TMI Blog1999 (7) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... and losses ? 2. Whether, the deeming provision of sub-section (2) of section 115J restricts the deduction of the taxed income of the year from the total income computed under the Income-tax Act for the purpose of setting off the losses and depreciation of earlier year(s) ? (3) Whether the Tribunal was justified in applying the fiction created under section 115J beyond the legitimate field by not allowing the deduction of the taxed income of Rs. 74,450 of the year out of the income computed under the provisions of the Income-tax Act, 1961, of Rs. 2,55,866 for the purpose of setting off the earlier years losses?" The assessee is a private limited company carrying on the business of manufacturing and sale of tea. The reference relates t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in companies.---(1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee being a company other than a company engaged in the business of generation or distribution of electricity, the total income, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1988, but before the 1st day of April, 1991 (hereafter in this section referred to as the relevant previous year) is less than thirty per cent., of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent. of such book profit. (1A) Every assessee, being a company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall be deemed to be 30 per cent. of the book profit which is taxable and the profit and loss account is to be prepared accordingly. Further where the company had incurred any loss in any previous financial year the amount of loss shall be set off against the profit. In the present case there is no dispute regarding the computation of business income and the book profit at 30 per cent. was Rs. 74,450. The assessee has not challenged that they are liable to pay tax on this amount of Rs. 74,450. The controversy is regarding interpretation of the provisions of sub-section (2) of section 115J as quoted above. The assessee had a carried forward loss of Rs. 4,87,417 which could have been adjusted against the income, and as per the deeming provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k to tax what is commonly known as "zero tax companies". It was found that there are companies having large profit but they could legally exempt themselves from paying any tax by taking recourse to various deductions and set off. It was therefore provided that 30 per cent. of the book profit shall be treated as deemed total income for the purpose of taxes. The provisions of sub-section (1) of section 115J are not in challenge before us. Now coming to sub-section (2) of section 115J let us see if it provides that 30 per cent. of the deemed income which is chargeable to tax shall also be liable for adjustment against carried forward losses. Apparently there is no such positive enactment. The sub-section merely provides that provisions of sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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