TMI Blog1996 (2) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... ce with Schedule VI to the said Act. For the financial year 1989-90, i.e., April 1, 1989, to March 31, 1990, the petitioner disclosed Rs. 65,52,925 as the net profit. The petitioner filed income-tax returns for the said year claiming that under section 32(2) of the Act, the company had unabsorbed depreciation allowance of Rs. 11,99,745 which the petitioner was entitled to carry forward ; the petitioner had also investment allowance computed in accordance with the provisions of section 32A of the Act at Rs. 49,59,734 which remained unabsorbed. After necessary adjustment of the other allowances and expenses, the income for that year was determined at Rs. 61,59,479. But after setting off the brought forward depreciation and investment allowance for the assessment year, the income of the petitioner for the assessment year 1990-91 became nil. The petitioner says that section 115J was inserted by the Finance Act, 1987, and a new concept of book profit was introduced ; and the provisions of section 80VVA were deleted. By virtue of the operation of the newly inserted provision 115J, the book profits liable to tax were determined at Rs. 29,25,878 and tax of Rs. 14,62,939 computed at 50 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts became the basis of taxation or assessability of income-tax. The figures given by the petitioner company in its return for the assessment year 1991-92 are not disputed. But it is stated that there is no rationality in claiming deduction of the income assessed under section 115J for the assessment year 1990-91 and there is no substance in the contention that there would be double taxation. It is not correct that section 115J creates any hostile discrimination as alleged. Parliament in its wisdom chose the corporate sector for taxing under section 115J of the Act and the same is not open to challenge on the ground of discrimination. The Government policy of taxation strikes a balance between promotion of investment in development and levy and recovery of taxes for the purposes of developmental activities and keeping in view these factors amongst others, the Government formulated the taxation policy. For these reasons, it is prayed that the writ petitions be dismissed. Sri Ravi, learned counsel for the petitioners, who led the batch, concentrated on the question of carry forward of unabsorbed losses and unadjusted allowances under sub-section (2) of section 115J when notional inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the manner suggested by learned counsel for the petitioners, it would lead to anomalous consequences as the amounts that could be carried forward under sub-section (2) of section 115J would fall either under unabsorbed investment allowance or unabsorbed depreciation or unabsorbed loss or benefit under section 80J and each of them had its own restriction both with regard to time-limit as also with regard to computation. Had Parliament intended to provide such a relief under sub-section (2) of section 115J, it should have said so in that provision and it is not open for the petitioners to read in sub-section (2) something which has not been provided by Parliament. He submits that the example given in Board's Circular No. 495, dated September 22, 1987, is the correct interpretation of sub-section (2) of section 115J. He has also contended that section 115J(1) is not open to challenge on any of the grounds urged by the petitioners. We shall first deal with the contention of learned counsel for the petitioners in regard to carry forward of unabsorbed losses or unadjusted allowances, etc., under sub-section (2) of section 115J. It will be useful to read here section 115J which r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case may be, the amount referred to in clauses (g) and (h) is not credited to the profit and loss account, and as reduced by,---- (i) the amount withdrawn from reserves (other than the reserves specified in section 80HHD) or provisions, if any such amount is credited to the profit and loss account : Provided that, where this section is applicable to an assessee in any previous year (including the relevant previous year), the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1988, shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation ; or (ii) the amount of income to which any of the provisions of Chapter III applies, if any such amount is credited to the profit and loss account ; or (iii) the amounts (as arrived at after increasing the net profit by the amounts referred to in clauses (a) to (f) and reducing the net profit by the amounts referred to in clauses (i) and (ii)) attributable to the business, the profits from which are el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or certain adjustments by way of adding amounts and granting deductions for computing the chargeable income under section 115J(1). Sub-section (2), with which we are concerned, says that the provisions of sub-section (1) shall not affect the determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years under : (a) sub-section (2) of section 32 ; or (b) sub-section (3) of section 32A ; or (c) clause (ii) of sub-section (1) of section 72 ; or (d) section 73 ; or (e) section 74 or (f) sub-section (3) of section 74A ; or (g) sub-section (3) of section 80J. Sub-section (2) is only a saving provision. It provides that determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years under the provisions, enumerated above, will have to be made unaffected by the provisions in sub-section (1) of section 115J. It is argued that having regard to sub-section (1), determination of the amounts to be carried forward of losses, etc., referred to above, three propositions are possible, viz. : (i) Once the income is determined under sub-section (1) in an assessment year, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1A), then it will have to be seen whether the total income determined under the first process is less than 30 per cent. of the book profit ; if so, sub-section (1) would be invoked and the total income of such a company chargeable to income-tax for the relevant previous year shall be equal to 30 per cent. of such book profit. Sub-section (2) of section 115J provides that the application of this process shall not affect the carry forward of unabsorbed depreciation, unabsorbed investment allowance, business losses, deficiency under sub-section (3) of section 80J to the extent not set-off, as computed under the Income-tax Act. It is illustrated in the said Board's circular as under : --------------------------------------------------------------------------------------------------------------------------------------------------- Book profits for the purposes of the Profit under the Income-tax Act Companies Act, 1956 -------------------------------------------------------------------------------------------------------------------------------------------------- (1) (2) ------------------------------------------------------------------------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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. The second proposition represents the stand of the Revenue, while the assessee presses into service the third proposition. In the light of the example given in the circular of the Board, we shall consider these aspects. At the end of the year 1985, it is noted, the company was having carried forward unabsorbed depreciation of Rs. 3,80,000. In the year 1986, the company was having net loss of Rs. 10,00,000, depreciation of Rs. 2,00,000 and unabsorbed depreciation of Rs. 2,00,000 to be carried forward ; further business loss to be carried forward in a sum of Rs. 10,00,000, thus it was having business loss of Rs. 10,00,000 and total depreciation of Rs. 4,00,000. But in the year 1987, the company had net profit of Rs. 10,00,000 and book depreciation of Rs. 2,00,000 ; the depreciation as per the Income-tax Rules was Rs. 8,00,000. After deducting depreciation under the Income-tax Rules, the income was reduced to Rs. 2,00,000. Against this income of Rs. 2,00,000, out of the unadjusted loss of 1986 amounting to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bject of the provision of section 115J is to tax such companies which are making huge profits and also declaring substantial dividends, but are managing their affairs in such a way as to avoid payment of income-tax, as a result of various tax concessions and incentives and for that purpose the taxable income is determined under sub-section (1) of section 115J, if any loss equal to the income thus determined is allowed to be adjusted, then that would frustrate and nullify the very object of enacting the provision. In our view, from a plain reading of sub-section (2) of section 115J, it is very clear that the quantum of unabsorbed losses, unadjusted depreciation, etc., for the purpose of carrying forward has to be under the provisions of the Act, irrespective of the quantum of income determined under the provisions of sub-section (1) of section 115J. We, therefore, find no illegality in the example of calculations given in the Board Circular No. 495, dated September 22, 1987. This takes us to the second contention which was somewhat faintly contended and that is, if operation of sub-section (2) of section 115J, as given in the Board's circular is accepted, the provision of sub-sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f India [1982] 133 ITR 239 (SC) and Kerala Hotel and Restaurant Association v. State of Kerala [1990] 77 STC 253 ; [1990] 2 SCC 502. Before concluding the discussion on this aspect, we may usefully refer to the judgment of the Division Bench of the Delhi High Court in National Thermal Power Corpn. Ltd. v. Union of India [1991] 192 ITR 187, wherein the Division Bench has held that the provision of section 115J is not violative of article 14 or 19(1) of the Constitution. We are in respectful agreement with the view expressed by the learned judges. The next contention is that sub-section (1) of section 115J results in double taxation. We are unable to appreciate this contention. Firstly, because what is being taxed is income determined on the basis prescribed under the said impugned provision and there is no provision to re-tax the same income as such, as of fact there is no double taxation. And, secondly, because double taxation per se would not render an otherwise valid provision, invalid. (See Jain Brothers v. Union of India [1970] 77 ITR 107 (SC)). However, learned counsel submits that if the losses, etc., which are not set-off or adjusted against the income determined as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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