Income Tax Appellate Tribunal - Hyderabad
Pennar Steels Ltd. vs Deputy Commissioner Of Income-Tax on 28 June, 1996
ORDER
Garg, AM
1. This is an appeal by the assessee against the order of the Commissioner of Income-tax (Appeals) for assessment year 1989-90. The issued involved in this appeal are carry forward of depreciation and charging of interest under sections 234B and 234C.
2. The assessee is a company in which public are substantially interested. It carries on business in cold rolling treatment to HR coils. The components of its assessed income as projected by the assessee and as computed by the Assessing Officer are :
As per As per
assessee Assessing Officer
Rs. Rs.
Profit before depreciation 1,47,47,836 1,47,47,836
30 per cent of book profit 18,43,065 -
under section 115J --------------
1,29,04,771
Less : Depreciation 3,11,76,659 3,11,76,659
-------------- --------------
Depn. to be carried forward 1,82,71,888 1,64,28,824
under section 32(2) -------------- --------------
The entire dispute in this appeal is with regard to the adjustment of the book profit of Rs. 18,43,065. The assessee's claim is that this book profit of Rs. 18,43,065 has been deemed as total income, on which it had paid tax, and, therefore, it should be reduced from its income and against the balance alone depreciation should be set off.
3. The learned counsel of the assessee submitted before us that the amount of depreciation of accordance with the provisions of section 32(2) of the Income-tax Act is deductible from profits or gains chargeable for the year and since the amount of Rs. 18,43,065 was subjected to tax under section 115J, the 'amount chargeable to tax' referred to in section 32(2) shall not include the said amount. Therefore, depreciation should have been allowed out of the balance of Rs. 1,29,04,771. He placed reliance in this regard on the decision of the Income-tax Appellate Tribunal, Madras Bench, in the case of Fab Exports (P.) Ltd. v. ACIT [1996] 56 ITD 132.
4. The learned counsel further submitted that the provisions of section 115J, which according to him replace those of section 80VVA, were intended to tax at least 30 per cent of the book profits of a company where the deductions allowable under the Income-tax Act from the total income would result in zero tax. The intention of introduction of the provisions of section 115J is to provide for accelerated tax liability and not an additional burden on the assessee and, therefore, he submitted the intention of introducing the said provisions is not to tax 30 per cent of the book profit in the year and also deduct the loss carried forward from the said amount. The provisions of section 115J(2), according to him, make it clear that the computation under section 115J(1) would not affect the carry-forward of loss under various sections. The loss to be carried forwards has to be arrived at after adjustment of the earlier years' losses from the income chargeable to tax for the year under consideration. If a part of the income is charged to tax, the adjustment of the losses is to be made only from the balance of the amount which is chargeable to tax and not from the income which has been charged to tax. Such an interpretation of the provisions of section 115J would be rational and would avoid double taxation. He referred in this connection to be decision of the Supreme Court in the case of CIT v. J.H. Gotla [1985] 156 ITR 323/23 Taxman 14J at 324, and the Kerala High Court in the case of Achamma George v. IAC [1989] 180 ITR 57/48 Taxman 175. He submitted that if the interpretation placed by the Assessing Officer and the first appellate authority were to be accepted, 30 per cent of the book profit would be subjected to tax for the year in which the profit is earned and the losses of the years would also be adjusted from that profit, resulting in double taxation of the income of the company.
5. The learned departmental representative, on the other hand, contended that as per scheme of the Income-tax Act, the total income of a year is computed first and when such computation gives income less than 30 per cent of the book profit, then only the said 30 per cent is deemed as total income, and once that is done, that is the end of the matter and there would be no question of deduction of such income from other income and setting off of depreciation on the balance thereafter. The provisions of section 115J(2) deal with carry-forward of loss/depreciation, etc., as if section 115J(1) was not there and, therefore, there is no substance in the assessee's claim. He further submitted that section 32(2) and 72(2) are not subject to the provisions of section 115J(1) and that section 80VVA is not in pari materia with section 115J which has a wider net. He referred to the commentary of Chaturvedi & Pithisaria, Vol.3, page 2981.
6. We have heard the parties and considered their rival submissions. Section 115J of the Income-tax Act reads as under :
"115J. (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, shall, for the purpose 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).
Explanation : 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 sub-section (1), as increased by -
(a) the amount of income-tax paid or payable, and the provision therefore; or
(b) the amounts carried to any reserve (other than the reserves specified in section 80HHD, by whatever name called; or
(c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or
(d) the amount by way of provisions for losses of subsidiary companies; or
(e) the amount or amounts of dividends paid or proposed; or
(f) the amount or amounts of expenditure relatable to any income to which any of the provisions of Chapter III applies; or
(g) the amount withdrawn from the reserve account under section 80HHD, where it has been utilised for any purpose other than those referred to in sub-section (4) of that section; or
(h) the amount credited to the reserve account under section 80HHD, to the extent that amounts has not been utilised within the period specified in sub-section (4) of that section;
if any amount referred to in clauses (a) to (f) is debited or, as the 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 eligible for deduction under section 80HHC or section 80HHD; so, however, that such amounts are computed in the manner specified in sub-section (3) or sub-section (3A) of section 80HHC or sub-section (3) of section 80HHD, as the case may be; or
(iv) 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 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.
(2) Nothing contained in sub-section (1) shall affect the determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years under the provisions of sub-section (2) of section 32 or sub-section (3) of section 32A or clause (ii) of sub-section (1) of section 72 or section 73 or section 74 or sub-section (3) of section 74A or sub-section (3) of section 80J."
On a bare reading of this section, it is evident that to deem 30 per cent of book profit as income of an assessee, one has to mill through the income under the normal provisions. If the income so computed is found to be less than 30 per cent of the profit disclosed in the assessee's profit and loss account (book profit), then alone the letter is deemed as its total income. There is no provision to go back to compute the total income and reduce the said 30 per cent of book profit from any income before depreciation and then consider the allowability of depreciation. On the contrary, if we read sub-section (2) of section 115J, it would be obvious that the right of the assessee to carry forward unabsorbed depreciation, loss, etc., is not to be affected by the provisions of section 115J(1). This, in our opinion, means that the right to carry forward and the amount to be carried forward is to be de hors the provisions of section 115J and is determined before one comes to see the applicability of the provisions of section 115J. What the assessee contends is that its right to carry forward is affected in the sense that when a part of income is assessed to tax by virtue of the provisions of section 115J(1), and that part was set off against depreciation, it reduces the assessee's right to depreciation to that extend and that it amounts to double taxation. We do not find any force in this contention. What section 115J(2), in our opinion, means is that the provisions of section 115J should not come in an assessee's way to get the right to carry forward and set off. In other words, the assessment under section 115J on 30 per cent of book profit by treating the same as the assessee's income should not debar the assessee from carry-forward and set-off, there being an assessment of positive income. Carry-forward is allowed when there is no chargeable income. Section 115J treats 30 per cent of book profit as total income. One might say that there was chargeable income and, therefore, the assessee had lost the right to carry forward losses. To overcomes this situation, section 115J(2) provided that the provisions of section 115J would not affect the assessee's right to carry-forward under section 32(2), 72, etc.
7. Another contention of the assessee is that 30 per cent of book profit is part of the assessee's income computed under the Income-tax Act and when it is assessed separately, the loss to that extent cannot be set off and should be allowed to be carried forward. Here also, we do not find any force in the contention of the assessee. Firstly, the 30 per cent of book profit is a deemed income and can exist even in cases where total income under other provisions of the Act is a loss. Secondly, it only comes into existence when the total income of an assessee relied upon the decision of the Tribunal in the case of Fab Export (P.) Ltd. In that case, the assessment year involved was 1991-92 when the provisions of section 115J were not in vogue. The Assessing Officer determined the assessee's income at Rs. 1,94,963 after allowing set-off of brought-forward business loss of assessment year 1985-86 and unabsorbed depreciation of earlier years, i.e. 1976-77, 1977-78, 1981-82, 1982-83, 1985-86 and 1986-87. In the in between year, i.e., assessment year 1990-91, the assessee's income was computed under section 115J to the extent of Rs. 1,73,804, there being a loss computed under the normal provisions of the Act. As per the assessee's version, the unabsorbed losses to be carried forward were Rs. 3,47,262 whereas as per the Assessing Officer, the losses were to the extent of Rs. 1,73,458 only. The difference is the deemed total income of Rs. 1,73,804 assessed in that year under section 115J. The assessment year 1991-92, and not in the proceedings for assessment year 1990-91, that the losses/depreciation to the extent of assessed profit under section 115J should have also been allowed to be available for carry-forward and set-off in assessment year 1991-92. The Assessing Officer as well as the first appellate authority rejected the contention of the assessee. Before the Tribunal, the assessee submitted that a combined reading of the provisions of section 115J(1) and section 115J(2) would clearly indicate that the application of the provisions of section 115J(1) did not, in any way, affect the benefit of set-off of earlier years' losses which was very much available to the assessee under the other provisions of the Act. This was made clear by the specific provisions of section 115J(2) of the Act. In particular, it was contended, when section 115J(2) of the Act states that "nothing contained in sub-section (1) shall affect the determination of......", it would mean that "nothing contained in sub-section (1) shall adversely affect the determination of....", Properly viewed, it was also submitted, the provision of section 115J(2) were analogous to those of section 80VVA(4) as they stood prior to omission of section 80VVA by Finance Act, 1987, with effect from 1-4-1988. This contention of the assessee seems to have been accepted by the Tribunal though there is not specific discussion in the order of the Tribunal with regard thereto. The Tribunal observed :
"Section 115J starts with a non obstante clause. This is understandable because the intention of the Parliament was that all the other provisions of the act governing computation of an assessee's total income must first have a free play. It is only in those cases where the total income of the assessee chargeable to tax under the other provisions of the act is less than 30 per cent of its book profit, that an amount equal to 30 per cent of book profit will be deemed to be the total income of the assessee. Here the introduction of the deeming principle is significant. And the significance lies in the fact that it only highlights the limited purpose for which the provision of section 115J(1) have been enacted. Section 115J(2) also starts with a non obstante clause which is designed not only to highlight the limited purpose which section 115J(1) is designed to serve but also to highlight the further fact that the other provision of the Act which normally govern matters such as carry-forward of business losses and the like are not to be interfered with. Thus, the provisions of section 115J(2) are designed to keep intact the assessee's right in relation to carry-forward and set-off of business loss and the like."
It might be true that the Tribunal has given a narrow meaning to the word "affected" as "adversely affected" as appearing in section 115J(2), as contended by the assessee's counsel in para 7 of the said order of the Tribunal, but in that case the issue was not required to be considered, for it was not the year to which section 115J was applicable and the determination of loss to be carried forward was to be made only in the year to which the loss pertained and not in the subsequent year when it was to be actually set off. [See CIT v. Dalmia Cement (Bharat) Ltd. [1995] 216 ITR 79/82 Taxman 229 (SC)].
8. The assessee put forward yet another contention that income chargeable to tax' as appearing in section 32(2) does not included income actually charged. According to the learned counsel of the assessee, when the sum of Rs. 18,43,065 is charged to tax under section 115J, it cannot be said to be included in 'income chargeable to tax' in section 32(2). An income is charged to tax only when it is chargeable to tax. Whenever an income is assessed or charged to tax, it is a prerequisite that it is included in the term "income chargeable". The 30 per cent of book profit is charged and assessed to tax as total income. The term "chargeable" is a larger concept than "charged to tax" and includes the latter in its ambit. Various incomes chargeable are computed under respective heads. To charge or assess the income, the chargeable are computed under each head is aggregated, the set-off under Chapter VI, the deduction under Chapter VI-A and rebates and relief under Chapter VIII are allowed thereagainst; and the balance is assessed to tax.
9. The comparison of section 115J with section 80VVA is misconceived. The allowance of deductions under various sections was restricted to 70 per cent under section 80VVA and the balance 30 per cent was allowed to be carried forward. It was found to be not serving the purpose and, therefore, section 115J was introduced. The relevant portion of the Finance Minister's speech on the interpretation of the provisions of section 115J is reproduced below :
"It is only fair and proper that the prosperous should pay at least some tax. The phenomenon of so-called "zero-tax" highly profitable companies deserve attention. In 1983, a new section 80VVA was inserted in the Act so that all profitable companies pay some tax. This does not seem to have helped and is being withdrawn. I now propose to introduce a provision whereby every company will have to pay a 'minimum corporate tax' on the profits declared by it in its owns accounts. Under this new provision, a company will pay tax on at least 30 per cent of its book profit. In other words, a domestic widely held company will pay tax of at least 15 per cent of its book profit. This measures will yield a revenue gain of approximately Rs. 75 crores."
Therefore, there is no scope of reintroducing the provisions of section 80VVA while interpreting section 115J. This would be against the legislative mandate. The provisions of section 115J are self-contained code applicable to companies for computation of income chargeable to tax in certain circumstances. Hence, it is not the province of a Judge to disregard the same or to go outside the enactment. There was a specific provision in section 80VVA which allowed the assessee to carry forward and set off in the subsequent year, the said 30 per cent loss which is not allowed in a particular year. Sub-section (4) of section 80VVA may be quoted in this regard :
"80VVA(4). To the extent to which full deduction cannot be allowed in the assessment year in respect of any provision specified in sub-section (2), by virtue only of the restriction under sub-section (1) (and not by virtue of anything contained in any other section), the amount remaining unallowed shall be added to the amount, if any, to be allowed to the assessee under the said provision for the next following assessment year and be deemed to be part of the deduction admissible to the assessee under the said provisions for that year or, if no such deduction is admissible to the assessee for that year, be deemed to be the deduction admissible to the assessee for that year, and so on for succeeding assessment years."
No such provision is made either under section 115J or under section 32A and other sections entitling an assessee to carry forward the loss to the extent of the deemed income under section 115J of the Income-tax Act.
10. We, therefore, do not see any merit in the assessee's appeal and accordingly dismiss the appeal.