TMI Blog2010 (2) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... profit under Section 115J of the Income Tax Act, 1961 – ITAT confirmed the order of CIT(A) – held that - If a Company is a MAT Company, then be it a private limited company or a public limited company, for the purposes of Section 115J of the Act, the assessee-Company has to prepare its profit and loss account in accordance with Parts II and III of Schedule VI to 1956 Act alone - The reason being that rates of depreciation in Rule 5 of the Income Tax Rules, 1962, are different from the rates specified in Schedule XIV of 1956 Act. In fact, by the Companies (Amendment) Act, 1988, the linkage between the two has been expressly de-linked. Hence, what is incorporated in Section 115J is only Schedule VI and not Section 205 or Section 350 or Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... short], after allowing depreciation as per Schedule XIV to the Companies Act. The rates of depreciation specified in Schedule XIV to the Companies Act, 1956 ['1956 Act', for short] were lower than the rates specified under Rule 5 of the Rules. Being aggrieved by the assessment order, the assessee took up the matter before the Commissioner of Income Tax [Appeals] ['C.I.T.(A)', for short], who came to the conclusion that the assessee was a private limited company. It was not a subsidiary of a public company. Therefore, placing reliance on Section 355 of 1956 Act, the C.I.T. (A) held that Section 350 of 1956 Act was not applicable to the assessee and, in the circumstances, the Income Tax Officer had erred in providing depreciation at the rates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 115J of the Act read with Explanation clause (iv), as it stood at the material time, was a piece of legislation by incorporation and, consequently, the provisions of Section 205 of 1956 Act stood incorporated into Section 115J of the Act, hence, the Income Tax Officer was right in directing the assessee to provide for depreciation at the rate specified in Schedule XIV to 1956 Act and not in terms of Rule 5 of the Rules. Hence, this civil appeal is filed by the assessee. 5. To answer the controversy, we quote hereinbelow the relevant provision(s) of the Companies Act, 1956, Income Tax Act, 1961, as it stood at the material time, as also Income Tax Rules, 1962: "Provisions of the Companies Act, 1956: 205.(1) No dividend shall be decl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y assessee, being a company, shall, for the purposes of this section, 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, 1956 (1 of 1956). [a] to [d] xxxx xxxx xxxx [e] the amount or amounts of dividends paid or proposed." Provisions of Income Tax Rules, 1962: "Depreciation. 5.(1) Subject to the provisions of sub-rule (2), the allowance under clause (ii) of sub-section (1) of section 32 in respect of depreciation of any block of assets shall be calculated at the percentages specified in the second column of the Table in Appendix I to these rules on the written down value of such block of assets as are used for the purposes of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uced in the Income Tax Act, 1961, by the Finance Act, 1987, with effect from 1st April, 1988. In fact, Section 115J replaced Section 80VVA of the Act. Section 115J [as it stood at the relevant time], inter alia, provided that where the total income of a company, as computed under the Act in respect of any accounting year, was less than thirty per cent of its book profit, as defined in the Explanation, the total income of the company, chargeable to tax, shall be deemed to be an amount equal to thirty per cent of such book profit. The whole purpose of Section 115J of the Act, therefore, was to take care of the phenomenon of prosperous 'zero tax' Companies not paying taxes though they continued to earn profits and declare dividends. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company, Section 115J of the Act applies and, under that section, such an assessee-Company was required to prepare its profit and loss account only in terms of Parts II and III of Schedule VI to 1956 Act. The reason being that rates of depreciation in Rule 5 of the Income Tax Rules, 1962, are different from the rates specified in Schedule XIV of 1956 Act. In fact, by the Companies (Amendment) Act, 1988, the linkage between the two has been expressly de-linked. Hence, what is incorporated in Section 115J is only Schedule VI and not Section 205 or Section 350 or Section 355. This was the view of the Kerala High Court in the case of Commissioner of Income Tax vs. Malayala Manorama Company Limited, reported in [2002] 253 I.T.R. 378 (Kerala), w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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