Karnataka Small Scale Industries ... vs Commissioner Of Income Tax, Bangalore on 3 December, 2002
The first stage referred to above envisages computation of income under the Act, that is, after taking into consideration all deductions allowable under the Act. It is only after the deductions are given effect to, and if the resultant income is less than 30 per cent, of the book profit, that the assessee's total income would be deemed to have a notional income fixed at 30 per cent, of its book profit. It may be that the assessees are not required to pay tax on the figure of the assessable income arrived at after deducting the amounts permissible under the Act. However, it cannot be said that therefore the deductions are not taken into account. If the deductions had not in fact been allowed then the assessee would not have had an assessable income less than 30 per cent, of its book profit, entitling it to pay tax only on 30 per cent, of its book profit. In deeming the total income to be 30 per cent of the book profit, the deductions claimed are not ignored as contended by the appellants but are a necessary ingredient of the formula for applying the fictional total income. The decisions cited in the context of the operation of statutory fictions are not apposite as there is no notional or fictional but actual deduction. Once the deductions are taken into consideration and the assessee is put into the category of those companies covered by Section 115J(1) only then is the assessee required to pay on a notional income of 30 per cent, of its book profits.