TMI Blog2000 (8) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... ying all the relevant provisions of the Income-tax Act and, on the other hand, should be made in the limited way by restricting only to the additions and deductions as are required to be made in accordance with the Explanation to section 115J(1A) of the Income-tax Act ?" The relevant assessment years are 1989-90 and 1990-91. The assessee is engaged in the manufacture of goods, most of which are exported outside India. According to the assessee, because of the substantial amount of depreciation and investment allowance, the assessee did not have any taxable income for these assessment years on the computation under the provisions of the Act. Therefore, the assessing authority made the assessment under section 115J of the Income-tax Act (hereinafter referred to as "the Act"). According to this section, when the total income is less than 30 per cent. of the book profit, the income will be considered as 30 per cent. of the book profit and the assessee will be assessed accordingly. Under section 115J of the Act, the net profit is to be added to certain amounts which are given under that section. Under section 115J(1A)(iii) of the Act, the amounts as arrived at after increasing the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be an amount equal to thirty per cent. of such book profit". Sub-section (1A) says that the assessee, for the purposes of this section is directed to prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act. There is an Explanation to section 115J(1A) of the Act, which says thus : "For the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under subsection (1A), as increased by. . . or as reduced by ... Section 115J of the Act, therefore, involves two processes. Firstly, the assessing authority has to determine the income of the company under the provisions of the Act and, secondly, the book profit is to be worked out in accordance with the Explanation to section 115J(1A) of the Act and it is to be seen whether the income determined under the first 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. Originally, section 115J of the Act did not contain exemption under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (3A) for the purposes of sub-section (1A), profits derived by a supporting manufacturer from the sale of goods or merchandise shall be described. There also what is to be taken into consideration is the profits of the business as computed under the head "Profits and gains of business or profession". Under section 80HHD(3) for the purposes of sub-section (1), profits derived from services provided to foreign tourists shall be, (a) in a case where the business carried on by the assessee consists exclusively of services provided to foreign tourists resulting in receipts in convertible foreign exchange, the profits of the business as computed under the head "Profits and gains of business or profession". Under clause (b), where the business carried on by the assessee does not consist exclusively of services provided to foreign tourists resulting in receipts in convertible foreign exchange, the amount which bears to the profits of the business (as computed under the head "Profits and gains of business or profession"), the same proportion as the receipts in convertible foreign exchange bear to the total receipts of the business carried on by the assessee. Thus, a perusal of section 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the profit as computed under the head "Profits and gains of business or profession" that is to be applied. According to us, instead of the words "profits and gains of business or profession" occurring in sub-sections (3) and (3A) of section 80HHC or sub-section (3) of section 80HHD, the word profit that is mentioned in section 115J has to be applied. Learned counsel for the Revenue brought to our notice a decision of the Supreme Court in Surana Steels Pvt. Ltd. v. Dy. CIT [1999] 237 ITR 777. That was a case dealing with the interpretation of clause (iv) of Explanation to section 115J of the Act. Clause (iv) states thus : ". . . the amount of the loss or the amount of depreciation which would be required to be set off against the profit of the relevant previous year as if the provisions of clause (b) of the first proviso to sub-section (1) of section 205 of the Companies Act, 1956 (1 of 1956), are applicable." The question arose whether the loss can take into account depreciation. The Supreme Court held that under clause (iv), section 205 of the Companies Act has been incorporated in section 115J of the Act. It is a piece of legislation by incorporation. It was held that sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manner as provided for in subsections (3) and (3A) of section 80HHC or sub-section (3) of section 80HHD, as the case may be. Similarly, in the circular dated February 21, 1994, it is stated as follows : "(i) it should be first decided whether the assessee carries on a business, the profits from which are eligible for deduction under section 80HHC or 80HHD ; (ii) if so, the net profit shown in the profit and loss account of the relevant previous year should be adjusted as per clauses (a) to (f) and (i) and (ii) of the said Explanation ; (iii) if the business exclusively consists of the types of business which are eligible for deduction under section 80HHC/80HHD the whole of such amount arrived at as per (ii) above should be allowed as deduction ; and (iv) if not, the proportion of the export turnover to the total turnover of the business carried on by the assessee as required under section 80HHC(3)(b) or the proportion of the turnover in respect of the sales made to the export house or trading house to the total turnover of the business carried on by the assessee as required under section 80HHC(3A)(b) or, as the case may be, the proportion of the receipts specified in sec ..... 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