Income Tax Appellate Tribunal - Madras
Fab Export (P.) Ltd. vs Assistant Commissioner Of Income-Tax on 25 July, 1995
Equivalent citations: [1996]56ITD132(MAD)
ORDER
S. Kannan, Accountant Member
1. This appeal by the assessee is directed against the order dated 28-9-1993 of the CIT (A)-V, Madras relating to the assessment year 1991-92.
2. For the said assessment year the assessee filed its return of income on 11-12-1991 declaring a total income of Rs. 2, 260. The said figure was arrived at obviously after taking into account the unabsorbed depreciation and the business loss carried forward from the earlier years.
On his part, the Assessing Officer adopted as the starting point net profit of Rs. 5, 61, 114 disclosed by the Profit & Loss Account of the assessee. After making some disallowances, he computed the income before set off of the unabsorbed depreciation and the loss carried forward from the previous years at Rs. 5, 98, 239. Thereafter he allowed the assessee the benefit of set off of (a) business loss of Rs. 1, 73, 458 relating to assessment year 1985-86, and (b) unabsorbed depreciation relating to the assessment years 1976-77, 1977-78, 1981-82, 1982-83, 1985-86 and 1986-87 aggregating Rs. 2, 29, 818. In other words, against the income of Rs. 5, 98, 239 referred to supra the Assessing Officer set off an aggregate sum of Rs. 4, 03, 276. In the process he determined the assessee's taxable income at Rs. 1, 94, 963. In the process again the Assessing Officer did not accept the contention of the assessee that the business loss brought forward from the assessment year 1985-86 should be taken at Rs. 3, 47, 262.
3. The said issue was one of the subject-matters of the appeal filed by the assessee before the CIT (A). The assessee's contention before that authority essentially was that the Assessing Officer was not justified in computing the set off of the previous years' business loss in the manner he had done. The said argument did not find favour with the CIT (A) who declined to interfere in the matter. According to him, the method adopted by the Assessing Officer was in consonance with the provisions of Section 115J(2) of the Act.
4. Shri T. N. Seetharaman, the learned counsel for the assessee, contended that by restricting the benefit of set off available to the assessee from out of the business loss relating to the assessment year 1985-86 to a sum of Rs. 1, 73, 458, the lower authorities have ignored the clear provisions of Section 115J(2) of the Act. According to him, the confusion has arisen because, in the assessment for the assessment year 1990-91, the provisions of Section 115J had been applied and a sum of Rs. 1, 73, 804 brought to tax.
5. Illustrating the point further, he placed before us a working sheet containing: (a) what according to the assessee is the proper method of computing the earlier years' business loss available for set off in the assessment year 1991-92, and (b) the working adopted by the Assessing Officer. The working sheet is reproduced below:
Assessee's working: Rs.
Profit for the assessment year 1990-91 5,86,974
Less: 115J profit taxed 1,73,804
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Balance being amount set off against earlier
years' unabsorbed business losses: 4,13,170
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1982-83 3,01,824
1985-86 1,11,346
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4,13,170
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Carried forward loss for assessment year 1985-86 4,58,608
Less: Set off in 1990-91 1,11,346
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3,47,262
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Assessing Officer's working:
Profit for the assessment year 1990-91 5,86,974
Amount set off against earlier unabsorbed
business losses: Rs.
1982-83 3,01,824
1985-86 2,85,150 5,86,974
------------ -----------
Nil
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Carried forward business loss of
assessment year 1985-86 (excluding 4,58,608
unabsorbed depreciation of
Rs. 55,514)
Less: Set off in 1990-91 2,85,150
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Balance available for set off in 1991-92 1,73,458
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6. According to the learned counsel, the assessee's working is in consonance with the provisions of Section 115J(2) of the Act. According to him, the scheme of Section 115J is that the assessee's total income must first be computed in the normal fashion and in accordance with the provisions of the Act. Thereafter, the 'book profit' of the assessee must be computed in accordance with the provisions of Section 115 J(1). Wherever, it is found that the total income as computed in accordance with the provisions of the Act (excluding of course those of Section 115J) is found to be less than 3096 of the 'book profit' as computed under Section 115J(1), then an amount equal to 30% of the book profit shall be deemed to be the total income of the assessee and will be brought to tax as such.
Section 115J(2) of the Act goes on to clarify that nothing in Section 115J(1) shall affect the determination of the amount in relation to the previous year to be carried forward to the subsequent year or years under the provisions of Section 32(2) or Section 32A(3) or Section 72(1)(ii) or Section 73 or Section 74 or Section 74A(3) or Section 80J(3).
7. According to Shri Seetharaman, a combined reading of the provisions of Sections 115J(1) and 115J(2) will clearly indicate that the application of the provisions of Section 115J(1) does not, in any way, affect the benefit of set off of earlier years' losses which is 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, he contended that when Section 115J(2) of the Act states that "nothing contained in Sub-section (1) shall affect the determination of... ", it means that "nothing contained in Sub-section (1) shall adversely affect the determination of... ". Secondly, properly viewed, the provisions of Section 115J(2) are analogous to those of Section 80VVA(4) as it stood prior to the omission of Section 80VVA by the Finance Act, 1987, w. e. f. 1-4-1988.
8. In view of the foregoing, therefore, contended Shri Seetharaman, the assessee is entitled to succeed on this issue.
9. On his part, Shri T. V. Unnikrishnan, the learned Departmental Representative, strongly supported the impugned orders of the lower authorities. He contended that if the assessee's claim is accepted, the provisions of Section 115J(1) will be nullified. According to him, the provisions of Section 80VVA(4) are not relevant. He, therefore, urged that the assessee's appeal on this issue should be dismissed without much ado.
10. We have looked into the facts of the case. We have considered the rival submissions.
11. In this case we are concerned with the assessment for the assessment year 1991-92 and in relation to the said assessment year the provisions of Section 115J are not applicable for the simple reason that the said provisions were applicable only in relation to the assessment years 1988-89, 1989-90 and 1990-91. Even so, the provisions of Section 115J falls to be considered in relation to the assessment year 1991-92 because of what we may call the cascading effect of that section.
12. Section 80VVA and its successor Section 115J were put on the statute book for the specific purpose of ensuring that what are popularly known as 'zero-tax' companies pay some tax. A company which would have otherwise paid tax becomes a zero-tax company by reason of the bounty of the Legislature in the form of investment allowance and the like. (Incidentally depreciation allowance cannot be called a bounty of the Legislature because under the principles of accountancy such an allowance is a proper charge to the Profit & Loss A/c. The reason why Parliament thought it fit to bring under the pale of Section 115J depreciation allowance also need not detain us here). In course of time the bounties multiplied and the Legislature found that even though companies made profits in a commercial sense, they did not make any contribution to the exchequer by reason only of the fact that the aggregate of the bounties exceeded the commercial profits. It was, therefore, that Parliament in its wisdom introduced first Section 80VVA and thereafter Section 115J. Properly viewed, the true effect of the said sections is to apply the guillotine to the quantum of the bounties available under the Act. It was, therefore, that Section 115J provided that every company must pay tax at least on 30% of its book profits. The rationale of applying the guillotine is understandable, because what Parliament can give, it can take away wholly or in part.
13. It should not be forgotten that the scheme of restricting the aggregate amount of the bounties available under the Act to a particular extent is essentially ad hoc in character. Parliament was aware of this and it was, therefore, that Parliament went on to incorporate suitable provisions under Sections 80VVA(4) and 115J(2). The rationale behind these provisions is that other benefits such as carry forward and set off of business losses, carry forward of unabsorbed investment allowance, carry forward of deficiency under Section 80J(3) and the like that are normally available to the assessee should not be interfered with.
14. Now, Section 115J starts with a non obstante clause. This is understandable because the intention of Parliament was that all the other provisions of the Act governing computation of 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% of its book profit, an amount equal to 30% 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 provisions of Section 115J(1) have been enacted.
15. We then have Section 115J(2) which again starts with a non obstante clause. Here again the non obstante clause 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 provisions of the Act which normally govern matters such as carry forward of business losses and the like are not to be interfered with.
16. Thus viewed - and we are satisfied that this is the proper perspective from which to view them - the provisions of Section 115J(2) are designed to keep in tact the assessee's rights in relation to carry forward and set off of business losses and the like.
17. The learned Departmental Representative's contention that if we accepted the assessee's interpretation of Section 115J(2), the provisions of Section 115J(1) would be nullified is without force. Even in relation to the three years to which it is applicable, Section 115 J(1) has a limited role and function, namely, to ensure that zero-tax companies pay tax on at least 30% of the book profit. Once tax is levied on 30% of the book profit, that section has achieved its purpose.
Section 115J(2), on the other hand, has a different role to play, namely, to protect the statutory rights of the assessees in relation to carry forward and set off of business losses, etc. The provisions of that section will have to be given effect to independently. Hence, the operation of Section 115J(2) in no way nullifies the provisions of Section 115J(1). We, therefore, dismiss the related arguments of the learned Departmental Representative.
18. In view of the foregoing, therefore, we hold that the assessee is entitled to succeed. We order accordingly. We direct the Assessing Officer to recompute the assessee's total income for the assessment year 1991-92 on the lines urged by the assessee.
19 to 21. [These paras are not reproduced here, as they involved minor issues.]