowed under the law or the depreciation actually allowed cannot be ascertained, depreciation in respect of that period shall be calculated at the rate for the time being in force under the Income-tax Act, 1961, and depreciation so calculated shall be deemed to be the depreciation actually allowed under the local law. The assessee filed writ petition challenging the validity of the second proviso to clause 3 of the Taxation Laws (Extension to Union Territories) (Removal of Difficulties) Order No. 2 of 1970 on certain grounds. The Hon'ble Supreme Court by majority decision allowed the petition of the assessee and declared that the second proviso to clause 2 of the 1970 order is ultra vires the Central Government under clause 7 of the 1963 Regulation. At page 235, 98 ITR their Lordships held as under : " The situation before us is materially different. Here, no depreciation was ever computed or actually allowed to the assessee under the Portuguese law. Indeed, under that law the tax was levied not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t decision in the case of Madeva Upendra Sinai does not held the assessee in any manner. 11.1 According to the assessee's counsel total income has been charged to tax in the assessment years 1989-90 to 1991-92 under section 115J of the Act and to that extent depreciation has not been allowed. 11.2 This argument has no force. Section 115J(1) creates the legal fiction by treating 30 per cent of its book profits as total income of the assessee chargeable to tax and it does not provide that depreciation to that extent shall not be deemed to have been allowed to the assessee. Therefore, there is no merit in the claim of the assessee that depreciation has not been allowed to the extent to which 30 per cent of the book prof it has been treated as total income chargeable to tax because, depreciation is allowable while computing income under section 143(3) or under section 143(1) of the Act, and the same has been allowed to the assessee in earlier assessment years as well as assessment year 1992-93. 12.1 The learned counsel for the assessee has referred to the definition of the words 'total income' in section 2(45) of the Act and argued that the said definition is applicable to the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally debited in the books of account, should be considered as not allowed to the assessee, has no merit. 13.1 It is argued by the learned counsel that no provisions of the Act authorises the assumption that depreciation not allowed shall be deemed to have been actually allowed especially when the omission is significant in the light of the legislative practice as evidence by sections 10A(4)(iv) and 10B(4)(iv) of the Act. It is argued by the learned counsel that the Legislature has specifically and consciously made a provision under sections 10A(4) and 10B(4) to the effect that in respect of the income which did not form part of the total income, the provisions of section 32 etc. shall apply as if every allowance or deduction referred to therein had been allowed. According to the learned counsel the legislative had consciously made a provision under these two sections to create a fiction that in respect of tax holiday profits depreciation is deemed to have been allowed. But in section 115J, which was enacted by the Finance Act, 1987, w.e.f. 1-4-1988 the Legislature has not chosen to create a fiction in the nature of section 10A(4) or section 10B(7) when it enacted section 115J. Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n subsequent years. 14.2 In the case of CIT v. Dalmia Cement (Bharat) Ltd. [1995] 216 ITR 79 82 Taxman 229 (SC), the facts were that the assessee filed the returns of income for the assessment years 1952-53 to 1954-55 in April, 1956. The Assessing Officer refused to make assessment on the ground that returns were filed beyond time and informed the assessee that no congnizance could be taken of said returns. The Hon'ble Supreme Court held that the assessee could not claim in the assessment proceedings relating to subsequent years that the loss in the said earlier years (1952-53 to 1954-55) be determined, carried forward and set off against the profits of the subsequent year or years, as the case may be. 14.3 In the case of the assessee before us, since, the assessee has not contested the admissibility of depreciation and determination of the WDV by the Assessing Officer for those earlier years (assessment years 1989-90 to 1991-92) by filing appeals on those issues, the determination of depreciation and WDV by the Assessing Officer while passing the orders under section 143(3) has become final and now in assessment year 1992-93 the assessee cannot challenge the determination of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als) erred in holding that the assessee is not entitled to higher rate of depreciation at 40 per cent in respect of lorries, etc., on the ground that the vehicles were not directly used by it in its own business of running the same on hire. According to the learned counsel in Part III(2)(ii) of Appendix-I of the Income-tax Rules, the words employed are "motor buses, motor lorries and motor taxis used in a business of running them on hire" and not "motor buses, motor lorries and motor taxi used by the assessee engaged in a business of running them on hire". The learned counsel relied on the decision of the Tribunal, A Bench, Madras in the case of Shriram Investments Ltd. , in support of his contention. Reliance was also placed on the decision of the Madras High Court in the case of CIT v. First Leasing Co. of India Ltd. [1995] 216 ITR 455/82 Taxman 536. 16.2 The learned Departmental Representative, on the other hand, supported the orders of the authorities below and argued that the assessee is entitled to depreciation on motor trucks at the normal rate of 30 per cent and not at 40 per cent as claimed by it, because the assessee is carrying on business of leasing of the vehicles an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing before the High Court. It was also argued that deposits did nor the amounts could be treated as trading receipts. The CIT(Appeals) considered that the true nature and character of the transaction have to be ascertained from the covenants of the contract in the light of the surrounding circumstances. The name which the parties may give to the transaction which is the source of the receipt by them is of little importance. The CIT(Appeals) pointed out, by relying on the decision of the Supreme Court in the case of CIT v. Panbari Tea Co. Ltd. [1965] 57 ITR 422, that there may be circumstances where the parties may camouflage the real nature of the transaction by using clever phraseology and that the nomenclature used may not be decisive or conclusive though it helps the Court, having regard to the other circumstances, to ascertain the intention of the parties. The CIT(Appeals) also considered that the receipt of amount of Rs. 25,000 considered by the assessee as caution deposit is actually in the nature of trading receipt because the amount has been collected on account of sales-tax payable by the assessee on leasing of vehicles, though levy of sales-tax has been contested in the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey furnished the requisite declaration forms. it was submitted by the assessee that this amount was not assessable as its income. The Tribunal came to the conclusion that, having regard to the special circumstances of the case and the legislative scheme of the levy and collection of sales tax, this extra collection from the registered dealer treating him as an unregistered dealer in the absence of declaration forms yet to come, represented a deposit by the said registered dealer as caution money refundable against the declaration form eventually furnished, and that it could not be said that such collection would form part of trading receipts and that section 43B, therefore, did not operate. This decision of the Tribunal was confirmed by the Hon'ble Calcutta High Court. The Calcutta High Court considered the amounts collected from registered dealers by treating them as unregistered dealers as a deposit of security not partaking of the character of a trading receipt. But in the present assessee's case before us, the facts are different. The levy of sales tax has been contested by the assessee in the High Court and the assessee has collected the amount of Rs. 25,000 on account of sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a retrospective amendment of the sales tax law as a result of which the assessee's liability was upheld by the Courts. Though the assessee had not remitted the tax during the assessment year 1968-69, the assessee paid the tax later. The questions were whether the amounts collected by the assessee in the name of 'rusum' were the assessee's income, and whether the sales tax paid later was allowable as a deduction in the assessment year 1968-69. The Hon'ble Supreme Court, affirming the decision of the High Court, held that the amounts collected in the name of 'rusum' constituted business receipts of the assessee. Similarly in the case of Addl CIT v. T. Naggi Reddy [1993] 202 ITR 253 (SC) the Supreme Court followed its earlier decision in the case of Jonnalla Narashimharao Co. and held that in the case of an assessee who maintains his accounts on the mercantile system, sales tax collected but not paid to the Sales-tax Department pending adjudication of dispute over his liability to pay sales-tax, is a revenue receipt of the year in which it is collected. In the case of Assam Roller Flour Mills the assessee collected a sum of Rs. 1,95,877 on account of sales tax from customers, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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