Gauhati High Court
Assam Bengal Carriers Limited vs Commissioner Of Income-Tax on 23 July, 1999
Equivalent citations: [1999]239ITR862(GAUHATI)
JUDGMENT D.N. Chowdhury, J.
1. This reference, at the instance of the assessee, revolves around the special provisions relating to certain companies spelt out in Section 115J of the Income-tax Act, 1961, that has emerged out of assessment of income-tax for the year 1989-90.
2. The assessee is a company that filed its return of income showing a loss at Rs. 21,04,330 and taxable income under Section 115J of the Act at Rs. 32,852. In the computation filed along with the return of income, the assessee showed book profit at Rs. 5,71,347 and an adjusted book profit of Rs. 1,09,508 after deducting a sum of Rs. 4,61,839 which according to the assessee was the aggregate book loss relating to earlier years. The assessee accordingly showed taxable profit under Section 115J at 30 per cent, of Rs. 1,09,508 i.e., Rs. 32,852, The assessee claimed for deduction of past losses from the book profit of the relevant previous year that was based on Clause (iv) of the Explanation to Section 115J as per which the book profit was to be lessened by the amount of the loss or the amount of depreciation that 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 Subsection (1) of Section 205 of the Companies Act, 1956 (1 of 1956), are applicable. The Assessing Officer disallowed the benefit of set off of unabsorbed depreciation and reached the following findings :
"In the instant case, on going through the returns filed by the asses-see-company, it is found that there was no book loss in any of the earlier previous years and that the sum of Rs. 4,61,863 arose entirely from depreciation provided in the books. As there was no book loss in the earlier years, excluding depreciation, the deduction allowable under Clause (iv) of the Explanation below Section 115)(i) of the Income-tax Act, 1961, read with Section 205(1) of the Companies Act, 1956, works out to nil. The taxable profit under Section 115J of the Income-tax Act, 1961, accordingly works out to 30 per cent, of Rs. 5,71,347 i.e., Rs. 1,71,404.
The assessee was given an opportunity to explain the computation of book profit submitted along with the return vide this office letter dated December 17, 1990. The assessee submitted a written submission on December 27, 1990, in which it has been stated, inter alia, that Section 115J is to compute book profits and hence any adjustment on account of business, loss as per assessment record did not arise. It has also been stated that the sum of Rs. 4,61,833 was practically unabsorbed depreciation as per books and if the provisions of Section 205 of the Companies Act were applied this was to be deducted in arriving at the book profit of the next year.
The assessee's contention is not found to be tenable in view of the relevant provisions contained is Section 115J of the Income-tax Act, 1961, which have been discussed in detail above. The taxable profit under Section 115J of the Income-tax Act, 1961, is accordingly being taken at Rs. 1,71,404. Total income Rs. 1,71,404 or say Rs. 1,71,400. Finally penalty proceedings under Section 140A(3) initiated separately. Assessed under Section 143(3)/115J of the Income-tax Act, 1961, as above. . . ."
3. On appeal, the Commissioner of Income-tax (Appeals) (hereinafter referred to as the CIT(A) "for short"), held that the Assessing Officer fell into error in not allowing set off and in not adjusting unabsorbed depreciation of earlier years against the income of the assessee. The Commissioner of Income-tax (Appeals) held the adjusted book profit at Rs. 1,09,508 and not at Rs. 5,71,347 and awarded the relief of Rs. 4,61,839 from the book profit and ordered the Assessing Officer to work out the relief accordingly. The Commissioner of Income-tax (Appeals) also by the aforesaid order dated April 12, 1991, ordered the Assessing Officer to delete the interest under Sections 234B and 234C of the Act, since according to the Commissioner of Income-tax (Appeals) there was no provision for paying advance tax with reference to book profit as envisaged in Section 115) of the Act.
4. The Revenue preferred an appeal against the abovementioned order of the Commissioner of Income-tax (Appeals) before the Income-tax Appellate Tribunal. Relying upon a decision of the Andhra Pradesh High Court in V.V. Trails-Investments (P.) Ltd. v. CIT, [1994] 207 ITR 508, the Tribunal set aside the order of the Commissioner of Income-tax (Appeals) as regards of allowing adjustment in the book profit under Section 115J read with the first proviso, Clause (b) of Section 205(1) of the Companies Act, 1956, The Tribunal also accepted the appeal of the Revenue as regards the interest under Sections 234B and 234C of the Act relying upon the decision of the Special Bench of the Tribunal in the case of Sutlej Cotton Mills Ltd. v. Asst. CIT, [1993] 199 ITR (AT) (Cal) 164, 208. The Tribunal accordingly held that the assessee is liable to pay advance tax under the statute. The Tribunal accordingly allowed the appeal of the Revenue.
5. The assessee made an application before the Appellate Tribunal under Section 256(1) of the Act praying for a reference to the High Court the question of law raised therein. The Appellate Tribunal by its order dated August 25, 1997, drew up a statement of the case and referred the following two questions of law for the opinion of the High Court :
"1. Whether on the facts and under the circumstances of the case, Income-tax Appellate Tribunal was right in holding that interest under Sections 234B and 234C is chargeable even in a case where tax liability arises only by applicability of the provisions of Section 115J of the Income-tax Act, 1961, and except for such application the assessed income would have been a loss considering brought forward losses of earlier years ?
2. Whether, on the facts and under the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that 'loss' for the purpose of deduction to arrive at book profit as provided in Clause (iv) of Subsection (1A) of Section 115J shall mean loss as arrived at before charging of depreciation to be provided under Section 205 of the Companies Act, 1956 ?"
6. There is no serious dispute as to the answer to the second question at the Bar. Dr. Ashok Kumar Saraf, learned senior counsel referred to the decision of the Supreme Court in the batch of eight matters in Surana Steels Pvt. Ltd. v. Deputy CIT, [1999] 237 ITR 777. In the aforesaid case the Supreme Court interpreting the first proviso to Clause (b) of Section 205(1) of the Companies Act, held that it (headnote) "brings out the unabsorbed portion of the amount of depreciation already provided for computing the loss for the year. The words 'the amount provided for depreciation' and 'arrived at in both cases after providing for depreciation' make it abun-dantely clear that in this clause 'loss' refers to the amount of loss arrived at after taking into account the amount of depreciation provided in the profit and loss account. . ,' If 'loss' were to be taken as pre-depreciation loss, then the resultant computation will not be in conformity with the tenor of the provisions of Section 205. The language of Clause (b) of the proviso to Section 205(1) is clear. It applies to those cases, where the depreciation has been provided in accordance with the provisions of Sub-section (1) of Section 205. The depreciation is provided for in the profit and loss account. The loss is arrived at after taking into account the depreciation provided. It is, therefore, clear that the word 'loss' as used in proviso Clause (b) to Section 205(1) signifies the amount arrived at after taking into account the amount of depreciation and it has to be so read and understood in the context of Section 115J of the Income-tax Act, 1961". The decision in V.V. Trails-Investments (P.) Ltd. v. CIT, [1994] 207 ITR 508 (AP), is accordingly reversed by the Supreme Court.
7. Mr. Gopikrishna Joshi, learned senior counsel appearing on behalf of the Revenue, assisted by Mr. Ujjal Bhuyan, has fairly stated that in view of the above decision the matter is no longer res integra.
8. We accordingly answer question No. 2 in the negative and in favour of the assessee.
9. While addressing to question No. 1, Dr. Saraf, learned senior counsel appearing on behalf of the assessee, submitted that the liability for payment of tax was fastened on the assessee on the strength of a special provision in aid of a deeming provision, Referring to the provision of Section 115J of the Act, Dr. Saraf contended that the legal fiction as enjoined therein cannot be stretched to the levy of interest for default in payment of advance tax and deferment of advance tax. Learned counsel submitted that book profit is to be ascertained only on finalisation of the balance-sheet. The liability for payment of tax under Section 115J would emerge only on completion of the books of account and on the settlement of the book profits.
10. Mr. Joshi, learned senior counsel for the Revenue referring to the scheme of the statute contained in Chapter XVII-C submitted that the payment of advance tax was a statutory requirement. Learned senior counsel pointedly referred to Sections 4, 5, 207 and 215(5) of the Act. Mr. Joshi, learned senior counsel citing the provision of Section 115J submitted that Parliament in its wisdom created a legal fiction and in construing the legal fiction it would be appropriate and an imperative to assume all those facts on which alone the fiction would effectively work. In support of the contention, Mr. Joshi referred to the decision of the Supreme Court in Gannon Dunkerley and Co. v. State of Rajasthan, [1993] 88 STC 204 ; [1993] 1 SCC 365 (paragraph 35 and 36).
11. Section 207 of the Act envisions that tax shall be payable in advance, during any financial year on current income in accordance with the scheme provided in Sections 208 to 219 (both inclusive) in respect of the total income of the assessee that would be chargeable to tax for the assessment year immediately following that financial year. Section 215(5) of the Act spelled out what is the "assessed tax", i. e., the tax determined on the basis of the regular assessment so far as such tax relates to income subject to advance tax. The evaluation of the current income as well as the determination of the assessed income accordingly, are to be made in terms of the statutory scheme comprising Section 115J of the Act. Under the setting of the statute, the levy of interest is inescapable. The scheme of the statute as referred to above, unerringly points out that an assessee under the circumstances is to pay advance tax.
12. Section 115J is a special provision which provides that where in the case of an assessee company, the total income, as computed under the Act in respect of any previous year relevant to the assessment year is less than thirty per cent, of its book profit (as indicated in the Explanation), the total income of the company shall be deemed to be an amount equal to thirty per cent, of such book profit. The real object behind the introduction of the section is to tax a company. A minimal corporate tax is sought to be realised from the prosperous companies. When a legal fiction is created for an obvious purpose full effect of it is to be given--there is no half way house, In this regard it would be advantageous to rehearse the following passage from Lord Asquith in East End Dwellings Co. Ltd. v. Finsbury Borough Council, [1951] 2 All ER 587 (HL) "If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real, the consequences and incidents which if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. ... The statute says that you must imagine a certain state of affairs, it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs." While interpreting the deeming provision contained in Section 43 of the Indian Income-tax Act, 1922, the Privy Council hold that under the circumstances sot out therein an agent was also chargeable to income-tax as of an assessee. In CIT v. Bombay Trust Corporation, AIR 1930 PC 54, Viscount Dunedin in the aforesaid case observed (page 55): "Now when a person is 'deemed to be' something the only meaning possible is that whereas he is not in reality that something the Act of Parliament requires him to be treated as if he were." The Supreme Court also dealt in a similar manner indicated also for giving full effect to a legal fiction ref. State of Bombay v. Pandurang Vinayak, AIR 1953 SC 244 ; CIT v. S. Teja Singh, [1959] 35 ITR 408 (SC) ; Rajputna Trading Co. Ltd. v. CIT [1969] 72 ITR 286 (SC) ; A. S. Glittre D/5 I/S Garonne v. CIT, [1997] 225 ITR 739 (SC). There is also no statutory exception excluding the operation of Section 115J of the Act.
13. The result is that we answer the first question referred to us in the affirmative and in favour of the Revenue with regard to the second question our answer is in the negative and in favour of the assessee. In the circumstances, there shall, however, be no order for the costs of the reference.