TMI Blog2007 (8) TMI 643X X X X Extracts X X X X X X X X Extracts X X X X ..... shall not apply if the amount of loss brought forward or unabsorbed depreciation is nil. The Assessing Officer observed that the loss or unabsorbed depreciation claimed by the assessee included a part of the loss relating to the assessment year 2000-01 and earlier years which is not an allowable deduction in pursuance of section 79 of the Act, there being change in the shareholding in that year. He, accordingly, did not allow reduction of the unabsorbed loss by observing as under : It is an admitted position that in the assessment year 2000-01, there was a substantial change in share holding of the assessee company and because of which provisions of section 79 of the Income-tax Act are clearly attracted. The assessee has also admitted application of section 79 of the Income-tax Act in the return of income for the assessment year 2004-05. The only issue for consideration is that when for computation of income under the head Profit and Gains of business (under sections 28 to 43C of the Income-tax Act), the brought forward loss or depreciation (prior to and including the assessment year 2000-01) is not to be carried forward, then for purposes of section 115JB also, the said los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted as otherwise it would amount to taking a view without appreciating the spirit of the Act. In short, I am to hold that section 115JB(5) read with section 79 permits the appellant only to avail set off of book losses only in respect of the assessment years 2001-02 and subsequently and not for earlier assessment years being prior to substantial change in shareholding. There is no restriction placed under section 115JB that section 79 shall operate only within Chapter VI. In that view of the matter, what is considered for adjustment is still only brought forward book losses and not losses under normal computation and for the detailed reasoning given by the Assessing Officer it is only logical and by way of harmonious construction that after substantial change in ownership the benefit of past losses as in the books are not given set off in the subsequent years. Thus, ground No. 3 of the appellant fails. Before us learned counsel for the assessee, Mr. Yogesh K. Thar, submitted that section 115JB of the Act is a self-contained code and, therefore, the book profit of the assessee is to be computed within the parameters laid down in the section itself and that is evident from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behind section 115JB is that the assessee is at least to pay minimum tax on the profits which are disclosed as per the books of account and as adjusted by the provisions of the Explanation below sub-section (2). If that spirit is to be taken into consideration, the loss of the earlier years or depreciation, whichever is the lower, is to be allowed under clause (iii) of the Explanation irrespective of the fact that it is allowable or not allowable under the normal provisions for computing the income. Section 79 is notwithstanding the provisions within Chapter-VI itself, whereas the provisions of section 115JB are notwithstanding anything contained in the other provisions of the Act. He submitted that in any case, when both the provisions are notwithstanding to each other, the correct way of reading the non-obstante clause is that the later provision in point of time prevails over the earlier and, in this connection, he referred to the decision in the case of Maharashtra Tubes Ltd. v. State Industrial and Investment Corporation of Maharashtra Ltd. [1993] 78 Comp Cas 803 (SC). With regard to applicability of sub-section (5), learned counsel for the assessee submitted that this clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluding profit and loss account, (i) the accounting policies ; (ii) the accounting standards adopted for preparing such accounts including profit and loss account ; (iii) the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956) : Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under this Act, (i) the accounting policies ; (ii) the accounting standards adopted for preparing such accounts including profit and loss account ; (iii) the method and rates adopted for calculating the depreciation, shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including profit and loss account for such financial year or part of such financial year falling within the relevant previo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction (3) or sub-section (3A), as the case may be, of that section, and subject to the conditions specified in that section ; or (v) the amount of profits eligible for deduction under section 80HHE computed under sub-section (3) or sub section (3A), as the case may be, of that section, and subject to the condition specified in the section ; or (vi) the amount of profits eligible for deduction under section 80HHF computed under sub-section (3) of that section, and subject to the conditions specified in that section ; or (vii) the amount of profits of sick industrial company for the assessment year commencing on and from the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-section (1) of section 17 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986), and ending with the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses. Explanation. For the purposes of this clause, net worth shall have the meaning assigned to it in clause (ga) of sub-section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he loss that is as per the books of account which is to be considered and not the amount that is allowable or not allowable under any provisions of the Act. The Revenue authorities, in our opinion, therefore, are not justified in not allowing the lower of the amount of loss brought forward or unabsorbed depreciation for the assessment year 2000-01 and earlier years on the ground that there was a change in shareholding in the assessment year 2000-01 and that because of the provisions of section 79, such loss is not to be allowed to be carried forward to an assessee. As aforesaid, the admissibility of loss as per other provisions of the Act, has nothing to do with the computation of book profit and that is made clear by the provisions of clause (iii) of the Explanation which provides it is that amount that is to be reduced which is lower of the loss brought forward or unabsorbed depreciation as per the books of account. If it is appearing in the books of account and not set off in the subsequent year s profit, the effect is to be given in the impugned year of profit while computing the book profit of the assessee. This is also the spirit of section 115JB which has been introduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve tax is concerned, it is to be levied with reference to the book profit and in arriving at the book profit, the lower of the amount of brought forward loss or unabsorbed depreciation which is appearing in the books of account of the assessee has to be allowed and as aforesaid, irrespective of the fact whether, the same is allowable under the other provisions of the Act or not. Sub-section (5) of section 115JB of the Act, on first blush of reading, gives an impression that it is reincorporation of the provisions of the Act to a company which are excluded by sub-section (1) of section 115JB. A close look, however, makes it clear that it reincorporates only those provisions which are not otherwise provided in section 115JB. Clause (iii) of the Explanation specifically provides for the allowance of loss brought forward or unabsorbed depreciation and, therefore, the other provisions of the Act relating to the earlier years loss or unabsorbed depreciation would not be applicable. Because clause (iii) of the Explanation states that such loss or unabsorbed depreciation has to be as per the books of account and not as computed under the Income-tax Act, therefore, in our opinion, subsec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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